1QFY25 | August 2024
VOICES
VOICES
India Inc on Call
VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earnings calls attended by
our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also
provides links to relevant research updates, and transcripts links of the respective conference calls.
This quarterly report contains
Key takeaways from the post results management commentary for 230 companies, with links to the full earnings call
transcripts
Links to our Results Updates on each of the companies included
Research & Quant Team Gautam Duggad
(Gautam.Duggad@motilaloswal.com) |
Deven Mistry
(Deven@moitlaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
24 November 2015
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Contents
Summary
...........................................................................................................................................................
3
Sectors & Companies
.................................................................................................................................
9-327
Automobiles ............................................. 9-41
Amara Raja...................................................... 10
Apollo Tyres .................................................... 12
Ashok Leyland ................................................. 13
Bajaj Auto ..................................................... 14
Balkrishna Inds ................................................ 16
Bharat Forge ................................................... 16
Bosch .............................................................. 19
CEAT ................................................................ 20
CIE Automotive ............................................... 22
Craftsman Auto ............................................... 23
Eicher Motors ................................................. 25
Endurance Tech. ............................................. 26
Escorts Kubota ................................................ 28
Happy Forgings ............................................... 29
Hero Motocorp ............................................... 30
Mahindra & Mahindra .................................. 31
Maruti Suzuki .................................................. 33
Motherson Wiring ........................................... 34
Samvardhan Motherson ................................. 34
Sona BLW ........................................................ 36
Tata Motors .................................................. 37
Tube Invst ....................................................... 38
TVS Motor ....................................................... 39
Capital Goods.......................................... 42-48
ABB India......................................................... 43
Cummins ......................................................... 44
Kalpataru Proj ................................................. 44
Kirloskar Oil ..................................................... 45
KEC Intl............................................................ 46
Larsen & Toubro ............................................. 47
Thermax .......................................................... 48
Cement ................................................... 49-61
Ambuja Cement .............................................. 50
Birla Corp ........................................................ 52
Dalmia Bharat ................................................. 53
Grasim Industries ......................................... 54
JK Cements ...................................................... 56
JK Lakshmi Cem. .............................................. 57
Shree Cement ................................................. 58
Ramco Cement................................................ 59
Ultratech Cement............................................ 60
Chemicals-Speciality ............................... 62-69
Navin Fluorine ................................................. 64
PI Inds. ............................................................ 64
SRF .................................................................. 66
Tata Chemicals ................................................ 68
Consumer ............................................... 70-92
Asian Paints ................................................. 71
Britannia ......................................................... 72
Dabur .............................................................. 73
Emami ............................................................. 75
Godrej Consumer ............................................ 76
Hind. Unilever ................................................. 78
Indigo Paints ................................................... 79
Jyothy Labs ...................................................... 80
Marico ............................................................. 81
Page Industries................................................ 83
Pidilite Inds. .................................................... 85
Tata Consumer ................................................ 86
United Breweries ............................................ 88
United Spirits .................................................. 89
Varun Beverages ............................................. 90
Financials ............................................... 93-134
AU Small Finance ............................................ 94
Axis Bank ......................................................... 97
Bank of Baroda .............................................. 100
Bandhan Bank ............................................... 102
Canara Bank ............................................... 104
DCB Bank....................................................... 106
Equitas Small Fin Bank .................................. 108
Federal Bank ................................................. 110
HDFC Bank .................................................. 112
ICICI Bank ................................................... 114
IDFC First Bank .............................................. 116
Indian Bank ................................................... 118
IndusInd Bank ............................................... 120
Kotak Mahindra Bank.................................... 122
Punjab National Bank .................................... 124
RBL Bank ....................................................... 126
St.Bank of India .......................................... 128
SBI Cards ....................................................... 130
Union Bank.................................................... 132
NBFC .................................................... 135-180
360 One Wam ............................................... 136
AAVAS Financiers .......................................... 137
Aditya Birla Capital ........................................ 139
Angel One...................................................... 140
BSE ................................................................ 142
Bajaj Finance ................................................. 143
Can Fin Homes .............................................. 144
Chola. Inv & Fin. ............................................ 146
CAMS............................................................. 147
Creditacess Grameen .................................. 149
Five-Star Business.......................................... 151
Fusion Micro Finance .................................... 153
Home First Fin. .............................................. 155
Indostar Capital ............................................. 157
L&T Fin .......................................................... 158
LIC Housing Fin .............................................. 160
M & M Financial ............................................ 162
Manappuram Finance ................................... 164
MAS Financial ................................................ 166
MCX............................................................... 167
Muthoot Finance ........................................... 168
Piramal Enterprise ......................................... 169
PNB Housing.................................................. 171
Poonawalla Fincorp ....................................... 173
Repco Home Fin ............................................ 175
Shriram Fin. ................................................... 176
Spandana Sphoorty ....................................... 178
Insurance ............................................. 181-192
HDFC Life ....................................................... 182
ICICI Lombard ................................................ 183
ICICI Pru Life .................................................. 185
Life Insurance Corp........................................ 186
Max Financial Service .................................... 188
SBI Life........................................................... 189
Star Health .................................................... 190
Healthcare ........................................... 193-207
Ajanta Pharma............................................... 194
Alembic Pharma ............................................ 194
Alkem Lab...................................................... 195
Apollo Hospitals ............................................ 195
Aurobindo Pharma ........................................ 196
Biocon ........................................................... 197
Cipla ........................................................... 197
Divis Labs....................................................... 198
Dr Reddy’ s Labs
............................................ 199
ERIS Life ......................................................... 199
Gland Pharma................................................ 200
Global Health ................................................ 200
Granules India ............................................... 201
IPCA Labs ....................................................... 202
Laurus Labs.................................................... 203
Lupin ............................................................. 203
Mankind Pharma ........................................... 204
Max Healthcare ............................................. 204
Piramal Pharma ............................................. 205
Sun Pharma ................................................... 206
Torrent Pharma ............................................. 206
Zydus Life ...................................................... 206
Logistics ............................................... 208-216
Adani Ports .................................................... 210
Blue Dart Express .......................................... 210
Container Corp .............................................. 211
JSW Infra ....................................................... 212
Mahindra Logistics ........................................ 213
TCI Express .................................................... 214
Transport Corp .............................................. 215
VRL Logistics .................................................. 215
Media .................................................. 217-222
PVR Inox ........................................................ 217
Zee Entp ........................................................ 218
Metal ................................................... 220-228
Hindustan Zinc .............................................. 221
Hindalco Inds................................................. 222
Jindal Steel .................................................... 223
JSW Steel ....................................................... 223
SAIL ............................................................... 225
Tata Steel ...................................................... 226
Vedanta ......................................................... 227
Oil & Gas .............................................. 229-240
BPCL .............................................................. 230
Castrol India .................................................. 231
Gujarat Gas ................................................... 232
HPCL .............................................................. 233
Indraprastha Gas ........................................... 234
Oil India ......................................................... 235
ONGC ............................................................. 236
Petronet LNG ................................................. 237
Reliance Inds. ................................................ 238
Real Estate ...........................................241-247
DLF................................................................. 242
Godrej Properties .......................................... 243
Kolte Patil ...................................................... 243
Macrotech Developers .................................. 244
Mahindra Life ................................................ 244
Oberoi Realty ................................................. 244
Phoenix Mills ................................................. 245
Prestige Estate ............................................... 245
Raymond ....................................................... 246
Sobha............................................................. 247
Retail ...................................................248-268
Aditya Birla Fashion ....................................... 250
Barbeque Nation ........................................... 251
Bata India ...................................................... 252
Campus Activewear ....................................... 253
Devyani Intl.................................................... 255
Jubilant Foods................................................ 256
Kalyan Jewellers ............................................ 257
Metro Brands ................................................ 258
Restaurants Brand ......................................... 258
Sapphire Foods .............................................. 259
Shoppers Stop ............................................... 261
Titan .............................................................. 263
V-Mart ........................................................... 265
Vedant Fashions ............................................ 266
Westlife Foodworld ....................................... 267
Technology ..........................................269-281
Coforge .......................................................... 270
Cyient ............................................................ 271
HCL Technologies .......................................... 271
Infosys ......................................................... 272
LTI Mindtree .................................................. 274
L&T Technology ............................................. 275
Mphasis ........................................................ 276
Persistent Systems......................................... 277
TCS................................................................. 278
Tech Mahindra .............................................. 279
Wipro .......................................................... 280
Zensar Tech ................................................... 281
Telecom ...............................................282-285
Bharti Airtel ................................................... 282
Indus Towers ................................................. 283
Tata Comm .................................................... 284
Vodafone Idea ............................................... 284
Others..................................................286-327
Avalon Tech ................................................... 286
Cello World .................................................... 287
Coromandel International ............................. 288
Cyient DLM .................................................... 291
Data Patterns................................................. 292
Dreamfolks .................................................... 293
EPL ................................................................. 294
Godrej Agrovet .............................................. 295
GR Infra ......................................................... 297
Havells India .................................................. 297
Indian Hotels ................................................. 299
IndiaMart Intermesh ..................................... 301
Info Edge ....................................................... 302
Interglobe Aviation ........................................ 303
IRB Infra ......................................................... 304
Kajaria Ceramics ............................................ 305
Kaynes Tech ................................................... 306
KIE Inds .......................................................... 308
Lemon Tree ................................................... 309
MTAR Tech .................................................... 311
Polycab India ................................................. 313
Quess Corp .................................................... 314
RR Kabel ........................................................ 316
One 97 Comm................................................ 317
SIS .................................................................. 319
Syrma SGS Tech ............................................. 319
Team Lease.................................................... 321
Updater Services ........................................... 322
UPL ................................................................ 323
Zomato .......................................................... 326
Note:
All stock prices and indices are as on 21
st
August 2024, unless otherwise stated.
 Motilal Oswal Financial Services
1QFY25 | India Inc on Call
Voices | 1QFY25
Voices
BSE Sensex: 81,053
S&P CNX: 24,812
Domestic cyclicals ignite resilience; OMCs temper corporate earnings
In this report, we present the detailed takeaways from our 1QFY25 conference calls with
various company managements as we refine the essence of India Inc.’s ‘VOICES’.
OMCs temper corporate earnings:
The 1QFY25 corporate earnings came in line,
with overall growth primarily being propelled once again by domestic cyclicals.
Notable contributions were observed from the Healthcare, Real Estate, Capital
Goods, and Metals sectors. In contrast, earnings growth was adversely affected by
OMCs.
For
Banks,
1Q has been a seasonally slow quarter, and most of the banks have
reported slower deposit growth too in 1QFY25. We cut our growth estimates for
many of the banks amid slower deposit growth and a higher C/D ratio across
several banks and the system. Most of the banks have raised their deposit rates
in 1QFY25 amid rising competition in deposits. Banks are still increasingly relying
on the bulk TDs and CDs to fund their asset growth.
Within
NBFC/HFC,
various management teams highlighted the following: 1)
disbursements in the mortgage segment were hit by the RBI Fair Practices Code
circular in addition to 1Q being the seasonally weakest quarter; 2) asset quality
deteriorated across most product segments because of elections, heat waves,
higher attrition rates, and even the impact on customers’ earnings; 3) the MFI
segment, in particular, is experiencing lower collections and slippages into
forward buckets due to customer over-leveraging, 4) borrowing costs largely
peaked out and everyone is looking forward to repo rate cuts; and 5)
competitive intensity in gold loans, from both Banks and NBFCs, moderated.
Most of the management teams in the
Automobile
have noted that a normal
monsoon and the upcoming festival season are expected to boost auto volume
growth following a subdued first quarter. The 2W segment is anticipated to
outperform other segments. Most of the ancillary companies with overseas
exposure have reported a weak demand environment for autos, though there
are signs of improvement in the non-auto sector. Ancillaries that have outpaced
industry growth have largely done so through increased content and new order
wins. However, due to cost inflation, some companies expect a decline in gross
margins in the coming quarters.
In
Healthcare,
companies indicated sustained growth momentum in the chronic
category of therapies in the DF segment for the quarter. The weak seasonality
hit the off-take of products in acute therapies as per the management teams.
Interestingly, raw material costs are likely to sustain at lower levels over the
near-to-medium term and drive better gross margins for companies having
exposure to the branded domestic formulation segment.
The management teams of various
IT
companies continue to exercise caution
regarding the near-term demand outlook, as the demand from discretionary
projects remains unchanged compared to previous quarters; however, BFSI
clients in the US experienced a slight recovery in discretionary spending in 1Q.
Clients’ focus is now slightly shifting away from cost-takeout deals to “high-
priority” transformation deals in some pockets.
August 2024
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 Motilal Oswal Financial Services
Voices | 1QFY25
In the ferrous
Metals
space, management teams across companies pointed to:
1) stable to declining coking coal costs; and 2) the 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,
management teams 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, management teams guided the CoP to decline, leading to
margin accretion in FY25.
Consumer
companies have experienced a sequential improvement in demand,
with signs of revival in the rural market due to price cuts and enhanced
consumer offerings. However, harsh summer conditions and election-related
restrictions have impacted consumption in categories such as home insecticides,
beverages, alcoholic beverages, and paints. Management anticipates
implementing price increases in the 2HFY25 to offset rising raw material costs
and drive revenue growth.
Autos
Management teams have noted that a normal monsoon and the upcoming
festival season are expected to boost auto volume growth following a subdued
first quarter. The 2W segment is anticipated to outperform other segments.
Most of the ancillary companies with overseas exposure have reported a weak
demand environment for autos, though there are signs of improvement in the
non-auto sector. Ancillaries that have outpaced industry growth have largely
done so through increased content and new order wins. However, due to cost
inflation, some companies expect a decline in gross margins in the
coming quarters.
Capital Goods
Companies continue to witness strong traction from sectors such as power T&D,
renewable energy, data centers, real estate, and defense. International
geographies are a mixed bag with robust traction in the Middle East and Africa
being offset by muted conditions in developed countries, owing to geopolitical
tensions, elevated interest rates, and a subdued macroeconomic scenario. Margin
performance for EPC players is expected to see an uptick from 2HFY25 as newer
orders booked at favorable prices come up for execution and input costs remain
benign. Order inflow too is expected to ramp up with the elections and budget
behind us. The domestic enquiry pipeline is shaping up well and is expected to
translate into firm orders. Availability of labor is a key monitorable going forward,
as EPC players reported lower-than-expected domestic execution owing to the
shortage of skilled and semi-skilled labor.
Cement
Several cement companies are witnessing consolidation, which will intensify the
industry, and this should benefit in the longer term. Cement demand is
expected to improve in 2HFY25, backed by infrastructure and housing segments.
Cement demand is estimated to grow between 6-7% YoY in FY25, considering
muted growth in 1HFY25. Cement prices have further declined ~1-2%
in Jul’24
vs. avg. of 1QFY25 and are likely to remain soft till CY24-end.
August 2024
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 Motilal Oswal Financial Services
Voices | 1QFY25
Chemicals Specialty
Various management teams mentioned that while destocking is over for most of
the companies, pricing pressure persists in the sector. Companies highlighted
that they expect 2HFY25 to be better than 1HFY25. They also emphasized that
the lead time has increased, which is taking longer than expected for the FG to
be delivered to customers and RM to reach the plants of the companies as well.
This has been creating some pressure on the margin as RM prices, freight, and
container rates have also increased.
Consumer
The consumer companies have experienced a sequential improvement in
demand, with signs of recovery in the rural market due to price cuts and
enhanced consumer offerings. However, harsh summer conditions and election-
related restrictions have hurt consumption in categories such as home
insecticides, beverages, alcoholic beverages, and paints. Management
anticipates implementing price increases in the 2HFY25 to offset rising raw
material costs and drive revenue growth. The outlook for rural markets remains
positive. EBITDA margins are expected to improve at a moderate pace over the
medium term, supported by operating leverage, a better product mix, and
growth in the premium portfolio.
Financials
Banks
The first quarter has seen a seasonally slow quarter, and most of the banks have
reported slower deposit growth too in 1QFY25. We cut our growth estimates for
several banks amid slower deposit growth and a higher C/D ratio across many
banks and the system. Most of the banks have raised their deposit rate in 1Q,
amid rising competition in deposits. Banks are still increasingly relying on the
bulk TDs and CDs to fund their asset growth. The decline in industry-wide CASA
mix led to higher funding costs. With rising costs, NIMs are likely to witness a
mild moderation, albeit at a slower rate.
PSU Banks have continued to report steady earnings led by improving asset
quality. Opex growth normalized after elevated wage/pension provisions, which
lasted until 4QFY24. The SMA pool continues to remain lower, while slippages
from the restructured pool continue to remain lower. With healthy PCR and
healthy contingency buffers, credit costs are expected to be lower, supporting
earnings. Most of the banks have guided for lower credit costs amid healthy
recoveries and contained slippages. While caution prevails on the potential
increase in delinquencies for unsecured loans, it is anticipated that credit costs
will remain under control in the coming quarters.
NBFC
Within
NBFC/HFC,
various management teams highlighted the following: 1)
disbursements in the mortgage segment were hit by the RBI Fair Practices Code
circular in addition to 1Q being the seasonally weakest quarter; 2) asset quality
deteriorated across most product segments because of elections, heat waves,
higher attrition rates, and even the impact on customers’ earnings; 3) the MFI
segment, in particular, is experiencing lower collections and slippages into
forward buckets due to customer over-leveraging, 4) borrowing costs largely
peaked out and everyone is looking forward to repo rate cuts; and 5)
August 2024
5
 Motilal Oswal Financial Services
Voices | 1QFY25
competitive intensity in gold loans, from both Banks and NBFCs, moderated.
Difficulty in getting unsecured credit (either personal loans or MFI loans) could
result in higher demand for gold loans.
Capital Markets
The capital market was volatile in 1QFY25, with F&O and cash volumes reaching
new highs; about 15.5m (as of
Jul’24) demat accounts
were added, and NSE
active clients rose
to 45.7m (Jul’24). Angel One saw strong revenue growth
(+76% YoY), but operating margins were pressured by investments in customer
acquisition, IPL advertisement costs, and new business expansion.
Insurance
The general insurance players have seen decent growth in premiums driven by
the strength of auto sales, sustained high demand for health insurance, and
commercial lines growing in line with economic growth. Motor segment
profitability improved, but health segment loss ratios remained elevated. Star
Health's increased claims ratio pushed the combined ratio up by ~350bp above
estimates. ICICIGI and STARHEAL saw a 16% YoY NEP growth each, with PAT up
49%/11%, respectively. Life insurers (excluding Max) reported healthy premium
growth led by ULIPs. However, adverse product mix led to pressure on VNB
margins. IPRU/SBILIFE/HDFCLIFE reported APE growth of 34%/20%/23% YoY,
with VNB margins contracting 590bp/200bp/120bp YoY.
Healthcare
In
Healthcare,
companies indicated sustained growth momentum in the chronic
category of therapies in the DF segment for the quarter. The weak seasonality
hit the off-take of products in acute therapies as per the management teams.
Interestingly, raw material costs are likely to sustain at lower levels over the
near-to-medium term and drive better gross margins for companies having
exposure to the branded domestic formulation segment. For the US generics
space, management indicated that while price erosion is limited on the base
portfolio, the cost of logistics/supply chain has increased due to geopolitical
turmoil. The filings are inclined towards complex products, and thus, there is a
reduction in the overall pace of filings according to the management teams. On
the hospital front, companies are implementing efforts towards adding beds
and treating more number of in-patients as well as out-patients. Management
indicated about some more scope of improving ARPOB based on the case
mix/payor mix. Some companies indicated that they have scaled-up efforts
towards increasing international patient flow considering the locational
advantage and availability of strong clinical talent. Overall, the pharma space
continues to witness tailwinds led by niche pipelines in the US and EU. Hospitals
remain poised to benefit from the considerable demand-supply gap by not only
adding infrastructure but also nurturing the doctor-nurse resources.
Logistics
In the logistics sector, demand activity was subdued primarily due to general
elections, high inflation impacting MSME customers, and e-commerce volumes
during 1QFY25. E-commerce and express logistics companies continued to
report sluggish growth during 1Q due to high competitive pressure. Multi-modal
logistic companies performed better than pure-play freight operators and
express logistics players. Management anticipates improved operational
August 2024
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 Motilal Oswal Financial Services
Voices | 1QFY25
performance with the onset of festive season, particularly with reduced fuel
charges and stable operating costs. 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 towards the
organized sector.
Metals
In the ferrous
Metals
space, management teams across companies pointed to:
1) stable to declining coking coal costs; and 2) the 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,
management teams 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, management teams guided the CoP to decline, leading to
margin accretion in FY25.
Oil & Gas
Major OMC company’s expansion projects are set to wrap up in the next two
years, setting the stage for substantial growth. CGDs are optimistic about robust
volume growth and margins, given that spot LNG prices are anticipated to stay
stable. ONGC and OINL also forecast strong production growth due to KG-98 and
NRL, respectively. Additionally, gas utility entities are anticipating continued
strong transmission volumes.
Real Estate
The companies have identified a pipeline that can support their ambition of 20-
30% growth in FY25, notwithstanding their high base. Companies exuded
confidence in demand sustainability for a couple of years, and timely launches
remain top priority given the minimal inventory level of most of the developers.
Retail
Retail:
Continued demand slowdown fueled by heatwaves, election headwinds
has impacted footfalls/productivity in 1QFY25, and hence revenue remained
subdued (largely negative to single-digit positive). Exceptions were Trent/V-
Mart/DMart. Sector-wide management commentary indicated recovery from
2HFY25.
QSR:
The Quick Service Restaurant (QSR) industry continues to face demand
challenges, grappling with weak unit economics and intense market
competition. There has been some improvement in the delivery channel, driven
by increased traffic, while dine-in demand is still weak. We remain cautious
about the anticipated demand recovery in the 2HFY25. Margins have also been
negatively affected. Despite these challenges, management is maintaining its
guidance for store expansion in FY25.
August 2024
7
 Motilal Oswal Financial Services
Voices | 1QFY25
Technology
The management teams of various
IT
companies continue to exercise caution
regarding the near-term demand outlook, as the demand from discretionary
projects remains unchanged compared to previous quarters; however, BFSI
clients in the US experienced a slight recovery in discretionary spending in 1Q.
Clients’ focus is now slightly shifting away from cost-takeout deals to “high-
priority” transformation deals in some pockets.
Moreover, revenue growth,
utilization, and pyramid optimization will be key drivers for margin
improvement, providing some room for margin gains in FY25. The management
teams suggest that FY25 should be better than FY24. The strong deal wins, along
with early signs of recovery driven by BFSI, bode well for growth in FY25.
Telecom
The Indian telecom sector registered revenue/EBITDA growth of 1.5%/1.8% QoQ
in 1QFY25, led by a 0.7% increase in subscribers (7.7m net adds QoQ). ARPU was
flat. The market share shift continues, with RJio/BHARTI gaining subscribers.
Management indicated that from 2QFY25 onwards, the tariff hike (of 15-20%)
should translate into the revenue increase (by 11%-13% in the next 2-3
quarters). Companies remain focused on deleveraging their balance sheets.
Capex is expected to moderate in FY25
for BHARTI/RJio, while VIL’s capex is
likely to remain around INR500-550b over the three years to support network
upgrade.
August 2024
8
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Key takeaways from management commentary
AUTOMOBILES
Management teams have noted that a normal monsoon and the upcoming festival season are expected to
boost auto volume growth following a subdued first quarter. The 2W segment is anticipated to outperform
other segments. Most of the ancillary companies with overseas exposure have reported a weak demand
environment for autos, though there are signs of improvement in the non-auto sector. Ancillaries that have
outpaced industry growth have largely done so through increased content and new order wins. However, due
to cost inflation, some companies expect a decline in gross margins in the coming quarters.
Demand outlook
KEY HIGHLIGHTS FROM CONFERENCE CALL
Other key takeaways from the call
New product launches:
AL plans to launch four new
LCV products in the next few quarters. A new product
in the sub-2 ton segment is a medium term plan. AL
plans to focus on the ICV bus segment, where it has a
market share of less than 20%.
EVs:
The order book for Switch buses is 560/300/100
for Delhi/ Bengaluru/UP for FY25. There is another
order of 400 buses for Delhi.
Freedom 125:
It has received bookings for 4,200 units,
with 90% from Maharashtra and Gujarat initially. It is
expanding into Kerala and Delhi in two quarters.
Expect cost inflation in the coming quarters:
BJAUT
anticipates 50-70bp cost inflation in the coming
quarters. It has increased prices at the beginning of the
quarter, covering half of the estimated cost increase.
FY25 outlook:
Stable macro, normal monsoons, and
budget focus on infrastructure would drive growth in FY25.
Management remained upbeat on MHCV demand recovery
in FY25.
Age of fleet of CVs in the market:
Fleet age is at its peak
currently at 10-11 years (vs. avg-7-8 years). It is expected
to unlock replacement demand in the next 2-3 years.
Exports 2W:
Small but steady recovery visible. BJAUT
expects 2Q to be better than 1Q. Production in its newly
established plant in Brazil started in Jun’24, with a single-
shift capacity of 20k units per annum, scalable to 50k units
per annum.
Domestic 2W:
It anticipates 6-8% YoY volume growth for
the industry in FY25, with the 125CC and above category
outperforming. EVs, including 2W and 3Ws, contributed
14% of the domestic revenue.
Domestic-
EIM is currently seeing improving conversion
rates. Hence, management is hopeful that demand for
middle weight motorcycles and especially for RE will pick
up in
Exports for RE grew in 1Q after many quarters.
EIM is
witnessing some green shoots in its key export regions.
Domestic demand outlook:
It is seeing a good recovery in
both the entry and 125cc segments for the last couple of
quarters. Rural growth is also ahead of urban growth for
HMCL. The management has indicated its retail market
share was ahead of wholesale market share in 2Ws in 1Q.
Ashok Leyland
Bajaj Auto
Eicher Motors
Hero MotoCorp
M&M
Maruti
Auto:
The management has reiterated its FY25 volume
growth guidance of mid- to high-teens YoY for its UV
segment. Despite tepid demand, new launches should help
MM outperform.
Tractors:
MM has reiterated its growth guidance of ~5%
for FY25. Given positive trade terms, a good monsoon
outlook, increased government spending in rural areas,
and Navratra in 2HFY25, there could be an upside risk to
the current guidance. MM has reduced its tractor
inventory QoQ.
Demand outlook:
1Q volumes were affected by heatwaves
and elections. However, the management has maintained
its volume growth guidance for the industry for FY25 at
about 4%, led by an expected pickup in demand amid good
rainfall across India so far.
Export growth
was driven by good demand from
geographies like Africa, the Middle East, and Latin America.
Management targets to focus on promotional activities
to help revive demand.
At VECV,
while near-term demand remains weak,
management expects the CV demand to revive in 2H
given the
government’s
infra push and driven by steady
replacement demand.
Performance in the entry-level and 125cc segments:
HMCL has improved its market share in the 125cc
segment. It has increased capacity of Xtreme 125cc to
25k per month and expects to increase to 40k per
month in the next couple of months.
Margins:
HMCL saw modest raw material inflation of
INR340 per unit in 1Q. Input costs are likely to remain
range-bound in the near term, as per management.
While the order book has decreased, the pace of new
bookings and the upcoming new launch of 5-door Thar
should give MM confidence of achieving its FY25
volume growth guidance in UVs.
XUV700:
MM aims to make the brand more accessible,
and hence the price reduction was a structural, long-
term decision.
Margins:
MSIL was able to post a 30bp QoQ margin
improvement in 1Q, which was driven by the reversal
of one-off costs in 4Q (+60bp benefits), lower input
costs (+30bp), favorable currency (Yen depreciated vs.
USD), and higher other operating income.
August 2024
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Tata Motors
TVS Motor Co.
Tube
Investments
BHFC
BIL
JLR demand outlook-
Some of the markets, such as the EU
and China, are under pressure. North America is improving,
and demand in the UK is recovering. The current order
book stands at ~104k units vs. ~133k units in 4QFY24 and
150k units in 3QFY24.
CVs:
While CV demand until Jul’24 had been weak, it is
expected to bounce back in 2HFY25 as structural demand
drivers remain intact.
We expect TTMT’s India CV business
to see a 4% CAGR (FY24-26E).
Domestic:
With normal monsoon expected for this fiscal,
TVS expects rural recovery to drive sustained momentum
for the industry in the coming quarters. Management
expects the 2W industry to post 10%+ growth for FY25E.
Exports:
Challenges in the Red Sea that were affecting the
transit times. While African markets face currency
devaluation, LATAM and the Middle East offer significant
opportunities for TVS. Despite some challenges in
Bangladesh, management expects stabilization soon.
TI standalone:
The company is aiming for double-digit
growth in the core business. Growth will be driven by three
factors: 1) improving construction and non-auto segments,
2) demand in EVs for lighter components where it has
expertise, and 3) export opportunities where it can
leverage its strong market presence in metal forms and
tubes globally.
CVs:
Management does not expect any major pickup in 2Q
but expects a good revival in 2H for domestic CVs, based
on discussion with OEMs. For FY25, the management
expects CV exports to remain stable with a moderately
negative bias.
Non-auto exports:
While aerospace has remained muted
in 1Q so far, the management expects this business to post
15-20% growth in FY25 and then strong double-digit
growth from FY26E onward as the company starts
executing orders (segment revenue stood at INR2.5b in
FY24).
Demand outlook:
Despite a 24% YoY volume growth
posted in 1QFY25, BIL has guided for minor volume growth
YoY in FY25 as it expects demand headwinds in its key
markets in Europe, North America, and the Middle East in
the coming quarters.
Margin guidance:
While 1QFY25 margins stood at 26%,
management has indicated that they would strive to
maintain margin at FY24 levels of 25% in FY25, given the
rising cost pressure highlighted above.
EBIT margin guidance maintained:
VME and FME
(variable and fixed market expenses) are likely to
increase as the company plans to invest in demand
generation. Overall, it has maintained stable margin
guidance for FY25E and retains its FY26E EBIT margin
guidance of 10%.
Norton:
It is going to launch six new products over the
next three years, with the first launch likely by FY26
end. The new range of motorcycles will be more
affordable than the earlier line-up. TVSL has so far
invested INR12b in Norton.
Capex and investments:
Management guided a capex
of INR10-11b for FY25, with similar guidance for
investments.
EVs:
The company wants to be among the top-2 players
in all businesses and aspires for 20-25% market share in
each of the segments.
Defense business:
Management indicated that India
needs 4k guns of different platforms. Given the war
going on in different regions globally, there is huge
demand for replacement of various guns over a period
of time.
Freight costs:
This was already negotiated for 1Q. The
freight cost is expected to increase to 8-9% of revenue
in 2Q, largely due to the Red Sea crisis. It was 6.4% in
1QFY25.
Raw material costs:
BIL expects a 2-3% increase in 2Q.
The company has not taken any price hike as market
demand is weak.
Amara Raja Energy
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1QFY25 performance: Adjusted for li-ion revenue in 1QFY24 (as li-ion revenue
was part of standalone in the base quarter before the demerger), 1QFY25
revenue growth was ~15% YoY for lead business. This was driven by growth in
both domestic and export auto segment.
Domestic volume growth YoY across segments:
i) 4W: Aftermarket 11%, OE 6-
7%; ii) 2Ws: Aftermarket: 18-19%, OE: ~25%; iii) Inverter batteries- 15% YoY.
Inverter batteries were traded and traded revenue was higher at around 23%
during the quarter vs. ~12% in 4QFY24; however, this would not cross ~15% in
FY25E.
International 4W volumes grew 45% YoY, led by new accounts in North America.
Industrial declined 5%, led by a ~20% YoY drop in telecom segment, partially
because of a high base and impacted by the transition toward lithium ion
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batteries. UPS and other segments reported growth YoY. The non-telecom part
of the UPS business has been consistently growing at 7-8% and that trend will
continue. Telecom revenue will depend on the capex plan for telecom
companies in coming years.
It reported ~20% YoY growth in revenue from new energy business,
predominantly mobility and energy storage.
Replacement-
The company expects steady growth in replacement segment to
continue, with 4Ws expected to continue to grow at 8-9% at industry level and
2Ws at 12-13%. It is confident of outperforming industry growth in both
segments.
Exports:
ARENM aims to clock a 15% CAGR over the next 2-3 years. It is seeing
good traction in Northern American and European markets. Other markets such
as the Middle East, APAC and Africa are also doing well. ARENM now supplies to
55 to 60 countries.
Segmental Market share:
Aftermarket- 2W: ~40% and 4W: ~36%.
OEMs- It is about 25% in 2Ws and 35% in 4Ws.
Home Inverters- It only uses traded batteries and market share would be 15%.
Industrial UPS- Market share stands at 40-45%. Telecom- market share of 60%,
including supplies of both lead and li-ion batteries.
Capex- It is commercializing tubular battery plant toward FY25 end
The company has guided for INR8b capex for LAB, with INR4.5b for a new
tubular battery plant and the rest for maintenance capex.
ARENM has a battery capacity of 21m/year for 4Ws and 32m/year for 2Ws. The
current capacity utilization is 85-90%. It will continue to focus on optimum
capacity utilization of existing LAB facilities. It has already achieved 5-6%
capacity addition in these plants through productivity improvement.
New energy capex-
The pack facility in Telangana giga corridor has been
completed and the commercial production is expected to start in 10 days from
now. Construction is going on for the customer qualification plant and 2GWH
NMC line. The commercial production should start by FY26 end or 1QFY27.
Capex of INR20b will be required for these projects.
LFP-
The plans are getting laid out and there will be an initial capacity of 4-
5GWH, which will be scaled up based on demand. INR20-25b capex will be
required for this. Commercial production to start in CY27.
Lithium ion cell pricing trends:
Lithium cell prices have fallen to ~USD65-70 /
kwh due to excess supply available. Prices are unlikely to be sustainable at the
current levels even for Chinese companies, as per the management.
Circular solutions:
80% of lead requirement will be met through recycled
sources. It will launch a 100k-ton lead recycling facility in the first phase.
Refining operations will start in Sep-Oct’24,
and it will use that
lead internally.
Battery breaking operations will begin about four to five months after refining
starts. This initiative will enhance recovery rates and improve raw material
security. Ultimately, the facility should meet about 30% of its needs internally.
There should not be much more investments needed beyond this, except for
working capital.
Debt:
ARENM is currently debt free but may need short-term debt this year for
an estimated capex of INR10-15b for lead acid and new energy projects. It is also
planning long-term financing and will give details once it finalizes the approach.
August 2024
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Others-
PLI-
The company is technically qualified and it has applied for the same recently
but there is no official announcement yet.
New energy business-
Margin was just 5% in 1QFY25 vs. 13% QoQ. The margins
will depend on mix and volume between packs and chargers. At contribution
level, margins would be 7-8% for the pack manufacturing and 13-15% for
charger manufacturing.
InoBat-
The company invested EUR10m two years ago and EUR20m in 1Q, as it
is working on certain high-power NMC cells and has a tie-up with Gotion for
some of their requirements as well.
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Demand outlook- Both OE and exports are likely to improve in 2HFY25.
Replacement demand to remain positive.
1QFY25 performance-
In 1QFY25, TBR and PCR volumes grew double digit YoY. However, weak OE
impacted overall volumes. Volumes in truck OE declined in double digits YoY,
while in PCR it was marginally negative. The demand for T&B OE segment is
expected to recover towards 2HFY25.
Replacement- Expects high single digit YoY growth for FY25E.
Exports- Freight rate disruptions and geopolitical challenges dented growth, but
still doing better than the last year (saw 20% growth YoY).
RM cost pressure impacted margins in 1QFY25. RM basket gone up by 5% QoQ
in 1QFY25. RM costs for the commodities in 1QFY25: NR INR180/kg, SR 180/kg,
CB- 120/kg
Capacity utilization in India and Europe stood at 82% and 78%.
RM costs to go up by mid-single digit in 2Q sequentially. Near term, RM pressure
has taken 1% price hike in 2Q as of now. In 1QFY25, it has already taken 2%/1%
price hike in PCR/TBR, which is over and above EPR related price hike of 0.7% in
replacement.
The company indicated that it will need 2-3 price hikes to offset the cost
increase so far and needs to take about 5% price hike to fully pass on the cost
pressure (so far taken 1% in Jul’24).
The India business performance has been sub-par relative to peers, both in
terms of revenue growth and profitability, and management has clearly
indicated that it is unhappy with the same. APTY is cognizant of this and would
focus hard on getting its performance back on track in the coming quarter.
Europe- Expect mid-to-high single-digit YoY growth for FY25. 1Q margin was
better than last year, despite just 1% YoY growth, fuelled by better product mix
(UUHP volumes grew 20% YoY). The competition has not taken any price hike in
Europe. RM pressure is relatively less in Europe business as the proportion of NR
in tyres is relatively small than that for India.
Consol-
and it now stands at INR22.5b. Net debt/EBITDA stood at 0.6x.
Net debt declined to INR19b for standalone business from INR22b in 4QFY24.
Standalone net debt to EBITDA reduced to 0.7x.
August 2024
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Others-
Market share stood at 28-29% in TBR replacement in India and at 20% in PCR
replacement for FY24
Started supplies to a German luxury passenger car OEM in India.
Other expenses- INR270m EPR provision taken in current quarter.
Utilization in PCR is in mid-80s and ~70% in T&B.
Reifen- Revenue was EUR50m and margin of 4%.
Ashok Leyland
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Outlook for FY25: Despite headwinds, the MHCV industry saw 10% growth in 1Q
and is seeing a good momentum in 2Q. Stable macro, normal monsoons and
budget focus on infrastructure should drive growth in FY25. The management
indicated that some of the subdued export markets in FY24 are now showing
signs of recovery. It is not seeing any major impact of DFC on truck demand.
Management remained upbeat on MHCV demand recovery in FY25.
1Q performance: MHCV industry grew by 10% YoY in 1Q, with AL growing 8%
YoY. Bus segment grew 50% YoY for AL. MHCV goods carrier growth was muted
(-3% YoY) mainly due to weakness in tipper segment due to elections (green
shoots visible now). Cargo segment is also expected to revive from Q2 onwards.
Tractor-trailer and ICV grew well. There was a decline in the multi-axle trailer
segment, where demand has seen a shift to the tractor-trailer segment. LCV
industry remained flat YoY, but AL saw growth, indicating market share gains.
Overall CV exports grew 5% YoY. Other expenses were high due to one-time
expenses for the battery pack software development costs for truck division.
Age of CV fleet in the market: Fleet age is at its peak currently at 10-11 years (vs
avg 7-8 years). It is expected to unlock replacement demand in the next 2-3
years. Higher prices of CVs in the last 3-4 years have led to a slowdown in
demand from fleet owners, with other parameters remaining constant.
Presently there are 3.7m MHCVs on the road, of which 1m were sold in the last
4 years (~27% of fleet). MHCVs sold between FY17-20 constitute another 27% of
fleet, while the remaining are older.
AL’s market shares in MHCV stood at 30.7% in
1Q. The management reiterated
that it would not be discounting to gain market share.
New product launches: There would be four new LCV product launches in the
next few quarters. A product in the sub-2-ton segment is a medium term plan.
The focus would be on the ICV bus side, where it has a market share of less than
20%.
EVs: Newly launched e-LCVs have seen a good response and initial customers
are from the B2B segment. Charging infrastructure is presently poor across
states. If CVs are included in FAME-3, it would provide a good thrust for the
industry. LCV products are meeting the PLI requirements and the company is in
the process of acquiring PLI certificate for the same.
Ohm is managing bus operations in Bengaluru, Bihar and Chandigarh.
Order book for Switch e-buses is 560/300/100 for Delhi/Bengaluru/UP for
FY25. There is another order of 400 buses for Delhi. It is also participating in
various other tenders.
It is also setting up a center of excellence in three areas: battery packs and
modules, electric drive unit and software-defined vehicles.
13
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 Motilal Oswal Financial Services
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Defence and spares: Defence vertical sold 1,000+ vehicles in 1Q (vs. 250 vehicles
last year). Revenues grew 3x. The order pipeline also remains strong. It is
planning to double the revenues in next 2-2.5 years. Spare parts revenues rose
12-12.5% YoY.
Hinduja Leyland Finance (HLF): The reverse merger with NXT Digital would be
completed by FY25 end. Total AUM of HLF is INR400b and Hinduja Housing’s
AUM is INR115b. It clocked revenue of INR13.8b and PAT of INR1.3b in 1QFY25.
HLF portfolio is well diversified across 2W/3W/OH/low-ticket properties, with
CV share of less than 25%.
Others:
Engines: No significant investments or tie-ups are required for tractor-trailer
engines of >250hp. Its present engine power capacity can be extended beyond
250hp.
Mandatory AC requirements in truck cabins would not see a major price
increase. Presently 20% of trucks have AC in their cabins.
Bajaj Auto
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Export 2W:
Small but steady recovery visible. BJAUT expects 2Q to be better
than 1Q and anticipates ongoing growth. Africa continues to underperform,
especially Nigeria as devaluation-led inflation has significantly affected demand.
However, currency stabilization has been noted in recent weeks.
1QFY25 volumes were down 40% YoY in Africa, up 20% in the Middle East and
North America, up 70% in Asia (led by the Philippines and Nepal), and 26% in
LatAm. Nigeria's motorcycle sales dropped from 50k units per month to 5k in
Apr’24 but are recovering to 15k
units per month. Exports of Qute to Egypt
began in 1Q with a shipment of 500 vehicles, opening a new segment.
Brazil: Production started in a new plant in Jun’24, with a single-shift
capacity of
20k units per annum, scalable to 50k units per annum. Brazil is expected to
become one of its top three largest markets.
Domestic 2Ws:
It anticipates 6-8% YoY volume growth for the industry in FY25,
with the 125CC and above category outperforming.
The Pulsar NS400Z has been well-received, with around 2,400 bookings as of
now and 1,000 units already delivered. The newly launched Pulsar, along with
the N and NS series, now make up 70% of its portfolio.
EVs, including 2W and 3Ws, contributed 14% of the domestic revenue.
Freedom 125:
The addressable market is 450-500k customers per month, with
BJAUT targeting mileage-conscious customers. It has received bookings for
4,200 units, with 90% from Maharashtra and Gujarat initially. It is expanding
into Kerala and Delhi in two quarters. Initial production capacity is set at 10k
units per month for the second quarter, with plans to ramp it up to 40k units per
month by the fourth quarter.
3Ws:
BJAUT reported a 78% market share in 1QFY25 and 26% in e-Auto (up
from 9% in 4QFY24). It sold 30-33k 3Ws in the latest month, including 3k electric
3Ws. In e-3Ws, the company now has a presence in 140 towns, covering 70% of
the e-auto market, and is now even observing a shift of customers from e-
rickshaws to e-autos. E-3W business is nearly as profitable as ICE at the margin
level after considering the PLI benefits.
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Chetak:
It has secured third position and is now aiming for No. 2. The increase in
market share is due to: i) the launch of a model priced under INR100k, and ii)
network expansion, with 500 stores expected by the end of
Jul’24 (up from 250
in Jun’24) and further growth to 1,000 stores by Sep’24. The ramp-up
of Chetak
is not diluting margins for the EV business and is a function of its cost reduction
initiatives.
Triumph-
It has three main initiatives: i) Expanding the domestic network to 250
stores by 1H from the current 100, ii) Developing the brand, and iii) Supporting
Triumph UK in expanding its overseas business. It sold 60k bikes in over 57
countries last year, bringing in INR12b for BJAUT.
In India, it is selling around 2,000 units per month. The number of stores has
significantly expanded from 42 to 100 in recent months. In new markets like
Dehradun and Coimbatore, the challenge is building awareness for the brand,
which it plans do in the next 3-6 months.
Expect cost inflation in the coming quarters:
BJAUT anticipates 50-70bp cost
inflation in the coming quarter. It has taken a price hike at the beginning of the
quarter, covering half of the estimated cost increase.
In 1Q, aluminum, copper, and noble metals like rhodium and platinum saw price
increases, while rubber also went up. However, steel, nickel, lead, and palladium
provided some cost relief. Price increase in ICE was compensated by price
reduction in EVs.
Bajaj Auto Credit (BACL):
It has already covered 50%
of BJAUT’s market and
stores, aiming to reach 100% coverage by Mar’25. It infused capital of INR5.05b
into NBFC- Bajaj Auto Credit during the quarter.
Capex guidance for FY25 is set at INR7-8b. A major portion will be allocated to
the commissioning of the e3W facility in Waluj and building other capabilities
for EVs.
PLI: Accrued PLI benefits in 1Q financials, which benefitted margins by ~50bp.
Currently, it has 5 certified vehicles under the PLI scheme—2 Chetak and 3 EV
models. Certification for the new Chetak 2901 is underway and expected soon.
Others
Reported spare sales of INR13b (vs. INR12b in 1QFY24), i.e. 11% of revenue.
Export revenue stood at USD460m (vs. USD400m in 1QFY24).
BJAUT reported a surplus cash balance of INR167b. In 1Q, it reported FCF
generation of INR17.5b.
EV revenue was INR5b in FY23, contributed only by chetak. In FY24, it grew 4x of
FY23, led by both chetak and e3Ws. In 1Q, EV alone contributed 14% of
domestic revenue.
USD-INR remains range-bound at 83.4 vs. 83/82.1 in 4Q/1QFY24.
Finance penetration for 2W/3W stood at 75%/90%.
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Balkrishna Inds
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Demand outlook-
Despite a 24% YoY volume growth posted in Q1FY25, BIL has
guided for minor volume growth YoY in FY25 as it expects demand headwinds in
its key markets in Europe, North America and Middle East in the coming
quarters. There has been some channel filling as well by distributors due to
volume grew 24% YoY to 83,570MT. However, the 1QFY24 base was also low
due to the cyclonic issue in western India.
It has market share of 6-7% and is likely to sustain it in FY25.
Freight cost-
This was already being negotiated for Q1. However, freight cost is
expected to increase to 8-9% of revenue in 2Q, largely due to the Red Sea crisis.
It was 6.4% in 1QFY25.
Raw material-
BIL expects a 2-3% increase in 2Q. The company has not taken
any price hikes as market demand is weak.
EUDR:
Effective 31st Dec’24, EUDR regulations in Europe requires that rubber
supplied to the EU must not come from land deforested after Dec’20. While the
company has secured compliant suppliers, but costs could increase by USD300
per metric ton above the current base price of USD1,800 per metric ton.
Margin guidance:
While Q1FY25 margins stood at 26%, management has
indicated that they would strive to maintain margin at FY24 levels of 25% in
FY25, given the rising cost pressure highlighted above.
Capex guidance-
The company has guided for capex of INR6-7b for FY25, out of
which it has already incurred capex of INR2b in 1QFY25.
New capex-
With the acceptance and success in the OTR range of tires, the company is
planning to add fresh capacity. It is embarking on a new capex of up to INR13b
for capacity addition of 35k MTPA at Bhuj.
It is working on advanced carbon black project of 30k MT and the
commissioning is expected in Q2 as per schedule.
Commenced operations for the new mould manufacturing unit in Bhuj. This will
be used for internal consumption.
Others
Third party Carbon Black Sales stood at ~8% of total revenue in 1QFY25.
EUR-INR rate- INR92; For future it has hedged at INR92.5.
EPR- The net impact would be INR40m for this quarter after adjusting for the
reversal attributable to the last year.
Bharat Forge
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Update on domestic business
Domestic CVs:
This business saw a 9% YoY decline in revenue in 1Q due to election-led
slowdown.
BHFC saw market share improvement in domestic CVs in 1Q.
The management does not expect any major pick-up in 2Q but expects a good
revival in 2H for domestic CVs, based on discussion with OEMs.
Domestic PVs:
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This segment saw strong 31% YoY growth in revenues, albeit over low base of
last year.
As it attempts to forge new partnerships, the company hopes to gain from the
long-term structural growth and the premiumization trend in the sector.
Domestic non-auto:
This segment witnessed a robust 45% YoY growth to INR7.3b, mainly driven by
defence order execution (revenue of INR6.4b in 1Q, up 147% YoY).
Apart from healthy defence ramp-up, outlook for the non-defence domestic
Industrial segment is very promising given strong spending on power
infrastructure and new capacity additions in the pipeline in India.
Update on defence
With order wins of INR7.75b in 1Q, the executable order book as of Jun’24 stood
at INR54b, with a mix of artillery guns, vehicles and consumables
Given this order book, the management expects to post 50%+ growth in defence
business in FY25.
The management is hopeful of receiving the final clearance for the domestic
ATAG order for 307 guns (INR45b) by Aug’24 end. This order is split
with Tata
Advanced Systems and would be split 60:40 depending on who gets L1/L2.
Outlook: The management indicated that India needs 4k guns of different
platforms. Given the wars going on in different regions globally, there is huge
demand for replacement of various guns over a period of time. Given BHFC has
nine artillery gun platforms, the company is likely to be among the beneficiaries
of new incremental gun orders, either from Indian Army or overseas.
Update on Exports
CV exports
CV exports grew 6% YoY to INR5.3b.
While the order backlog seems to be slowing down, the overall build rates
remain stable at the moment, as per the management.
Inventory level in supply chain remains reasonable and the sales momentum is
sustaining.
The company has enough order backlog and hence it is not affecting its
production.
As per 2 of the 3 large CV OEMs in the US, the outlook for 2025 is likely to be
stable.
However, in Europe, CV sales remain muted and recovery remains anemic.
PV exports
PV exports declined 1% YoY in 1Q, for the first time in many quarters. The
decline was largely due to a slowdown in Brazil markets.
Its new order wins are expected to start from FY26 onward. While 1Q was weak,
the management expects this segment to continue its strong growth
momentum in the years to come.
BHFC continues to focus on increasing its market share and focus on improving
content supplied in this business.
Non-auto exports
Revenue from non-auto exports fell 9% YoY in 1Q.
However, the positive news is that oil and gas exports have started recovering
from its lows and the management expects to see good growth in FY25 from this
business.
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While aerospace has remained muted in 1Q, the management expects this
business to post 15-20% growth in FY25 and then strong double-digit growth
from FY26 onward as the company starts executing orders (segment revenues
stood at INR2.5b in FY24).
Excluding oil & gas and aerospace, the demand environment remains sanguine
as spending on infrastructure is a focus area globally.
JS Auto outlook
JS Auto continued to witness strong momentum and posted revenue/
EBITDA/PAT of INR1.6b/INR220m/INR100m, up 26%/48%/89% YoY.
As the company embarks on various productivity and cost improvement
measures, it expects to significantly improve its margins, amply supported by
organic sales growth (management expects them to cross INR10b mark in
coming years) over the next 24–36 months.
Overseas subsidiary update
Europe subsidiary:
Margins improved 60bp QoQ to 3.5% (utilization stable QoQ at 70%).
The management is focusing on pass-through of cost pressure to customers and
this exercise is likely to be done by 4Q, when BHFC expects to have passed on
bulk of the cost pressure to customers.
However, the PV industry in Europe continues to be under pressure.
Thus, its margins may remain under pressure for a couple more quarters till
industry demand revives.
The management expects significant improvement in margin from FY26 onward
in Europe.
In the traditional steel forgings business, BHFC is undergoing business
rationalization and right sizing (would exit business that is not profitable). This
would involve footprint optimization manpower rationalization and the same
should be done in the next 8-10 months.
US subsidiary
EBITDA loss declined to INR235m from INR341m QoQ (utilization stable QoQ at
50%).
Its performance would have been better if not for a customer-specific issue,
which hurt revenues. This impact is likely to remain for the next 3-4 months.
Post this, BHFC expects US subsidiary performance improvement to be back on
track.
Update on fund raising resolution
BHFC has approved a fundraise of up to INR20b through issue of equity, debt or
any other instrument that the Investment committee may deem fit.
The funds are expected to be used for both organic (greenfield plant) and
inorganic growth opportunities.
The management has clarified that any funds raised would be deployed in India
and for business opportunities within its allied segments.
Other highlights
BHFC has announced VRS at its Mundwa facility and aims to reduce about 100
people. Some of its facilities at this location are old and the management wants
to modernize the plant and improve its productivity through this exercise.
Capex guidance over FY25-26 stands at INR10b.
Its long-term debt reduced to INR21.5b (from INR24.6b QoQ) and net D/E
reduced to 0.6x. Consolidated RoCE improved 210bp QoQ to 18.4%.
August 2024
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BOSCH
Current Price INR 32,219
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Domestic demand outlook:
The overall growth expectation for the year remains
positive across segments. The anticipated slowdown of 1QFY25, primarily
influenced by the elections, aligns with its forecast for this period.
Quarterly performance.
Mobility business grew ~4% YoY, driven by- i) aftermarket growth of 8.1% on
account of higher demand for new generation diesel components, ii) 2% YoY
growth in power solutions led by higher SUV growth, and iii) ~15% YoY growth in
2W segment led by higher sales of fuel injectors and supply modules owning to
additional demand from TVS and Bajaj.
Consumer goods grew by 5.1% due to higher demand for grinders, drills, and
cutters driven by market growth.
The building technologies business grew by ~19% YoY due to a higher volume of
security system installation orders.
Bosch is seeing global recognition of hydrogen-based engines in different
geographies such as EU, North America, China, etc. Hydrogen prices below INR4
per kg and the development of adequate infrastructure are prerequisites for this
technology to take off in India. Bosch continues to work with many OEMs for
hydrogen-based solutions in India.
Mobility aftermarket:
BOS introduced a new tyre pressure monitoring system
for all vehicles and the Adicare extended warranty for diesel and rotating
machines, benefiting both aftermarket and OEM customers.
2Ws:
In Apr’24, it inaugurated a second production line for lambda sensors to support
the BS6 OBD Stage 2 regulation, effective Apr’25. BOS started the production of
lamda sensors with an initial capacity of 1.2m pieces p.a. in Apr’22, which is
likely to now ramp up to over 8m pieces annually by 2025.
The launch of Bajaj Pulsar N 250cc and Pulsar 400cc confirms BOS as the
preferred partner for premium powertrain components, introducing value-
added functions to enhance performance and features.
Power tools:
India is now one of the five independent regional bases of Bosch Power Tools
(globally), covering India, Sri Lanka, Bangladesh, Nepal, Bhutan, and the
Maldives (SARC). The focus will be on the cordless tools business, handling sales
and exports from the Chennai plant to these regions. The rationale to set up
regional base in India is the similarities in market demand and proximity to
these regions from India.
Recent efforts to improve cost competitiveness and scale have made India
increasingly attractive for certain volumes like injectors and VE pumps. While
India and SAARC remain in focus, opportunities for exports through parent or
affiliated companies help with local volume and fixed cost coverage.
Imports:
As BOS moves from conventional products to common rail systems, it expects a
reduction in conventional products, where it has high localization. As it advances
to supply common rail systems, the company anticipates increased imports in
the interim until it scales up enough to justify the localization of these systems.
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Common rail systems will feature exhaust gas treatment components. BOS will
begin importing these components, starting with the NOx sensor, set to start
production in Apr’25. It is also working on localizing this sensor.
Others
Trem-V norms
have been postponed to 2QFY26.
Future margins are uncertain
due to changing technologies, but it aims to
balance between higher imports and localization. Too early localization is
counter-productive, as per the management; hence, it has a well-planned
phased localization program for all components.
One-offs in other expenses:
4Q expenses were low due to a forex gain, which
reversed in 1Q. Also, it made a provision for a special warranty, which led to
higher expenses. The management has refrained from quantifying the impact of
one-offs.
PLI-
Capex planning and investments are not tied to DVA approvals. It continues
to invest in capex based on localization needs, with PLI benefits as additional
bonus. While BOS is an applicant for the PLI scheme, it has not yet received
official confirmation on the same.
Bosch’s production in India mainly serves local OEMs.
Globally, Bosch follows a
local-for-local supply principle. However, due to ongoing geopolitical issues and
shifts in emission norms and electrification, exporting from India is becoming
more appealing. It aims to increase exports over time, though no major changes
are expected in the mix in the near term.
CEAT
Current Price INR 2,825
Click below for
Detailed Concall Transcript &
Results Update
Buy
Domestic business updates:
Outlook:
Double-digit growth in replacement segment in FY25; OEM demand to
remain steady. Replacement demand will be led by 2Ws/agri Tyres, supported
by good monsoon and gradually improving rural demand. Even in CVs, it expects
to see strong demand in the replacement segment, albeit on a low base. PCR
replacement demand is likely to see single-digit growth. Overall, the
management expects the replacement segment to post double-digit growth in
FY25. CEAT expects OEM demand to pick up in coming quarters on the back of
new launches in UVs, continued momentum in 2Ws and a pick-up in tractors.
1QFY25 revenue growth largely driven by volumes. Volume growth was driven
by replacement (CVs and 2Ws) and export segments. However, OEM segment
volumes grew in low-single digits largely due to weak demand in CVs and PVs,
which was offset by a healthy pick-up in 2W OEMs.
RM costs to see a further rise of 5-6% in 2QFY25:
The commodity basket grew
~5% in 1QFY25. Domestic landed NR prices currently stand at INR207-210/kg,
which are at a 12-13 year high. This is mainly due to demand-supply mismatch
and should normalize in 3Q, as per the management. Higher freight rates have
an impact of INR10-12/kg on NR rates. The management has indicated that it
would need another 3-4% price hike in 2Q to offset the incremental input cost
pressure.
Price hikes from hereon may not be as easy:
CEAT took price hikes in the
replacement market for CVs/PVs in the range of 2.3-2.8%, with the lowest price
hike taken in 2Ws (~1%) and maximum in CVs. OEM prices follow indexation
August 2024
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with a lag of a quarter and would see this benefit in 2Q. Export price hike also
remained back-ended.
Price hikes were taken in a staggered manner starting from the mid of 1Q, due
to which realization-led growth was missing in 1Q and full benefits would be
visible in 2Q. Higher freight rates and unfavorable mix (TBR mix was higher in
Q1) also offset the price hike impact. CEAT plans to further take a price hike of
2-3% in 2Q across categories.
As per the management, the largest competitor in the TBR segment has recently
given discounts. The No. 2 player has not taken any price hike in any segment so
far. However, CEAT does not intend to roll back pricing for any segment.
The management has indicated that in the 2W segment, it has taken price hike
without the competition passing on the same. Also, it would target another hike
by Jul’24 end, irrespective of competition action.
In terms of positioning, CEAT remains a market leader in 2Ws and hence its tyre
prices are 2-4% ahead of the 2nd largest player. In PVs, CEAT and Apollo Tyres
are positioned at par and at a discount of around 8-10% to market leader
Bridgestone. In TBR, CEAT is priced about 1-2% lower than the market leader.
Export business updates:
1QFY25 saw double-digit volume growth, which was limited by non-availability
of containers. The contribution from exports stood at 20%, which is expected to
increase to 25% in 2-3 years. CEAT has launched 42 OTR SKUs and 30 PV SKUs.
The company has a strong order backlog in the LatAm/America/EU markets. On
the back of this, it expects double-digit volume growth in FY25 in exports.
US TBR channel development is underway, with 60% of the regions covered.
PCR rollout is planned in 4QFY25 / 1QFY26. Agri radials continue to do well on a
low base in the US.
LatAM TBR growth has been strong, while PCR/2Ws are growing on a low base.
Ambernath OTR plant with 105k MT capacity has reached 70% utilization. Its
phase 2 will see capacity increase to 160k MT.
Other business updates:
The management has indicated that its TBR tyres are now seeing tremendous
response from customers. Its Halol TBR facility is now fully sold out and it
expects volumes to pick up further once Chennai TBR comes on stream in 2Q
end. Hence, CEAT remains confident of improving its market share in the coming
quarters in this segment.
During 1QFY25, the company purchased the license to fulfil its EPR obligations
pertaining to FY23. Given that it had provided for EPR in 4QFY24 based on
expectations, it has now reversed a part of this worth INR115m post the actual
payout and classified the same as exceptional gains. VRS expenses were
INR40.4m in 1QFY25.
Higher other expenses in 1QFY25 were mainly due to 100bp higher ad spending
(vs. average ad spending) on world cup and IPL advertising. Freight rates have
grown 3-4 times their normal rates. Shipping time has increased to 60 days from
14-15 days for shipments to reach India from Southeast Asia.
Employee costs have normalized in 1Q vs. 4Q, which had various variable
payouts.
CEAT has a 30% market share in 2W EV OEMs.
The company has maintained its full-year capex guidance of INR10b (INR2.54b
already spent in 1Q). Capex was mainly funded through internal accruals in 1Q.
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There was negative WC of INR2.4b in 1QFY25. Consolidated debt marginally
increased by INR180m QoQ to INR16.5b.
CIE Automotive
Current Price INR 558
Click below for
Detailed Concall Transcript &
Results Update
Buy
India business:
India business sales grew 8% YoY, marginally above the average market growth.
The demand outlook for India is positive, with orders ramping up and showing a
revenue growth trajectory of 1%, 4%, 6%, and 8% YoY in the last four quarters,
respectively.
1Q India EBITDA margin was its highest ever. Even its PAT margin crossed 10%
for the first time in 1H.
Two-wheeler demand continues to be healthy and tractor demand is improving.
The management expects 2H to be better than 1H in FY25.
Europe business:
The 11% YoY revenue decline in Europe was led by: 1) a 6% YoY decline in
Europe LV market and 2) a 30% decline in Metalcastello.
The second half of the year is usually weaker for European markets compared to
the first half. For CY24, IHS has cut its LV volume forecasts and now expects
Europe LV market to decline by 6% in CY24 from an earlier estimated decline of
2-3%. IHS also expects the market to remain flat or grow slightly in CY25.
Electrification has slowed down because of the elimination of certain subsidy
policies, and the company expects a 2-3-year delay in EV transition in EU from
earlier timeline. As a result, EV orders are being delayed as customers adopt a
wait-and-watch approach.
Aluminum forgings: It will take 2-3 years for this business to contribute
significantly to the overall business, as all programs have been delayed.
CIE India has already taken corrective actions to align its cost structure with
reduced revenues.
Metalcastello:
The business is already at the bottom of the cycle, and its performance is
expected to remain stable in the coming quarters. Metalcastello's current
slowdown is typical before US elections due to reduced investment activity. A
recovery is expected in CY25, contingent on the new administration's policy
priorities. CIE India does not expect any further decline in absolute revenues
from this entity in 2H.
It has been heavily reliant on one American customer, and since the market for
off-road vehicles is cyclical, it is witnessing some downturns. However, it is
actively working on diversification by onboarding new customers and has
already secured significant business from a new American transmission
manufacturer for EVs, especially for LCVs. Unfortunately, these new programs
are facing delays due to the delayed EV transition.
Others:
The new order book in India stands at INR5b, with 30% contribution from EVs,
reflecting the growing share of EVs. In the EU, the order book is INR2.2b, with
55% contribution from EVs.
Capex was 4% of turnover in 1HCY24 and is expected to normalize to its stated
guidance of 5-5.5% by the end of CY24. A bulk of its capex remains focused on
the expansion in India, which is expected to be its key growth driver.
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CIE is not pursuing acquisitions of distressed assets in Europe and will instead
focus on opportunities in India.
The sunroof system business is the only tier-1 segment within the CIE group,
while all other businesses are tier-2. It is a global business for CIE, which is
operated from centralized R&D in Europe. The contribution of the sunroof
business is decent for the parent. Hence, it does not make sense to integrate the
recent sunroof acquisition by the parent in India in CIE Automotive India.
The management has guided for an additional INR1b debt reduction by the end
of the year.
Craftsman Automation
Current Price INR 5,573
Buy
Click below for
Detailed Concall Transcript &
Results Update
Performance during the quarter-
Demand- The quarter presented a challenging and mixed performance. The
MHCV segment showed no respite from a declining trend, while the tractor
industry exhibited some green shoots. The 2W segment remained robust, but
the PV segment slowed down. Additionally, the key raw material, aluminum,
saw a significant price increase, hitting double digits.
The storage segment showed good growth, though margins remained under
pressure.
Aluminum segment margins were impacted by weak demand in PVs and a sharp
rise in input costs, which the company would pass on with a quarter lag.
In the powertrain sector, the tractor market has shown signs of recovery since
Jul’24. PV demand is steady. While CV is weak currently, it is expected to revive
with a pick-up in economic growth in subsequent quarters. Additionally, it has
secured new business in PV segment that is expected to commence from FY26
onward.
DR Axion is not capital intensive and requires only marginal maintenance capex.
The management team remains intact, with all eight Korean expats continuing
on their roles. All three customers acquired by the company are still continuing.
Export operations have been added to DRA Korea, and there is new business
coming in for Hyundai’s new Talegaon plant.
The company has invested INR2b in capex in 1Q. Capex outflow for FY25 would
depend upon the closing of its ongoing acquisition as also the ramp-up of its
facilities.
Update on German Acquisition
It is a high-tech foundry for industrial engine blocks, with plans for growth even
in India.
The deal cost was EUR5.5m (EUR3.5m for the purchase of assets and EUR2m for
working capital), and another EUR0.5m in debt (so, total INR600m). The
management would invest another INR600m to further improve efficiencies.
This deal has been done at the behest of some customers and hence it has full
customer support.
The foundry has been a single source for most products and has been EBIT
positive for most years.
CY23 revenue was about INR2.5b with high single digit EBITDA margin.
The rationale for purchasing this asset is to get a critical foothold in the larger
engines segment (180 ltr etc) in Industrial powertrain business, where there are
only six large customers globally. With no new capacities coming in globally in
23
August 2024
 Motilal Oswal Financial Services
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developed regions given the adverse geopolitical situation, the management
expects this acquisition to provide a strong base for exponential growth in the
long run.
Update on proposed Sunbeam acquisition-
This acquisition is still not complete. They have signed an MoU for the same and
due diligence is nearly complete.
Revenue stands at about INR12b. This business is currently loss making largely
due to duplication of costs as the erstwhile promoters targeted to move away
production from their Gurgaon plant.
This business would give them entry into exports to the US, apart from
complementary and mutually beneficial capabilities.
The management is very clear that the erstwhile management needs to resolve
the worker conflict in Gurgaon themselves. They will also not take over any debt
of the company.
The Gurgaon plant contributes to about 10-15%
of Sunbeam’s overall revenues
but is critical for its exports. However, about 60% of this plant’s output is
already transferred to other locations.
As per the current MOU, they are in talks for acquiring all the machinery and
business of Sunbeam, ex of the Gurgaon plant.
Greenfield projects-
Kothavadi Phase 1: This plant will begin as a general engineering foundry initially
with focus on supplying to its existing segment of wind energy. Focus would be
on supplying gear box housing and planetary carriers within the industrial
engineering segment. It expects to start Phase 1 trial production in 4QFY25 and
ramp up from 2HFY26.
Kothavadi Phase 2 will involve production and supply of heavy engines for
stationary application globally. They have already secured firm orders from this
segment, which is expected to commence from 4QFY27, with tremendous
growth potential in future years given the huge growth seen for data centers
globally. However, given the high gestation period for suppliers and also the
significant investments required for both suppliers and OEMs, it was necessary
to start Phase I as a general foundry and then later focus on stationary engines
with confirmed orders.
For the last 2-3 years, the management has been working on gaining business
traction in the stationary engines segment. They are now confident of seeing a
strong ramp-up in business from this segment starting 4QFY27 once the phase 2
Kothavadi plant ramps up operations. Hence, the powertrain segment will start
seeing healthy growth from FY27 onward, irrespective of whether CV/tractor
cycle is in favor or not. Another tailwind for this segment is that global OEMs are
keen to scout for suitable quality suppliers in low-cost regions like India given
the ongoing challenges in supply chain in Europe and the US.
The Bhiwadi plant is set to complete Phase 1 in 15 months, with trial production
scheduled for 4Q. This phase will focus on producing structural Al parts for two-
wheelers, including alloy wheels, and engine components. The initial casting
method will be gravity die-casting, followed by Low Pressure Die Casting (LPDC)
and High Pressure Die Casting (HPDC) as and when required.
August 2024
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Eicher Motors
Current Price INR 4,911
Sell
Click below for
Detailed Concall Transcript &
Results Update
Royal Enfield update
While wholesales were weak in 1Q, RE retails grew at a low-single digit in 1Q as
per the management. A part of the reason for weak wholesales was that the
company moved to an auto replenishment model of inventory management and
hence did not want high stock in the system around that time.
EIM is currently seeing improving conversion rates. Hence, management is
hopeful that demand for middle weight motorcycles and especially for RE will
pick up in the festive season.
Exports for RE grew in 1Q after many quarters. EIM is witnessing some green
shoots in its key export regions. It is experiencing a healthy growth in Latin
America. Even APAC demand is picking up. The company has also recently
introduced the Super Meteor in Brazil. Hence, it expects exports to improve in
the coming months.
RE is among the top 4 bike players in the middle-weight motorcycle segment in
many markets like UK, Italy, and Continental Europe. Thailand, Australia etc.
The recent Guerilla 450 launch on the Sherpa platform has received strong
reviews from most industry experts and is also seeing a lot of consumer interest
at dealerships, as per management
The company intends to bring in product interventions in Classic and Bullet
models in the coming months to boost consumer interest ahead of the festive
season
Management targets to focus on promotional activities to help revive demand.
It has realized that RE’s brand salience in rural regions needs to be improved. On
the other hand, in urban regions, it intends to collaborate with colleges to
connect with the youth. The company would also invest in brand building
around the Hunter to help revive its sales in the coming months.
The first time buyer proportion at RE is 12-13% and for Hunter it is much higher
at around 19%
VECV
update
In 1QFY25, while HD market share improved to 8.4%, LMD market share
improved to 34%.
VECV has seen a strong ramp-up in exports having grown 58% YoY in Q1
VECV EBITDA margin remained stable YoY at 7.7%
PAT saw a sharp growth of INR3.2b vs. INR1.8b YoY as it had a write back of
deferred tax in 1QFY25. VECV has now moved to 25% tax rate from FY25
onwards
At VECV, while near-term demand remains weak, management expects the CV
demand to revive in 2H given the government’s infra push and driven by steady
replacement demand.
Discounts continue to remain low at an industry level and have been the key to
improving margins for all players in the industry. Management is hopeful of
healthy pricing discipline to sustain going forward.
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Endurance Technologies
Current Price INR 2,522
Buy
Click below for
Detailed Concall Transcript &
Results Update
India business update
ENDU’s 1QFY25 2W industry grew 19.8%.
Overall auto industry grew 16.3%.
ENDU’s growth was lower than the industry as its key customers saw uneven
growth.
INR1,843m worth of businesses was won in 1QFY25 from OEMs other than
BJAUT, of which INR1061m EV business. The EV business win includes: 1)
INR795m business from M&M E-3Ws 2) INR300m business won from HMSI for
150cc motorcycle 3) INR257m brake assembly business from HMSI and HMCL 4)
INR87m of Alu castings order from Japanese multinational for M&M 4W
application 5) INR68m business for TVSL E-3Ws for suspensions, brakes and
driveshaft.
Order book expected to be boosted further with INR17.7b of RFQs under
discussion with various customers. Since FY21 ENDU has won orders worth
INR36.77b (INR8.41b of replacement orders and INR28.36b of new orders). Out
of INR28.36b of new orders, INR24.5b would experience a peak in FY27.
Total business wins to date for EVs is INR8.4b (excludes INR4.2b business won in
Maxwell).
SOP start:
INR719m business win from TVSL in FY24 (INR309m for inverted front fork and
rear mono-shocks, INR404m business for TVS Raider and HLX bikes for front fork
shock absorber business). These orders are expected to start from Oct’24
onwards.
Sep’24 SOP for INR240m inverted front fork business from HMCL.
Apr’24 SOP for disc brake
assembly business and INR900m business for
front/rear shock absorber which would be reaching peak in 4QFY25.
Suzuki new scooter front fork business of INR253m in addition to INR1400m
business won earlier would start in 3QFY25.
HMSI disc brake assembly business of INR294m in 3QFY25.
RE alloy wheel business of INR960m has started SOP in 1QFY25.
35 DIA air suspension inverted front forks would start in 3QFY25 with order
value of INR400/annum to be supplied directly to KTM Austria.
INR876m Alu casting business from Hyundai to start from 3QFY27.
HMSI new business for 100cc Shine motorcycle front fork and rear shock
absorber business for INR343m/annum. SOP from Feb’25. Front fork and rear
shock absorber business for e-2W SOP would be 4QFY25.
Capacity expansion:
4th Al forging press at Waluj to be commissioned in Q2FY25. Alu Forging
business is backward integration for inverted forks business except INR290m
business won from JLR where SOP is expected in this year. On the basis of JLR
business win in this segment, it is able to get new orders from PVs/2Ws.
To increase Chakan Alu Alloy wheel capacity from 4.5 to 5.5 mn wheels p.a. in
2QFY25
Commissioned Waluj SMT plant for BMS in Feb-24; BMS with optimized design
for a key OEM audited and validated in lab and on vehicle. Production lot in
May-24. Ramp-up to healthy volumes by Sep-24.
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Expanding Vallam machined Al. casting capacity for Japanese e2W brand. SOP in
3QFY25.
Expansion in Waluj/Pantnagar for requirement of an Indian OEM, for e2W, e3W,
petrol and CNG motorcycle models, likely to be concluded in 3QFY25.
Expanding Chakan plant for machined Al. castings for 4W for Indian JV of global
powertrain manufacturer
Waluj second plant: Started disc brake supply to HMCL this year in Apr’24 and
supplies would commence for HMSI from 3QFY25. Disc brake assemblies would
now be 6.2m/annum, brake discs to 8.1m/annum and 3W brake assembly to
1m/annum by FY25 from 2 plants.
Supply of 2W ABS assemblies has started and run rate stands at 400k/annum.
Would start dual channel ABS supplies from next month. Total capacity would
now be enhanced to 640k ABS assemblies/annum by 4QFY25. Target of
1.2m/annum by 2026.
PV business declined in FY24 and in 1QFY25 mainly due to the dip in sales for
Ford Getrag because of weak global PV sales. This weakness is likely to continue
in the near term. However, it is focused to take the PV contribution to 45% in
FY30 from 25%. 15-18% of new business was won for PVs (mainly Hyundai/Kia/
Punch Powertrain/TTMT). It has the opportunity of adding new products with
Hyundai mostly on Alu die casting (for its new Pune plant).
Freedom 125cc—Contribution currently is sizeable and ENDU is present in all
areas.
Process of acquiring customers in 4Ws/non-autos for AURIC region. They remain
focused to increase the PV business contribution to 45% from 25% currently by
2030. Margins would be better than 2Ws.
EU business update
EUR revenue/EBITDA/PAT stood at EUR80.3m/EUR13.3m/EUR4.9m (v/s
EUR68.8m/ EUR11.3m/EUR4.2m in 1QFY24).
EU/UK market grew 4.6% YoY (this compares to 17% revenue growth for ENDU
in Euro terms including tooling business). Its growth was partially driven by sale
of tooling’s (8% growth contribution) for new orders booked and some was due
to sale of machined components to customers. Aluminium costs have been
stable QoQ.
Higher fixed costs in new plants led to lower margin expansion in EU business.
Should see full benefit in the next 2 years.
EUR3.1m of business won in 1QFY25 includes win from VW for specialty plastic
component for hybrid PVs. This business currently contributes to ~5% of overall
ENDU’S EU revenues. Rise in plastic costs has affected profitability of several
peers. Hence they are seeing good traction for this business and ENDU’s existing
capacity can be utilized. Presently it is small business (EUR 2m) but an entry with
VW will help ramp up presence in this segment going forward.
Maxwell update:
INR457m of business won in 1QFY25. It includes an order of INR344m of MCU
(Motor control units) with SOP from Mar’25.
Maxwell is expected to contribute revenues of INR2500m by FY27.
Order book from Maxwell: Mainly it is from HMCL. Volumes are ramping up
from the last month.
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Other highlights:
INR228m incentive booked in 1QFY25.
Aftermarket sales grew 14% YoY in 1QFY25. Now exporting parts to 37 countries
with addition of Costa Rica in June.
Net Cash of INR6127m/ INR5818m for standalone / consol. business.
Escorts Kubota
Current Price INR 3,788
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Agri machinery division:
Domestic tractor industry outlook:
Management reiterated its guidance of mid-single digit growth (5-6%) in FY25E.
There is a positive rural sentiment with Kharif sowing up 7% YoY. Government
has also increased the MSP of Kharif crops which has supported demand.
1QFY25 saw a 0.5% YoY industry growth relative to prior expectations of a
decline.
Regional Performance:
Eastern India:
There was a substantial growth of 40% YoY in 1QFY25 which is
unlikely to sustain.
Southern India:
Dropped 20% YoY; this market now contributes 12% to overall
tractor industry.
Northern/Western India:
These markets contribute 75% to overall tractor
industry. North has grown 5% YoY in 1QFY25 and West is also showing signs of
improvement led by Maharashtra, but Gujarat declined. ESC has been successful
in gaining market share in these regions.
New product launches:
World Max has phased rollout planned, with a full launch expected by
September.
New Farmtrac series to be introduced in October/November.
Exports:
Europe market remains challenging due to inflation and interest costs. About
60% of industry exports happen in Europe.
Kubota channel contributed 21% to exports in 1QFY25.
North America and Latin America are performing well, but ESC does not have
many products to cater to these markets. The new greenfield plant will be
focused on different products needed in the North America market. They are
currently scouting for land for this plant and hence this is at least 3-4 years
away.
Outlook on input costs:
There was no input cost pressure in 1Q but costs have
started rising in 2Q mainly on the rubber/steel side. There were price hikes
taken in May’24 (~0.5-0.6%)
which should offset the rise in commodity costs in
2Q.
Merger with subsidiaries:
Order from NCLT expected this month and merger
would be effective from September 2024. Subs revenue in 1QFY25 was ~INR5b.
Agri business has now been organized into four new verticals namely tractors,
agri solutions, engines, and spares. This is in line with Kubota’s global business
structure. Each of these segments is expected to surpass INR10b in the next 3-5
years.
Emission Norms:
New emission norms deadline is currently set for Apr’26.
August 2024
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Regional dealer network expansion:
ESCORTS aims to increase dealers from
1,200 to 1,700 over the next 2-3 years.
Construction Equipment division:
1Q saw a significant growth in compactor
segment which grew 17% YoY. Further Product mix and realizations aided
margins. 1Q is a seasonally weak quarter and demand is expected to improve in
coming quarters given government focus continues on infrastructure. Margins
are likely to improve from here-on with pick-up in demand.
Railway Division:
It is expecting to grow in double digits in this segment due to
the shift from LHB rolling stock to Vande Bharat coaches. Order book stands at
INR8.8b. It has also secured initial orders for Vande Bharat coaches, including
brakes and couplers. Initial orders have a lesser margin. It has also started
supplying electric controllers to Delhi Metro. It has reduced import content and
is focusing on localization of components. It further expects positive margin
impact from localization efforts.
Happy Forgings
Current Price INR 1,213
Buy
Outlook-
HAPPYFOR expects single-digit growth in farm equipment over the
next three quarters. For the CV segment, single-digit growth is expected, with
it expects increased infrastructure spending. A good monsoon and expanded
sown area for the kharif crop should boost rural demand during the festive
months. Further, this will be supported by better utilization of existing units,
capacity expansion, and new global customers.
Domestic CV
saw a 5-6% production drop in 1Q, with component demand down
almost 10% due to lower production of multi-axle and long-haulage trucks. The
farm sector also declined by 4%-5%, except for one or two customers.
Passenger vehicle-
Share of PV revenue to go to 8-10% up from ~3% now. It has
secured orders from a North American customer totaling INR 1.5b annually,
starting in the fourth quarter and expected to peak in FY26-27.
It has begun issuing RFQs to the existing clients for mixed components, including
fully machined suspension and steering knuckles, and brake flanges for EV
players. These products have similar margins. Currently, it supplies three PV
OEMs and is also working on new programs with existing clients
Exports-
European farm and wind sectors are currently down by 30%-35% YoY,
but it continues to explore and ramp up existing projects that were on boarded
last year. In North America, most programs are new and involve replacements,
so it anticipates strong demand for these projects moving forward.
Currently it is focusing on higher orders in Europe and working on North
American orders for the PV and farm sectors.
It is developing more parts for new clients and receiving good opportunities
from them. Not working on Class 8 yet. The share of North American orders is
expected to increase significantly after 4Q in the coming years.
Machining Capacity-
90% of the new orders are for fully machined components.
Adding close to 11k machining capacity which will take it to 62k MT. This
includes 6k by 1HFY25 and 5k by 2HFY25.
Click below for
Detailed Concall Transcript &
Results Update
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It takes around 8-10 months lead time for machining facility to come in after the
company decides. It has received approvals for few critical projects where
company was working for last 2-3 years to ramp up the new capacity.
Industrials-
Management expects the industrial mix to be ~18%-20% over the
next two quarters, with ongoing developments in the wind sector potentially
boosting it to 25%-26% next year. It is also continuing to develop projects with
its existing wind sector clients. On gensets, the company has already executed
and received the approvals, but the capacity and the ramp up will start from
third quarter.
Capex-
It has guided a capex of IN2b for FY25/26E each. This year, it is ramping
up its 14,000-ton press line for projects like front axle beams and large
crankshafts. Additionally, it'll be adding a new 6,300-ton press line starting in
2Q, focusing on farm equipment and passenger car requirements.
Next financial year, it will add a 10,000-ton press line, which is already ordered.
It is planning to order a 4,000-ton press line this quarter, which will be dedicated
to meeting the PV requirements of North America. About 20-25% of the total
capex would be for PVs in future. Directionally, this should rise going forward.
About 70-75% of the capex requirement will be funded through cash accruals.
Railway component- The business is currently small, focusing on specialized
component tenders worth INR 150-180m annually. Realizations are INR 800-850
per kg, primarily as import substitutes. Specific products have not been
identified yet.
Defence- It has started evaluating the defence sector two months ago, forming a
team to explore tenders and capex requirements. There is currently a significant
demand for 155mm shells and artillery. It is likely having more clarity on this
requirement as it moves forward.
Solar- Working on solar project will require further capex of INR1b. If received
clearance from the Punjab government then it might need debt of INR0.70-0.8b.
Hero MotoCorp
Current Price INR 5,285
Buy
Click below for
Detailed Concall Transcript &
Results Update
Domestic demand outlook:
HMCL is seeing a good recovery in both the entry-
level and 125cc segments in the last couple of quarters. Rural growth is also
ahead of urban growth for HMCL. The management has indicated that its retail
market share was ahead of wholesale market share in 2Ws in 1Q.
Performance
in the entry-level
and 125cc segments: HMCL’s market
share
improved in the 125cc segment to 20% in 1Q from 13% in 4Q, as per
management. HMCL has increased capacity of Xtreme 125cc to 25k per month
and expects to increase it to 40k per month in the next couple of months. About
38-40% of its network received Xtreme 125 as per management.
New launches:
The company plans to launch a couple of new models in the
premium segment in FY25. It also has a new scooter launch lined up. Apart from
this, it is targeting to reduce costs and thereby launch much more affordable EV
scooters in the coming quarters.
Market share improvement top priority. The management has also indicated
that strong margins would help HMCL invest in building brands going forward,
especially in the premium segment and EVs. It plans to aggressively grow its
premium portfolio in the coming quarters.
August 2024
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Inventory level relative to pre-festive period is under control. It would start
inventory build-up ahead of the anticipated strong festive season.
EVs:
Vida is currently available with 300 dealers across 175 cities. The upcoming
new Vida products are expected to be PLI compliant, as per management. As
BOM costs come down and HMCL gains scale, it expects the EV business to
become profitable.
Margins:
HMCL saw modest raw material inflation of INR340 per unit in 1Q.
Input costs are likely to remain range-bound in the near term, as per
management.
Exports:
The current situation in Bangladesh has been a setback. Overall exports
represent about 4% of revenues and Bangladesh is about 13% of exports (so
about 0.3-0.4% of revenues).
Financing for the entry-level segment: It would focus on reviving its entry
segment demand backed by refreshes and innovative financing solutions. It has
launched Hero Digi Fin solution, which is an automated aggregation platform for
financing solutions, which is expected to make financing more accessible to a
much wider set of customers.
Distribution:
HMCL now has around 520 Hero 2.0 outlets (covering about 50%
of total HMCL dealerships) and about 40 Premia outlets. It plans to cross 100
Premia outlets by FY25 end. Apart from this, it has upgraded 190 customer
service centers so far.
Financing share stood at 60% for 1Q.
Capex guidance stands at INR10-12b for FY25.
Mahindra & Mahindra
Current Price INR 2,770
Buy
Click below for
Detailed Concall Transcript &
Results Update
Auto segment
Demand outlook: The management reiterated mid to high teen volume growth
guidance YoY for FY25 for its UV segment. Despite tepid demand, new launches
should help MM outperform.
There was lower conversion of existing bookings in June due to heat waves and
model changes.
Inventory levels are at 4-5 days higher than normal; MM will target to normalize
the same through improved retails.
Capacity expected to increase to 64k/72k by the end of FY25/FY26 from 49k in
FY24. There would be an additional 8k EV capacity by FY26 end. Also, FY25 exit
capacity will include 5k increase in SUV capacity (THAR 5D, XUV3XO/4OO) and
10k EV capacity.
Given the increased capacity, order backlog has reduced to 178k units. While
order book has reduced, the pace of new bookings and the upcoming new
launch of Thar 5-door should give MM confidence of achieving its stated mid-to-
high teens growth guidance for FY25 in UVs.
Market share gains: SUV revenue market share increased by 130bp to 21.6%.
LCV <3.5T market share up by 160bp YoY to 5.9%.
XUV700 price has increased by INR380k-400k since its launch and the capacity
has increased from 3.5k to 6k to 10k per month.
MM aimed to make the brand more accessible and hence the price reduction
was a structural long term decision; Also, there were benefits of reduced costs
August 2024
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through value engineering and normalized semiconductor premiums as the chip
requirement in the model is much higher vis-à-vis others.
Its price reduction in XUV700 is unlikely to have a material negative impact on
Auto margins, as per management.
Auto ASP declined QoQ as there was significant ramp-down of XUV300 in 4Q,
along with higher XUV400 volumes.
EBIT margins improved for the segment due to commodity benefits and some
price increases.
Exports- Growing organically and seeing strong growth prospects in countries
like South Africa, Australia, New Zealand, wherein it has already launched
couple of products; Initial focus will be on existing markets, then expanding the
reach.
BEV margins will be initially lower than ICE but expected to match as products
mature.
Pickup segment: The current CNG penetration for MM is 10-15%; MM is
prepared for CNG products.
Hybrid- No significant impact seen on MM products post the road tax cut in UP
for hybrid vehicles. As per management, even post the tax cut, the breakeven
for a customer going for hybrid vehicle is 120k kms running over 3 years to cover
additional cost of INR200k-300k per vehicle.
MHCV: The company’s addressable size is ~80% of the total market; While its
market share has gradually increased to 3.9% from 2.5% three years ago, it now
targets ~5% market share in 3-4 years, and 7% thereafter. It has lost some
market share this quarter as the sector (where MM is present) declined 1% YoY,
while the rest of the industry grew 50-60% (where MM is not present).
Farm Equipment Sector (FES)
Demand outlook: The company has reiterated its growth guidance of ~5% for
FY25. Also, given the favorable factors such as positive trade terms, good
monsoon outlook, increased government spending in rural areas and Navratra
in 2HFY25, there could be an upside risk to current guidance.
MM has reduced tractor inventory QoQ.
Tractor market share increased by 180bp YoY to 44.7%.
Margins improved QoQ due to commodity benefits, cost reductions in
marketing and operating leverage as the sector comes out of a downtrend
(where cost structures are lean).
Farm machinery business revenue grew 34% YoY to INR2.65b.
Decline in farm segment realization QoQ was due to geography mix and model
mix changes.
Last Mile Mobility
It reported highest-ever sales of Treo Auto at 11.1K units; 19.5% electrification
in 1QFY25.
The EV penetration in the industry has now reached ~20% in a short time and is
expected to reach 100% by FY30. The management believes Fame-3 support will
still be required for ramp-up.
August 2024
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Maruti Suzuki
Current Price INR 12,216
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand outlook:
1QFY25 volumes were affected by heatwaves and elections.
However, the management has maintained its volume growth guidance for the
industry for FY25 at about 4%, led by an expected pick-up in demand amid good
rainfall across India so far.
New launches, like Swift and Dream series in Alto/Celerio/Wagon R, were
introduced in 1Q to bring back buyer interest in small cars.
FTB continues to hover around 40-43% for MSIL.
CNG vehicle sales have surpassed diesel vehicle sales for the first time in
1QFY25.
One in every three cars sold by MSIL is a CNG vehicle. It sold slightly
less than 150k CNG vehicles in 1QFY25. States, like RJ/ KA/ MP/TN/Kerala/ Bihar,
which had a lower CNG penetration, are growing strongly on a low base due to
the expansion in CNG infrastructure.
Export growth was driven by good demand from geographies like Africa, the
Middle East and Latin America. Jimny has been the most exported model in
1QFY25, followed by Dzire/Baleno/Fronx/Grand Vitara. The company is
confident of achieving exports of 300k units in FY25.
MSIL commissioned a new assembly line in Manesar, which increased its plant
capacity by 100k vehicles per annum to 900k vehicles.
Margins:
MSIL was able to post a 30bp QoQ margin improvement in 1Q despite
an 11% reduction in volume (80bp impact), increased discounts (INR21,700 per
unit vs. INR14,500 in 4QFY24) and higher marketing spending for the new Swift
launch and T20 World Cup. Margin improvement was driven by the reversal of
one-off costs in 4Q (60bp benefit), lower input costs (+30bp), favorable currency
(Yen depreciated vs. USD) and higher other operating income.
Going forward, the management expects part of the forex benefit to normalize.
Dealer Inventory stands around 37 days at the end of 1QFY25 (vs. 30 days’
optimal inventory).
Road tax rebate in UP on strong hybrids: The management indicated that it is
too early to comment whether this has benefited retails.
Other highlights:
Presently TDSG plant in Gujarat is producing LTO chemistry cells locally for
hybrid vehicles. MSIL will explore various chemistries for Indian market in
consultation with Suzuki. It would be launching 6 EV models by 2031.
MSIL believes the government will stick to its current deadline for meeting
CAFÉ-3
norms by 1st Apr’27.
Royalty stood at 3.5% for 1QFY25.
MSIL now has a network of 3,000 Arena outlets and 5,000 service touchpoints.
Export revenues for 1QFY25 stood at INR44.8b.
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Motherson Wiring
Current Price INR 72
Buy
Click below for
Detailed Concall Transcript &
Results Update
Revenue growth in 1QFY25 was led by an increase in volumes as well as content.
Overall, the long-term outlook is positive for the industry, as the OEMs are
announcing new capacities and introducing new models.
Hybrid volume for the industry grew ~34% YoY, while it grew ~11% for EVs.
Facilitating improved customer demand with two greenfields, one commenced
operations in Jul’24 and is likely to fully ramp up by 2Q-3QFY25,
while the other
is likely to come on stream by 1QFY26. There was a delay in SOP at the customer
end, and hence, this plant got delayed by a couple of quarters.
Gross margin has remained stable QoQ despite higher copper prices due to
better product mix and localization. However, start-up costs for these two
greenfields have led to higher employee costs and other expenses.
The company has maintained its capex guidance of INR2b for FY25.
The company is not taking the benefits of PLI as it is a pass-through given that
OEMs would be taking the same.
The royalty payment for the company was in INR denomination.
Samvardhan Motherson
Current Price INR 194
Buy
Click below for
Results Update
Macro factors:
Some regional challenges remain. There has been a spike in
container costs and transit time due to the Red Sea crisis, leading to inventory
build-up. Commodity prices, especially copper prices, are softening after an
inflated quarter. 2Q automobile production to remain muted due to holidays in
Aug’24. For FY25, global light vehicle production is likely to decline a bit or
remain flat YoY.
Automotive production:
Global light vehicle production volume growth
remained flat YoY in 1Q. While China, India, North America grew, the EU
declined mainly due to a delay in EV launches. Automotive megatrends (Rise in
SUV, hybrid penetration) continue to support content growth for SAMIL. There
is a slowdown in EV production, as the life of ICE platform is getting extended
across Europe and North America.
SAMIL posted a strong revenue growth of 29% YoY despite muted industry
volumes led primarily by acquisitions (INR 62.5bn in revenue from acquired
assets included in 1Q).
Reduction in RM costs on a YoY basis was due to: a) improved mix (integrated
assemblies’ integration that has lower RM and remained a high-margin
business), b) repriced products with customers, c) RM cost pass through.
Debt:
Net debt has increased by INR30b mainly contributed by a) INR17.5b
impact on net debt on account of M&A closures during the quarter b) Expansion
in working capital on account of red sea crisis and volatility in customer
production schedules which is expected to normalize in H2FY25
August 2024
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Investments mostly in emerging markets: 19 greenfields across four emerging
markets (13-India, 4-China, 1-Poland and 1 in Mexico) for auto and non-auto
business.
Wiring harness:
Revenue growth supported by increased intake in truck OEMs
in North and South America. Content increase in India due to operational
efficiencies supported by insourcing activities. Wiring harness facility of Lumen
acquisition included in the quarterly numbers.
Modules and Polymers:
Revenue growth was due to: a) mix and content
growth, and b) successful integration of Yachiyo 4W business. Dr. Schneider was
absent in the base quarter. These factors were partly offset by the decline in
production volumes in Europe mainly due to delay in EV launches.
Vision systems:
Revenue growth was aided by newly acquired Ichikoh’s mirror
business not being there in last 1Q and volume growth in China. This was offset
by delayed EV launches in EU/NA impacting production volumes.
Integrated assemblies: Three new Greenfields are being setup to support
customers in China (2) and Mexico (1); expected to start operations in Q4 FY25.
MOTHERSO has posted 18% annualized RoCE in 1Q and management expects
the same to continue to improve in FY25 on the back of synergy benefits of
acquisitions closed.
Emerging business:
a) Automotive:
Expanding geographical presence in Elastomers. Focus on
localization in lighting and electronics
b) Non-automotive:
Aerospace:
2 facilities in India supporting new product lines and vertical
integration to come on stream in H2 FY 25. Order book of USD1.3b is spread
over 10 years. It is seeing some headwinds globally in this field but India remains
a bright spot.
Consumer electronics:
It would initially invest ~INR26b over a period of time.
These investments would be utilized for the JV with BIEL Crystal (leading
supplier of smartphone glass) and assembly of components. Manufacturing with
the JV partner would start by end-2HFY25 and would see a ramp-up in FY26.
Health and medical:
Development of Laparoscopy Imaging System achieved,
currently optimizing manufacturing process for Q3FY25 product launch
Other pointers:
Capex guidance of INR50b in FY25 maintained (Capex of INR1.78b in 1QFY25).
JV with Sojitz Corporation should see an outflow of INR2.4b in 2QFY25.
Motherson Auto solutions (MASL) holds 66% share and Sojitz hold 34% stake. It
is engaged in the business of acquiring, developing, operating, selling, renting,
leasing of facilities and operating of Industrial Park with ready built in factories
along with necessary infrastructure.
Issued first dual investment grade bonds of USD350m which would help prepare
MOTHERSO for future opportunities (organic and inorganic).
EVs contribution: Stands at 9% of overall revenues. Power agnostic approach of
business is helping the company to grow.
August 2024
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SONA BLW Precision
Current Price INR 682
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Region wise demand commentary
The Indian e-2Ws market continues to face challenges related to FAME and the
subsequent fall of demand. It is also seeing some launch delays in e2Ws. Most of
the e2Ws have come close to ICE price points; despite that the ramp-ups have
been very slow, indicating structural demand issues. Given this, the company
will focus more on e-3Ws, e-LCVs, and e-buses.
The US off-highway
market continues to struggle and SONACOMS’ high market
shares in this category adversely impacted the driveline segment.
Europe
–
Continues to remain weak.
The order book as of 1QFY25 stood at INR233b (vs. INR226b in 4QFY24), as it
added INR11b orders during the quarter. The EV order book stood at INR184b
and now contributes ~79% to the total order backlog.
The company has 27 EV programs in production by 1Q end, 12 of which are
matured and completely ramped up and 15 are in various stages of ramping up.
New products
In 1Q, the company has commercialized two products and added two new
future products to its technology roadmap- i) integrated motor controller for
hub motors, and ii) integrated motor controller for high voltage systems.
The company is integrating its drive motor technology into hub motors,
expanding from 96 volts to 350 volts, ideal for three-wheelers and light
commercial vehicles (1-1.5 ton). This enhances efficiency and performance. It is
developing in-house motors in the 40-50 kilowatt range. For higher kilowatt
motors (above 350 volts), it has agreements to support larger applications.
Development is on track, and it'll soon approach customers.
The company has won the product orders in:
Sensors and Software business- The order was won for in-cabin sensors for a
new electric passenger vehicle OEM in Asia. This has added INR1.5b to the order
book, and SOP is from 3QFY27. This product aligns with its vision of integrating
advanced safety features into modern electric vehicles. This is an EV specific
product but can be cross sold to other players.
Driveline- The order was won for the final drive differential, intermediate gears,
input shaft, and park gear for Class 5 Electric CVs. This was for an existing
customer based in North America, and this would add INR6.8b to the order
book, and SOP is from 4QFY25.
Novelic:
SONACOMS aims to make it one of the most respected and valued sensing
companies globally.
The first set of customers would be more from Europe and US. Entry into India
would be at later stage.
It is focusing on integrating millimeter-wave radar with cameras for a
comprehensive solution.
ACAM is key, as in-cabin sensing becomes essential with NCAP standards.
Despite delays, it will be implemented in all vehicles. It also aims to add features
like intrusion and proximity alerts.
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Additionally, it is expanding into mobility solutions for industrial areas and
enhancing its semiconductor chip design business. This involves shifting more
functionality to software, leveraging NOVELIC's expertise in integrated circuits.
Fundraise - SONACOMS has passed an enabling resolution for the fundraise of up
to INR24b.
This has been announced to fund any strategic inorganic growth opportunities
or partnerships that it may consider. The company has been working on this for
last 5-6 months. Management has clarified it would focus only on the mobility
segment.
Financials
Tax adjustments resulted in exceptionally lower taxes in 4QFY24; the average
tax rate for the year is expected to be 24-25%.
PLI: The company indicated that the industry is not going to receive incentive in
FY25, hence, it is not accounting for any PLI this year, but might probably do it in
FY26E.
Tata Motors
Current Price INR 1,085
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Tata CV business
Realization declined QoQ due to lower salience of MHCVs and there was a shift
from multi-axle vehicles to tractor trailers.
1Q fleet utilization was healthy.
Jul’24 wholesales were weak largely due to heavy rainfalls in many
parts of the
country, which affected infra and mining projects and goods transported on
highways. Customers have also postponed purchases in Jul’24. Also, a few
customers expect payment release from the government soon.
Overall, the management remains upbeat about growth prospects for the
industry in H2FY25 given healthy monsoon, policy continuity and continuing
thrust on infra push from the government. CV passenger segment is likely to see
higher growth in FY25.
Margins can see an uptick if demand recovers in 2H on expected lines.
TTMT has deployed total 2900+ EV buses till date (over 160 buses in 1QFY25).
Ace EV has received PLI certificate. Under TML Smart Mobility, deployment
under CESL tender continues. Over ~1,300 buses were deployed in Delhi and
Bangalore. The deployment of electric buses in Jammu and Srinagar is nearing
completion, with ~200 buses already operational.
Tata PV business:
Channel inventory stood at 35-40 days (vs. 30 days normally).
Focus remains on maintaining Vahan market share, which stood at 13.7% in 1Q
vs. 13.9% in FY24.
Penetration of CNG vehicles and EVs stood at 22% and 12%, respectively, for
TTMT. The management maintained that TTMT is well placed to meet the
current and future emission norms.
Input cost reduction has led to improvement in EBITDA margin YoY despite a
drop in volumes. However, margin miss relative to estimates have been due to
rising discounts.
EBITDA margin for ICE stood at 8.5% in 1QFY25 vs. 8.6% in 1QFY24.
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EV business-
For EVs, adjusted for P&D spends, EBITDA margin was 0.1% in 1QFY25 vs. -6.2%
in 1QFY24. Margin expansion was led by cost reductions and tailwinds of battery
prices. It expects a sequential improvement in margin led by the launch of Curvv
and festive demand sales.
Auto PLI SOP: As of now, in PVs, Tiago is ATI certified. All the sales happened in
FY24 are eligible for claiming PLI incentives. TTMT plans file claims by Sep’24.
In FY24, fleet segment accounted for 10% of EV sales for TTMT, which dropped
to 5-6% in 1Q. EV sales rose 2-3x due to pre-buys as FAME-2 was set to expire
w.e.f March2024. This impacted 1Q EV volumes.
Others:
Net auto debt increased to INR186b in 1QFY25 from INR160b in FY24 due to
dividend payments and seasonality impact.
Tata Motors Finance (TMF): Disbursements stood at INR45.2b for 1QFY25, up
33% YoY. Focus remains on sourcing quality and pricing discipline. Collection
efficiency came in at 96.8% in 1Q (96.6% YoY). Capital adequacy stood at 19.7%,
with Tier-1 capital at 11.6%. DE ratio stood at 7.1x (up 28bp YoY). Liquidity is
adequate at INR410b. GNPA stood at 5.8% in 1QFY25 vs 8.1% in 1QFY24.
Demerger of CV business is likely to happen in the next 12-15 months and the
appointed date for this transaction would be around 1st Jul’25.
Tube Investments
Current Price INR 4,050
Buy
Click below for
Detailed Concall Transcript &
Results Update
TI standalone:
The company is aiming for double-digit growth in the core
business. Growth will be driven by three factors: 1) growing construction and
non-auto industries, 2) demand in EVs for lighter components where it has
expertise, and 3) export opportunities where it can leverage its strong market
presence in metal forms and tubes globally.
In 1QFY25, PVs and CVs witnessed slowdown, while 2Ws saw a revival.
Standalone business has performed in line with the industry if not better.
Exports:
19% of revenue for engineering business and 14% for overall business.
Freight is challenging due to the Red Sea issue.
Engineering division:
The capacity expansion for large diameter tubes will
materialize over a period, but some part of it is ready. After the full
commissioning, capacity utilization will come down to ~70% from 85-90%, which
would be sufficient for the next two years.
Metal formed:
It is dependent on the 4W segment (~50% revenue contribution),
which remained muted in 1Q; it is a temporary issue. Railway margins are under
pressure because of participation in the tender business. Both of these issues
should be resolved in the next couple of quarters.
Mobility:
Cycle business has started to stabilize. Currently, it is working on
exports and e-bikes, which have huge growth prospects in the future.
EVs:
The company wants to be among the top-2 players in all the businesses and
aspires for 20-25% market share in each of the segments.
Currently, growth is coming from 3Ws and IPL. E3Ws and E-HCVs contribute
1/3rd and 2/3rd of sales, respectively. It expects these volumes to grow
significantly over the next 2-3 quarters.
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E3W:
Proceeding reasonably well and has good market share in south, wherein
it is growing steadily. It is making inroads in the key markets the north and
garnering a market share of 4-5%. The company has total 70 dealers across
India, which should increase to 150 by FY25 end.
E-HCV:
It currently has one product of 55 ton (6x4) and will launch the 2nd
variant by Sep’24.
This will take it to 20% of the TIV. Later, it plans to launch the
3rd and 4th products in 3Q and 4Q, respectively. It is making good progress with
customers.
In E-HCV, it is getting repeat orders. Customers are saving 10-15% on the
running cost. It is currently receiving truck orders from steel and cement
industries.
TIINDIA aims to reduce the manufacturing cost significantly over the next 1-2
years by- i) Indigenizing more by developing supply chain in India, ii) developing
own capabilities in control unit, iii) packing batteries, and iv) focusing more on
mechanical components. This will be further complemented by reducing battery
prices.
Railways-
A large part is under CG Power. It is growing at good pace and should
continue in the coming quarters. CG side will start scaling up.
The train collision avoidance system is going to be the focus area for the
railways in the coming years. These tenders will come out in Oct’24 and a ramp-
up is expected to happen later in FY25. The company is building up significant
engineering capabilities as this is going to be a huge growth area in the next 3-5
Medical devices-
The business is doing well and the company is investing in new
product development as well as on the sales side. It is putting up a greenfield in
Noida for medical consumables. It is currently in the process of land acquisition
and should start commercial production in 2QFY26. years.
Electronics:
TIINDIA is working with customers for lens, particularly in the
approval process, wherein samples have been approved and the company is
now in the process of ramping it up. Currently, it is facing supply chain
challenges in the business as it is significantly controlled by China.
Lotus surgical:
It has started exports to 1-2 countries already and is waiting for
approval in a few more countries. It will take another 2-3 quarters to get into
ramp-up phase.
TI Clean Mobility:
The company has raised total capital of INR30b. The largest
part of the fund will be utilized for factory construction and tools (INR10-11b
still in the bank). This ensures sufficient capital for growth plans without
needing additional funds from TI3 cash flow, except for potential rapid scaling.
Capital allocation will focus on TI Medical and a new sector, with electronics
receiving minimal initial investment until proven viable.
TVS Motors
Current Price INR 2,630
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Domestic demand -
Vahaan reported ~13% YoY growth for the 2W industry in
1QFY25, with rural growing ~17% YoY. With normal monsoon expected for this
fiscal, TVS expects rural recovery to drive sustained momentum for the industry
in the coming quarters. Management expects the 2W industry to post 10%+
growth for FY25E.
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Exports -
There were some challenges in Red Sea that were affecting the transit
times and timely availability of containers.
African markets face currency devaluation and inflation, but further decline is
unlikely given the low base and management expects a gradual pick-up in sales
in the coming quarters. LATAM and the Middle East offer significant growth
opportunities for TVS. ASEAN is likely to take some time to revive. Demand in
Nepal is healthy. Despite the current ongoing in Bangladesh, the region is
expected to normalize soon. TVS does not have a material exposure in
Bangladesh.
It has started entering the European markets (like Italy) through BMW. They are
now introducing TVS-branded products in the region. Management believes that
market penetration in developed markets will need a lot of patience.
Accordingly, TVS will focus on investments in the region towards dealer
identification, market presence, and EV product launches over the next three
quarters.
New launches-
One new product in ICE and one each in 2W/3W EV to be
launched soon.
EVs-
Introduced a new variant to make it accessible during the quarter. Feedback for
the product is positive.
It has 750 EV dealers covering over 450 cities for the iQube.
It is expanding it to developed and developing export markets. It will soon
export EV products to ASEAN markets, with testing already done. Local sourcing
and the ASEAN FTA with Indonesia will provide advantages.
PLI- TVS did not recognize the PLI incentive in 1Q and is expected to do so in
subsequent quarters. It has received PLI certification for two of the iQube
variants, which has contributed to major volumes currently.
TVS Credit-
It has now ~15m customers and the book size is ~INR263.5b. The
book size grew ~20% YoY in 1QFY25. PBT grew 19% YoY to INR1.87b. Net worth
for TVS Credit stood at INR43.44b as on June’24 vis-à-vis
~INR38.65b as of
Mar’24.
Norton-
It is going to launch six new products over the next three years, with
the first launch likely by 4QFY26 end. The new range of motorcycles will be
more affordable than the earlier line-up. TVSL has so far invested INR12b in
Norton.
Europe e-bike market update:
Europe’s sluggish economy and high industry
stock levels have led to significant discounts in the e-bike segment in Europe.
Despite the near term headwinds, management believes long term prospects
for e-bikes in Europe remain promising due to the large market potential.
Capex and investments-
The company has guided a capex of INR 10-11 billion
for FY25, with similar guidance for investments. In 1Q, major investments were
INR3b in TVS Credit, INR1b in Norton, and INR0.3b in the e-bike entity, with a
smaller amount in TVS Digital.
Financials-
Other expenses in 1Q were high due to: i) Variable expenses such as packing and
freight by INR600m, ii) brand-building activities raised marketing expenses by
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INR870m, and iii) investments in digital technologies and innovation added
INR350m.
Revenue from international market was ~INR19.63b for 1QFY25. Spares revenue
stood at INR8.46b.
The 1.4% QoQ benefit in gross margin is mainly due to sustained material cost
reduction and an improved product and geography mix. TVS has taken 0.2%
price increase in 1Q and a similar hike in July as well. There was some impact of
RM increase in 1Q, with aluminum prices increasing, while other materials and
precious metals softened. It expects a mixed outlook for commodities, with
some slight increases likely.
Staff costs increased due to performance appraisal accounting for ~10%,
increase in employee strength in the area of digital, EV and software as it has
added 450-500 employees.
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CAPITAL GOODS
| Voices
Companies continue to witness strong traction from sectors such as power T&D, renewable energy, data
centers, real estate, and defense. International geographies are a mixed bag with robust traction in the
Middle East and Africa being offset by muted conditions in developed countries, owing to geopolitical
tensions, elevated interest rates, and a subdued macroeconomic scenario. Margin performance for EPC
players is expected to see an uptick from 2HFY25 as newer orders booked at favorable prices come up for
execution and input costs remain benign. Order inflow too is expected to ramp up with the elections and
budget behind us. The domestic enquiry pipeline is shaping up well and is expected to translate into firm
orders. Availability of labor is a key monitorable going forward, as EPC players reported lower-than-expected
domestic execution owing to the shortage of skilled and semi-skilled labor.
Domestic Capex Cycle
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook
Cummins
Double-digit revenue growth guidance for FY25
Robust demand from commercial and residential
real estate, data centers, etc.
The industrial demand is robust, fueled by
construction.
Strong demand from infrastructure, construction,
railways, and defense
KOEL
Unveiled a new strategy of 2B2B in the next five years
Larsen and
Toubro
FY25 revenue and OI growth guidance at 10% and
15%, respectively. Margin guidance is 8.25%
Outlook remains robust on the back of government
spending and stable macro situation. Uptick
expected in domestic order inflows in 2HFY25
NA
Thermax
Pipeline is shaping up well for thermal, steel,
refining, and petrochemicals.
Bharat
Electronics
Order inflow guidance at INR250b, 15% revenue
growth, and 23-25% margin for FY25
NA
Triveni Turbine
Robust prospects for exports and aftermarkets in the
near to medium term
Domestic order inflows to improve post-2QFY25
Enquiries remain robust, and the company expects
order finalization in the coming quarters.
Hitachi Energy
NA
Robust traction in power T&D, renewables, data
centers, etc.
Kalpataru
FY25 to see 20% revenue growth, PBT margin at 4.5-
5.0%, NWC below 100 days, and order inflow guidance
of ~INR220-230b
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
FY25 order inflow guidance at ~INR250b, revenue
growth of 15%, and margin guidance of 7.5%. while
double-digit margin performance is expected in FY26
T&D pipeline in both India and international is
robust at ~INR1.5t
August 2024
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ABB India
Current Price INR 7,916
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand:
The company is witnessing robust traction in high-growth segments
such as data centers, railways, metros and electronics, where it has a significant
presence across the value chain. These emerging sectors are also seeing strong
momentum in large orders. While there was a transient moderation in enquiry
levels owing to elections and union budget, the overall pipeline continues to be
buoyant. Management believes India is lagging China by 20-25 years, which
provides the company a long growth runway.
Market scenario:
ABB India is reaping the benefits of initiatives undertaken in
the last 4-5 years in India. After Covid, the company is experiencing accelerated
demand for its products as customers prefer quality, reliability and service over
price, which bodes well for the company. While the company has no plan of
significantly expanding its capacity, which is sufficient for the next few years,
some of the divisions have drawn up plans to increase capacity to cater to
improved export mandates from the parent.
Margins:
EBITDA margin rose to a record high on the back of product mix,
pricing action, design optimization, and a higher share of services and exports.
Out of the ~530bp YoY expansion, ~350bp was led by product mix.
Ordering:
Order inflow growth of 13% was entirely contributed by large orders
(INR5.4b, +245% YoY) as base orders were flat. Export orders grew 39% YoY;
however, the company has a selective approach. About 40-45% of orders are
long-gestation orders (15-18 months), which have variable price in nature, while
the remaining orders are short-cycle orders executable over 6-9 months.
Segment-wise
Electrification:
Revenue grew 12% YoY owing to robust execution of backlog.
Margin improved ~680bp YoY due to a favorable revenue mix and efficient
capacity utilization. It received key orders from data centers, smart power,
power distribution solutions and higher service orders. Reported revenue could
have been higher, but elections and budget delayed revenue booking.
Motion:
Order inflow (+18% YoY) was buoyed by large order wins for traction
technology from railways and metro. Revenue grew 17% YoY on contribution
from propulsion equipment and high dynamic performance motors, coupled
with higher share of exports and services. Margin saw a robust expansion (to
23.1% vs. 14.5%) owing to superior price realization and revenue mix. IE3 and
IE4 motors accounted for more than half of ABB India’s production,
underscoring its acceptability in the market.
Process Automation:
Order inflows declined 32% YoY as the base quarter had a
large order win. Revenue, however, grew 24% YoY on better execution and
share of services and exports. Margin expanded ~510bp on higher mix of energy
industries.
Robotics:
Order inflow surged 157% YoY driven by inflows from automotive
sector. Revenue was declined 31% YoY on a high base. Margin expanded ~200bp
YoY on higher share of service revenue. There was no impact of elections on the
segment, and number of robots grew by 50% in CY23 over CY22.
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Cummins India
Current Price INR 3,833
Buy
Click below for
Detailed Concall Transcript &
Results Update
Domestic powergen:
Management is confident on the long-term sustainability
of demand as investments in infrastructure will continue for the foreseeable
future. Sectors such as data centers, infrastructure, real estate (commercial and
residential), and manufacturing, continue to drive demand. Even though India
has managed to sharply narrow the power deficit, inelastic demand for
uninterrupted power will continue to propel demand for gensets as a backup,
and price hikes will not act as a deterrent. While KKC has been weak in the LHP
nodes, the advent of CPCB4+ is expected to provide a fillip to the company
owing to its tech-led offerings.
Exports:
There are nascent signs of a bottoming out, as the Middle East and
African markets are seeing an uptick while other geographies are largely flattish.
This has resulted in a sequential improvement of 13%. Due to tepid local
demand, certain countries are resorting to dumping their excess inventory in
LatAm, South Asia, Africa, etc.
Industrial segment:
Reported 55% YoY growth on the back of robust activity in
the construction space, as well as railways, mining, marine and compressors.
The company expects this momentum to continue owing to the government’s
thrust on infrastructure, manufacturing and defence.
CPCB 4+ transition:
CPCB 4+ accounted for ~30-40% of Powergen revenue
during 1QFY25. There is no channel inventory for CPCB 2 products owing to
strong demand traction. With a healthy order backlog, KKC will try to replenish
the depleted inventory in coming quarters. While there is no imminent pricing
war, further clarity will emerge as to how various players try to position
themselves in the market in due course of time. Price hikes so far have been in
the 15-25% range.
Margin:
Stellar margin performance during the quarter was supported by
various factors, such as product mix, favorable pricing, and benign commodity
costs. However, copper and aluminum have now started inching up. Such high
margins will not be sustainable going ahead once the commodity cycle turns.
1QFY25 revenue breakup:
Industrial
–
INR3.14b (+55% YoY), Powergen
–
INR8.03b (-8% YoY), Distribution
–
INR3.89b (+23% YoY), HHP exports
–
INR1.55b (-25% YoY) and LHP exports
–
INR2.02b (-17% YoY).
Kalpataru Projects
Current Price INR 1,238
Buy
Click below for
Detailed Concall Transcript &
Results Update
T&D segment
–
The outlook remains robust across both domestic and
international markets, such as the Middle East, Europe, Africa, Australia and
LatAm, driven by growing energy demand, energy transition and investments in
infrastructure. In India, the company sees a pipeline of INR500b for the next 3-4
months. 1Q saw order inflows of ~INR33.8b in India, Europe and the Middle
East, while the company is L1 in contracts worth INR40b. Revenue for 1QFY25
was impacted by a severe shortage of manpower, owing to elections. Notably,
newer orders have been booked at better margins.
Non-T&D
–
The outlook remains robust for the B&F, oil & gas and urban infra
segments, while it would be noticeably weaker for Railways. In B&F, KPIL won a
large order in real estate and expects the segment to clock double-digit growth.
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In oil & gas, the company sees a stronger international pipeline than domestic.
KPIL would continue with its selective approach for railways and the company
does not see any growth prospects in either FY25 or FY26. The Water business
too was impacted by labor shortage and payment delays, which should improve
in the coming quarters.
Oil & Gas
–
The segment is poised to grow by over 50% on a low base, aided by
the execution of the Saudi Aramco order, which will ramp up Dec’24 onward
(resource mobilization has already started). Pipes required for the project will
be supplied by the customer, so KPIL will not be tasked with procurement.
Guidance
–
The management has reiterated its FY25 guidance of 20% revenue
growth, PBT margin of 4.5-5%, NWC below 100 days, and interest cost of below
2% (as % of sales). Capex will be in the range of INR5-6b, a third of which is for
the urban infra segment. Order inflows would be in the range of ~INR220-230b.
Except for Railways, all other segments will report a minimum 20% execution
growth.
Non-core assets
–
Indore real estate saw revenues of INR230m in 1QFY25.
Collection was INR3.5b (INR1.5b to be collected). 80% of the inventory has been
sold, with the balance to be sold in FY25. VEPL equity funding is ~INR3.9b, while
debt funding is ~INR2.8b. KPIL expects to sign an agreement in 2Q for the
disposal of VEPL.
International subsidiaries
–
LMG and Fasttel are both sitting on healthy order
books (INR30.8b and INR12b, respectively). LMG order inflows stood at
INR13.7b, while Fasttel did not receive any order inflows. KPIL expects 30-35%
growth with 5-6% EBITDAM for FY25. Fasttel is out of legacy projects and is
expected to turn profitable by 2Q or 3Q. The growth guidance is 20% with 8-9%
EBITDAM.
Kirloskar Oil
Current Price INR 1,372
Buy
Click below for
Detailed Concall Transcript &
Results Update
Powergen segment:
The demand environment continues to be strong, and the
company is not seeing any signs of a softening. The company has relatively
lower market share in the above 750kva segment, which provides it with a lot of
headroom to expand, with its newer offerings both on the diesel and gas sides.
Overall genset market share stands at ~30%. In data centers, it has a minimal
presence, but new launches will aid the company in making inroads. Notably,
the Optiprime series has received a healthy response.
Industrial segment:
Demand continues to be strong on the back of continued
investment in Infra development in the country. Traction is being witnessed in
construction and railways segments. BSV program is on track, while the order
book continues to be strong.
Exports:
Exports grew YoY to INR1.1b, as the company is looking at each country
with a different approach. The investment in the Wildcat brand is part of the
strategy to gain entry in the US market. The ambition is to have 30% revenue
contribution from exports, going ahead.
B2C:
WMS revenue grew well at 23% YoY, while FMS revenue continued to
decline (-35% YoY). Overall, B2C grew 14% YoY in 1QFY25. EBIT margin
trajectory is on an upswing with 8.4% in 1QFY25 vs. 5.2% in 1QFY24. The
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management aims for further improvement toward 10-11% margins in B2C
segment in the coming years.
Capex:
Current installed capacity of 135k engines per annum (utilization level:
70%) will be expanded to 185k engines per annum with an outlay of INR7b, over
a period of 3 years.
CPCB 4+ transition:
CPCB 4+ accounted for ~40% of Powergen revenue during
1QFY25. Price hikes have been in the range of 30-40%, and the company is
closely watching how the market dynamics play out in terms of pricing
environment. KOEL expects some consolidation in the below 250kva nodes to
take place due to CPCB4+ transition.
Strategy:
The company unveiled its 2B2B strategy to grow the business to
USD2b in the next 5 years at the consolidated level. All the businesses have
been given milestone targets with specific timelines over FY26-30 in order to
achieve the strategy. As part of this, the B2C business is tasked with improving
its capacity utilization, gaining market share and expanding the product
portfolio. Similarly, the powergen and industrial businesses would target the
execution of the technology roadmap, explore inorganic growth opportunities,
expand global footprint, improve share of defence and railways and expand to
non-ICE programs.
KEC International
Current Price INR 845
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Order inflows
–
1QFY25 order inflows saw a healthy growth of 70% at INR76.6b,
driven by strong traction in T&D, taking the order book to INR327b (+9% YoY).
Supply chain issues that had weighed in on execution have eased considerably
and the company expects further improvement by 3QFY25.
Execution
–
Despite a strong opening order book, revenue grew 6% YoY to
INR45.1b, as execution in T&D and Civil segments was hit by shortage of skilled
and semi-skilled labor owing to the elections.
Guidance
–
Maintained FY25 order inflow guidance of ~INR250b, revenue of
~15%, and EBITDA margin of 7.5f% with 4QFY25 margin closer to 9%.
T&D segment
–
The order pipeline continues to be robust at INR1.5t across
India and key markets such as Middle East, SAARC, Africa, etc. In Saudi Arabia
and Abu Dhabi, KEC is seeing a lot of traction in terms of volume of tenders.
Civil segment
–
Bagged orders from residential and commercial real estate,
while other areas such as industrial capex, airports, hospitals, etc. are noticeably
weaker, adversely impacted by elections. Going ahead, the company expects
these segments to pick up and is also seeing a lot of focus on water projects,
driven by budgetary allocations towards Nal Se Jal, AMRUT scheme, lift
irrigation, etc. Accordingly, it has guided for 30% revenue growth in FY25.
Cables segment
–
Cables business is proposed to be transferred to a separate
subsidiary, so as to retain the core EPC focus of the main entity. In fY24, it
clocked in revenue of INR16.5b, and the company expects to take it to INR20b in
FY25. Beyond that, it has guided for 20% CAGR for the coming few years. FY25
capex outlay is pegged at INR1b for FY25, which will take the peak revenue
potential to INR30b. Once the business becomes an independent entity, it will
have a higher capex run-rate.
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Others
–
Afghanistan pending dues are at ~INR2b, while collection in 1QFY25
was INR1.6. The company has won arbitration case against PGCIL, with proceeds
of INR240m. The conductor capacity will come on line in 3QFY25. SAE has seen
debt repayment and now stands at INR3b. Notably, interest cost has come down
to 10.5% resulting in improved balance sheet health and the subsidiary has
become self-sustaining. It is targeting 10-12% growth in FY25.
Larsen & Toubro
Current Price INR 3,596
Buy
Click below for
Detailed Concall Transcript &
Results Update
Core order book up 19% YoY
–
The order book at the end of 1QFY25 stood at
INR4.9t. Inflows during the quarter grew by 8%, largely led by international
geographies (+25% YoY), while domestic inflows declined 1% owing to the
election cycle. About 62% of the order book is domestic and 38% international.
The domestic order book comprises state PSUs (37%) and states (28%), center
(14%) and private sector (21%). About 18% of total order book is funded by
multilateral agencies.
Order prospects at INR9.07t
–
The prospect pipeline for the remainder of FY25
stood at INR9.07t vs. INR10.07t for the corresponding period of FY24. This
reduction was due to reduced prospects in the hydrocarbon space as LT failed to
secure certain tenders, while some orders got deferred or shelved altogether.
Infrastructure segment prospects stand at INR6.02t spread across water (20%),
power T&D (22%), transportation infrastructure (23%), buildings and factories
(12%), heavy civil (18%), metallurgical and material handling (5%). Energy
segment prospect pipeline of INR2.62t is spread across hydrocarbon (INR2.17t
and power INR0.45t. Hi-tech manufacturing order prospects stand at INR310b,
while green energy prospects are INR0.1t.
Working capital at comfortable levels
–
Even though working capital as % of
sales saw a sequential increase from 12% to 13.9%, it remains within
comfortable levels and improved from 17% in 1QFY24. The sequential increase
was driven by gross working capital buildup. Customer collections continued to
improve YoY (INR459b vs. INR439b).
GCC capex is diversified
–
While the prospects for hydrocarbons have seen a
setback, other areas such as oil-to-chemicals, gas-based projects, renewable
energy and transportation infrastructure are seeing strong traction in the
Middle East region and the company is well-placed to benefit from the same.
The management is confident of achieving revenue and margin guidance if
execution happens as per the schedule and commodity prices remain stable, as
most contracts are fixed price in nature.
Emerging opportunities shaping up
–
With the measures announced in the
budget and activity taking place in emerging segments, the company is looking
to capitalize on upcoming opportunities in nuclear energy, green hydrogen,
solar projects, pumped storage, offshore wind, etc. Large-scale solar projects
are more prevalent in international geographies, which is reflected in the
current solar order book of INR550-600b.
Hyderabad metro performance
–
Average ridership slightly improved to 432k
pax/day from 442k pax/day in 1QFY24. However, there was a sequential
decrease (442 pax/day). The company is in talks with the Telangana government
to secure additional funding in the form of soft loans.
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RoE improvement levers
–
Despite cutting its FY25 margin guidance to 8-8.25%,
the management is confident of a healthy improvement in RoE on the back of a)
Hyderabad Metro achieving breakeven, b) capital restructuring in terms of
rewarding shareholders, and c) core E& margin improvement.
Labor availability
–
The company highlighted that domestic execution was
impacted by shortage of skilled labor, owing to the general elections, heat
waves and higher demand in foreign countries. While some of these factors are
expected to see a reversal, a prolonged continuation of the situation could have
implications on the execution front.
Thermax
Current Price INR 4,501
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Order pipeline
–
After a lull due to the general elections, the pipeline is shaping
up well for sectors such as thermal power, steel, refining and petrochemicals.
While the pipeline for thermal power is developing the fastest, the company will
adopt a selective approach as thermal projects haven’t been profitable in the
past. Refinery and petrochemicals will pan out over the medium term and there
are no immediate prospects. For ethanol, the pipeline has slowed down.
Notably, the international pipeline has recovered much faster than domestic.
Industrial Infra
–
TX faced challenges owing to the execution of bio-CNG
projects which led to the company taking a hit of INR450m during the quarter
(INR300m in TBSPL and INR150m in TMX). Additionally, there were further
impacts of INR80m on account of FGD projects, INR200m from sulphur recovery
units. TMX is avoiding projects where construction and civil works are a major
component as labour is in short supply. However, subsequent quarters will see
an improvement on the margin front.
Industrial Products
–
Newer products such as electric heater, electric boiler, bio
solutions, cooling solutions are getting good traction. New offerings towards
carbon capture, solutions for scrubbing of gases, ZLD will take some time to
scale up. Overall outlook on orders, revenue, margin is positive.
Chemicals
–
The current quarter faced some setbacks owing to supply chain
issues resulting in unexecuted orders. However, the supply chain has now
stabilized so going ahead there shouldn’t be any hiccups. In recent years, the
company has forayed into construction chemicals and entered into a JV with
Vebro Polymers, which can potentially propel overall Chemicals revenue to an
annual run-rate of INR2-2.5b.
Green solutions
–
FEPL will face a tougher year than was previously envisaged
and will report a loss in FY25 as well. The company is in discussions with
insurance companies to mitigate the impact of losses on account of flooding in
Tamil Nadu. Similarly, wind projects too are facing issues. Nevertheless, the
pipeline is very strong and the company will continue to be selective. TOESL
however, is on a strong footing and will do well in FY25.
FGD
–
The company has seen some delay in FGD projects which for which it will
incur site costs and additional vendor payments. The way tenders were
structured in the past was unfavorable to industry players and all of them
incurred losses. Therefore, unless the design of the same is changed, there will
be limited participation.
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CEMENT
Several cement companies are witnessing consolidation, which will intensify the industry, and this should
benefit in the longer term. Cement demand is expected to improve in 2HFY25, backed by infrastructure and
housing segments. Cement demand is estimated to grow between 6-7% YoY in FY25, considering muted
growth in 1HFY25. Cement prices have further declined ~1-2%
in Jul’24 vs. avg. of 1QFY25 and are likely
to
remain soft till CY24-end.
Capex plans
Capex in 1Q was INR20b and will be at INR80-90b in FY25.
Capex in FY26/FY27 will also be in the similar range.
The company commissioned two integrated units in 1Q and
each unit has a clinker capacity of 3.5mtpa. Other integrated
units too will have similar clinker capacities.
UTCEM’s capacity
addition accounted for 32% of 41mtpa
grinding capacity added in the industry in FY24. UTCEM
achieved a capacity utilization of 85% in 1Q on an increased
base. In FY25, the company will expand its capacity by
16mtpa, representing ~40% of the total industry capacity
addition.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Insights and future outlook FY25
UltraTech
Cement
Ambuja
Cements
In 1QFY25, UTCEM’s rural volumes grew 9% YoY, while
there was lower demand from the infrastructure
segment. Demand should improve going forward as
construction activities resume in Bihar and Andhra
Pradesh. Demand momentum should pick up in
3QFY25.
Industry volume growth is estimated to be 3-3.5% YoY
in 1QFY25. Industry demand should grow by 7-8% in
FY25, while UTCEM volume should grow in double
digits. Cement prices in Jul’24 are further down 1.5%
from the 1QFY25 average. Any price improvement will
be seen only in 2HFY25. Price improvements start
happening when all-India capacity utilization goes
above 85%.
Cement demand is likely to grow at 7%-9% YoY in FY25
to ~450mt supported by rising demand from housing
and infrastructure sectors. The government’s push
towards infrastructure and housing development
through ongoing housing for all schemes, the national
infrastructure plan, PM Gati Shakti National Master
Plan, and others will drive cement demand.
Opex/t declined 3% led by a decline in energy costs.
Kiln fuel cost declined to INR1.73/kcal vs.
INR2.08/INR1.84 YoY/QoQ. Freight cost declined 8%
YoY, led by footprint optimizations. The secondary
lead distance was reduced by 9km to 46km
and direct
Consol. capex was pegged at INR100b for the expansions
(including Penna acquisition), cost efficiency, and
maintenance capex. It expects cash and cash equivalent to
be around INR100b by FY25-end.
It also identified 14 additional grinding unit projects for
which land acquisitions and statutory approvals are under
progress, which will help to reach its capacity target of
140mtpa by FY28.
Shree Cement
dispatches increased 4pp to 55%.
Volumes rose 8% YoY; cement realization was
down 6% YoY. Management indicated that
cement demand would remain weak until CY24-
end and expects a full recovery from 4QFY25.
SRCM expects volume growth to be in line with
the industry in FY25.
SRCM posted an underwhelming performance in
1Q with a higher decline in realization (down 6%
QoQ vs. ~2-3% decline for peers; 6% below our
estimate). However, the cost was in line with our
estimates. Management indicated that cement
demand will remain weak until CY24-end.
Management expects 8% YoY industry volume growth
in FY25 and
reiterated DALBHARA’s volume growth at
1.5x of the industry’s growth. It estimates prices to
remain soft until the monsoon, and price hikes could
happen in 3QFY25.
Fuel consumption costs stood at INR1.38/Kcal vs.
INR1.45/Kcal in 4QFY24. It may decline by ~1-2%
sequentially.
It is working on 15.4mtpa grinding capacity addition in the
next two years, which includes - Ras, Rajasthan (6.0 MTPA),
Kodla, Karnataka (3.0 MTPA), Baloda Bazar, Chhattisgarh
(3.4 MTPA), and Etah, Uttar Pradesh (3.0 MTPA).
In the RMC business, the company currently has seven
plants with a total capacity of 624 cubic meter/h. It plans to
setup 100 concrete plants over the next five years,
operating in over 50 cities.
Dalmia Bharat
DALBHARA’s clinker/grinding capacities stood at
22.6mtpa/46.6mtpa (including Kadapa, Andhra Pradesh
–
1mtpa grinding capacity expansion commissioned in
Jul’24). It is progressing well on the ongoing expansion of
0.5mtpa in Bihar and 2.4mtpa in the Northeast to reach
49.5mtpa by FY25-end.
It committed to become a PAN-India pure-play cement
player with a capacity target of 110-130mtpa by FY31.
Management will share a detailed expansion plan,
including location and timeline of commissioning, after 12
months.
August 2024
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J K Cement
Birla Corp
Cement demand is weak, and JKCE expects it to revive
in Sep-Oct’24.
Cement prices are also under pressure
and down 1.0-1.5% vs. 1QFY25.
The company is targeting a cost reduction of INR150-
200/t in the next two to three years. Major areas of
cost savings will be 1) Logistics optimization
–
reduction of cost by INR30-40/t; 2) increasing green
power share; and 3) use of AFR. It expects INR70-75/t
savings in the first year and similar savings in the next
year.
General elections and an extended heat wave have
resulted in low cement demand in 1Q. It expects industry
volume to grow ~6-7% YoY in FY25. Cement prices
corrected due to low demand and aggression from the
market leaders. BCORP’s
realization drop was due to a
change in market mix and sharp correction in cement
prices in the company’s core markets. It hurt more in
Rajasthan and Gujarat markets.
Fuel consumption costs stood at INR1.48/Kcal vs.
INR1.56/Kcal in 4QFY24. The share of renewable
power stood at ~27% in 1QFY25 vs. ~23%/25% in
1QFY24/4QFY24.
The company’s realization drop was higher due
to
change in distribution mix and slightly higher clinker
sales (which has lower realization). Cement demand
growth is now expected 6-7% in FY25 vs. (earlier est.
of 7-8%).
Average fuel cost stood at INR1.63/kcal vs.
INR1.68/Kcal in 4QFY24. It expects fuel cost to be at
INR1.62-INR1.65/kcal.
Capex stood at INR1.75b in 1QFY25. It marinated capex
guidance of INR19b/ INR18b for FY25/FY26.
The company has a target to double it gray cement
capacity by FY30 and is positioned as among the top five
cement players in the country.
JK Lakshmi
Cement
It is expanding capacity in its core market eastern UP by
expanding capacity at Kundanganj plant and the same in
expected to be commissioned in 1HFY26. This will
strengthen the company’s position and competitiveness as
this plant will be eligible for incentive for the new capacity.
It is completing land acquisition in Bihar for its Gaya
grinding unit. However, it refrains from giving any
guideline about the capacity, investment and timelines.
Currently, the management has not provided any timeline
for the Greenfield expansion at Prayagraj, Uttar Pradesh.
However, it reiterated its capacity target of 25mtpa by
FY27. Management will further update on expansion plans
in coming months. Capex is pegged at INR8b in FY25E.
Consolidated capex stood at INR1.5b in 1QFY25, with an
expected spending of INR15-16b over 9MFY25.
Consolidated gross debt stood at INR20.5b and net debt
stood at INR16.5b as of Jun’24.
UCWL line 2 ramp-up is expected to be gradual as the
grinding capacity was commissioned in Mar’24 only. It
expects capacity utilization to reach ~60% by 4QFY25 and
further ramp-up upto 75% in FY26.
Ambuja Cements
Current Price INR 629
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand and pricing
Cement demand is likely to grow at 7%-9% YoY in FY25 to ~450mt supported by
rising demand from housing and infrastructure sectors. The government’s push
towards infrastructure and housing development through ongoing housing for all
schemes, national Infrastructure plan, PM Gati Shakti National Master Plan and
others will drive cement demand.
The company’s cement capacity increased to 89mtpa including the ongoing Penna
acquisition (likely to be completed in 2QFY25). Its current market (consol.) share is
~14% with an internal target to reach ~20% by FY28.
Operational highlights
Blended cement mix in the total sales volumes is maintained at ~86%. Premium
products as a % of trade volume increased 200bp to ~24%. Opex/t declined 3% led
by decline in energy cost. Kiln fuel cost declined to INR1.73/kcal vs.
INR2.08/INR1.84 YoY/QoQ. Freight cost declined 8% YoY, led by footprint
optimizations. The secondary lead distance reduced by 9km to 46km and direct
dispatches increased by 4pp to 55%.
WHRS capacity at the time of takeover
(in Sep’22) was ~40MW, which it is now
targeting to increase to 186MW by Mar’25. Currently the WHRS capacity is at
165MW. Also, it announced investments in other renewable power and setting up
of 1GW RE capacity, which is expected to be commissioned by FY26. It targets
August 2024
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CEMENT | Voices
green power share of 60% by FY28 and cost saving of INR90/t. The first phase of
200MW is expected to be commissioned in Q2FY25.
The share of WHRS in power mix rose to 15.1% vs. 11.5%. Further, it is focusing on
increasing AFR to ~27% by FY28, which has improved to 9.3% vs. ~7% earlier.
The second cost item is freight and forwarding cost. There are three focus areas of
cost reduction here, reduction in lead distance, warehouse optimization and
railroad mix optimization. It is targeting to reduce the average primary road lead
distance by about 100 km over a period of time. The company is also procuring 11
general purpose wagons (9 delivered and remaining are expected in 2QFY25).
Additionally, 26 BCFC rakes have been ordered to facilitate the movement of fly
ash. It will also introduce EV trucks in a few select routes which will be started in
2QFY25. It secured 275mt of new limestone reserves in 1QFY25.
Sanghi Industries: It is seeing a substantial improvement in volumes in Gujarat,
which is almost doubled, aided by Sanghi. The major refurbishment program,
which was part of its acquisition strategy and budgeted in the acquisition cost is
likely to be completed by Oct-Nov’24,
and thereafter it will start full utilization.
Further, regarding its investment at Jetty and the shipping infrastructure, the first
level of dredging has been done, and Immediately after monsoon, the next set of
investments would be made. The company also plans to set up 1GW of wind
power capacity at Sanghi to make that plant more cost efficient.
Capacity expansion and capex plan
It will commission 4mtpa of clinker capacity (line-III at Bhatapara) and 6.4mtpa of
grinding capacity (Sankrail - 2.4mtpa, Farakka - 2.4 and Sindri - 1.6 MTPA) in FY25.
In addition, preoperative work for 28mtpa grinding capacity and 22mtpa clinker
capacity is under progress. The GU at Salai Banwa, Uttar Pradesh to be
commissioned in 1QFY26 and brownfield expansion of Bhatinda, GU in Punjab and
Marwar Munda GU in Rajasthan to be commissioned in 2QFY26. With these
capacity commissioning the company’s grinding capacity will reach to 100mtpa by
2QFY26.
Clinker capacity of 4mtpa at Maratha, Maharashtra and aggregate grinding
capacity of 12mtpa at various locations (Warishaliganj, Bihar and Kalamboli,
Maharashtra, Mudra and Dahej in Gujarat) are expected to be commissioned by
FY26-end. It expects the grinding capacity to reach 112mtpa by FY26-end. It also
identified 14 additional grinding unit projects for which land acquisitions and
statutory approvals are under progress, which will help to reach its capacity target
of 140mtpa by FY28.
Around INR60b have been utilized out of which INR33b towards organic and
inorganic growth (acquisition of Tuticorin GU and Penna acquisition), dividend
payout of INR6.3b and balance towards working capital which includes higher
receivables during this quarter, higher inventory, lower payables and income tax
payout.
ACC is building cement houses in Ahmedabad and Delhi at capex of INR11-12b.
Capex: Consol. capex was pegged at INR100b for the expansions (including Penna
acquisition), cost efficiency and maintenance capex. It expects cash and cash
equivalent to be around INR100b by FY25-end.
August 2024
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CEMENT | Voices
Birla Corp
Current Price INR 1,307
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand and pricing outlook
General elections and extended heat wave have resulted in low cement demand
in 1Q. It expects industry volume to grow ~6-7% YoY in FY25.
Cement prices corrected due to low demand and aggression from the market
leaders. The company’s realization drop was due to a change
in market mix and
sharp correction in cement prices in the company’s core markets. It hurt more in
Rajasthan and Gujrat markets.
In Uttar Pradesh (central India), the pricing pattern was unchanged until 3QFY24.
But pricing dynamics changed from the beginning of CY24, and prices reduced
sharply. Leading players wiped out the premium over normal brand. PE/RD shot
up exponentially, resulting in a plunge in WSP.
Current cement price is down ~1.5-2%
vs. Jun’23-exit.
The company does not
change its pricing strategy and believes current pricing trend is a temporary. It
expects pricing to improve and it continued to place its product in ‘A category’.
The management refrained from giving any guidance on the volume growth and
profitability due to the current market conditions.
Operational data points and cost-saving initiates
The company’s capacity utilization stood at 91% in 1QFY25 vs. 91%/97% in
1QFY24/4QFY24. Blended cement sales stood at 84% in 1QFY25 vs. 88%/84% of
total volumes in 1QFY24/4QFY24. Trade share stood at 72% of total volumes in
1QFY24 vs. 76%/72% in 1QFY24/4QFY24. Decline in trade share was mainly due to
market conditions. Premium products contributed 59% of trade volumes in
1QFY25 vs. 54%/55% in 1QFY24/4QFY24. At Mukutban 40% of trade volume is in
premium segment.
The share of renewable power stood at ~27% in 1QFY25 vs. ~23%/25% in
1QFY24/4QFY24. Fuel consumption costs stood at INR1.48/Kcal vs. INR1.56/Kcal
in 4QFY24. It expects a reduction upto INR0.05/kcal in the current quarter. The
lead distance stood at 350Km. Lead distance is likely to increase due to further
ramp up of Mukutban plant.
The company’s cost reduction initiates under “Project Shikhar” and “Project
Unnati” yielding desired results. It remained focused to drive cost efficiencies
and
investment in GTM strategy to improve profitability.
SGST incentive accrued to INR210m in 1QFY25 (mainly from the Mukutban plant)
vs. INR440m in 4QFY24 (included incentive from Kundanganj plan which is now
expired).
Capacity expansion and net debt
The company is expanding capacity in its core market eastern UP by expanding
capacity at Kundanganj plant and the same in expected to be commissioned in
1HFY26. This will strengthen the company’s position and competitiveness as this
plant will be eligible for incentive for the new capacity.
Currently, the management has not provided any timeline for the Greenfield
expansion at Prayagraj, Uttar Pradesh. However, it reiterated its capacity target of
25mtpa by FY27. The management will further update on expansion plans in
coming months. Capex is pegged at INR8b in FY25E.
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CEMENT | Voices
It is completing land acquisition in Bihar for its Gaya grinding unit. Though it
refrains from giving any guideline about the capacity, investment and timelines.
Jute division
It witnessed unprecedented downturn in the jute industry as the Government
scaled back orders for jute bags and export of shopping bags was hobbled by
logistical constraints. It registered a cash loss of INR39m in 1QFY25 vs. a cash
profit of INR64m in 1QFY24.
The jute goods industry is faced with multiple challenges, which forced major mills
to scale back production. Government orders have fallen sharply, leading to an
inventory pile-up. Most mills are currently running at partial capacity.
Dalmia Bharat
Current Price INR 1,754
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand and pricing outlook
1Q being an election quarter, saw demand moderation. Floods in a few regions,
heatwaves also impacted cement demand. Estimate industry volume growth
between 2-4% YoY in 1QFY25. Volume on a tolling basis from
JPA’s cement plants
was 0.4mt. It estimates 8% YoY industry volume growth in FY25 and reiterated
DALBHARA’s volume growth at 1.5x of the industry’s growth.
Cement prices were continuously under pressure. The average cement price in
1QFY25 was down ~2-3% QoQ while, Exit-Jun’24
price was down ~3% vs. avg.
1QFY25. Despite weak pricing, the company’s NSR declined only 0.3% QoQ due to
initiatives to improve product and brand mix, price positioning, and rationalization
of discounts. Management estimates prices to remain soft until the monsoon, and
price hikes could happen from 3Q onwards.
Operational highlights and cost insights
The reversal of certain cost efficiencies led to an improvement in EBITDA/t. The
cost of raw materials consumed (excluding purchase of traded goods) declined 5%
YoY to INR729/t led by optimization of mining costs and procurement efficiencies,
which it expects are sustainable.
Power and fuel costs declined 22% YoY to INR1,003/t due to a reduction in fuel
consumption costs to USD106/t vs. USD152 in 1QFY24 and USD114/t in 4QFY24.
Fuel consumption cost stood at INR1.38/Kcal vs. INR1.45/Kcal in 4QFY24. Further,
the renewable energy share jumped to 35% during the quarter (~28% in 4QFY24).
Green energy capacity stood at 186MW. It will continue to invest in renewable
power and target RE share to increase to 50%/60% by FY25/FY26-end. A captive
coal mine (Brinda) at Jharkhand is expected to become operational in FY25, while
the Mandla coal block will be commissioned in FY26.
Logistics costs dipped sequentially with the reversal of an additional cost incurred
in the previous quarter. Further, lead distance declined to 272Kms vs. 289Km in
4QFY24.
Blended cement sales stood at 86% vs. 87% in 4QFY24. The C:C ratio stood at
1.67x similar to 4QFY24 levels, and management continues to work on reduction
of the clinker factor. The trade share stood at 64% vs. 65% in 4QFY24.
Incentives accrued stood at INR740m in 1QFY25, and incentives received stood at
INR450m. Incentives receivable stood at INR7.34b. For FY25, estimate total
incentive accruals as well as collection of around INR3b.
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It Identified areas of sustainable cost reduction of INR150-200/t in the next three
years. Key focus areas will be reduction in variable costs through increase in RE
share, use of captive coal mines, and reduction in logistics costs (increasing direct
dispatches, lead distance reduction).
Depreciation declined due to: a) in 1QFY24 it provided accelerated depreciation of
INR570m on replacement of equipment’s, which is no longer
there in 1QFY25; and
b) In 4QFY24, it realigned depreciation of North East plant to SLM method, led to
INR470m reduction in 1QFY25. Expects depreciation of INR13.5b-14.0b in
Expansion plans and capex
DALBHARA’s clinker/grinding capacities stood at
22.6mtpa/46.6mtpa (including
Kadapa, Andhra Pradesh
–
1mtpa grinding capacity expansion commissioned in
Jul’24). It is progressing well on the ongoing expansion of 0.5mtpa in Bihar and
2.4mtpa in the Northeast to reach at 49.5mtpa by FY25-end.
It committed to become a Pan-India pure-play cement player with a capacity
target of 110-130mtpa by FY31. However, the intermittent target of 75mtpa
capacity is deferred to FY28E vs. earlier timeline of FY27E. Capex stood at INR6.6b
in 1QFY24. Capex is pegged at INR35b-40b in FY25, largely attributable to organic
expansions in Bihar and Northeast, efficiency improvement, land acquisition, and
maintenance capex.
Management will share a detailed expansion plan, including location and timeline
of commissioning, after 12 months. The company has brownfield expansion
opportunities as well as limestone mines in Central India and North.
JPA has entered into insolvency proceedings. The management is in discussion
with IRP on the tolling arrangements. It will continue to serve the Central India
market from its eastern plants as well.
Debt and other key highlights
Gross debt stood at INR46.1b as of Jun’24 vs. INR46.5b as of Mar’24. Net debt
(considering IEX investment part of cash and cash equivalents) stood at INR4.4b
vs. INR4.8b
as of Mar’24. Its net debt to EBITDA stood at 0.17x vs. 0.18x as of
Mar’24. IEX investment at MTM value stood at INR24.0b vs. INR17.9b as of
Mar’24.
Reiterated its net debt to EBITDA ratio to maintain below 2x, while announcing
next phase of expansion.
The industry is witnessing consolidation as the share of the top-four players has
increased. It took almost a decade to increase the share of the top-four players by
12pp to 48% by FY23. However, within in a short span of time (15-month) this
share jumped 7pp to 55% currently.
Grasim Industries
Current Price INR 2,685
Buy
Click below for
Detailed Concall Transcript &
Results Update
Birla Opus: Total revenue of the paints business (~INR800m) in 1Q was net of
CWIP (production during the trial-run
between Feb and Apr’24 has gone into
CWIP). Every plant will have trial-production for three months, which will be
included in CWIP.
Birla Opus started commercial production at three plants in Apr’24. Commercial
production at Chamarajanagar will start in 2QFY25. Construction at other two
plants are going as per schedule. Birla Opus flagship brand in Mumbai has also
become operational.
August 2024
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CEMENT | Voices
Total capex on this business stood at INR77.95b (~77% of total project cost).
Out of 145 products planned; ~80% have been launched into the markets. It has
already established 108 depots to date (plans to reach to 150 depots by FY25-
end). Its depots are now in every state including the Northeast regions. Also, it is
able to serve the dealers within 4 hours or the next day according to the practices
followed by the market leader and other competitors in respective markets. The
company is on track to reach to its guidance of 50,000 dealers in FY25.
The company has been successful in its initial product campaigning and its
advertisement (Make life beautiful campaign) received good response from the
customers.
Many dealers are finding it a strong alternative to the existing brands in the
market. Its products are available in 3,800 towns (target 6,000 towns in FY25) as
of Jul’24. The company has plans to produce 1,250 SKUs and remains on track
to
achieve the same.
All expenses related to the three operational plants have been routed through
P&L; expenses related to other three plants are being capitalized. Ad spends and
launch costs are a part of P&L. The target is to become cash positive in the 3rd
year of operations
VSF Segment
Lower preference for cotton and polyester fibres make cellulosic fibres a
preferred choice of fibre for brands globally. Globally, VSF prices have been in an
uptrend since 3QFY24; however; Indian realization remain impacted due to
oversupply in Indonesia and decline in input prices (pulp and caustic soda) which
were passed on to the consumers.
The company is trying to maximize production from current plants. Domestic price
of VSF was up in-line with the international price trend. VSF business was
impacted due to low consumption across the value chain.
Chemical Business
India’s caustic soda market remains hit by an oversupply situation. The company
remains slightly positive on the caustic soda business. Chlorine is under pressure
and hence; ECU realization could be flat to slightly positive.
10% of Hydrogen produced is being sold in the markets; rest is being used on a
captive basis and for maintaining the plants. With the increase in capacities of
caustic soda; the company looks to produce hydrogen derivatives. However; the
priority is to develop chlorine derivatives first.
Adverse realization of chlorine continues to be between INR3-4/kg (similar to
4QFY24). Chlorine usage is ~30-35% for water treatment and industrial usage
each; ~25% for plasticizers and PVC additives and 10-1%% for specialty things like
refrigerants, pharma, agrochemical etc.
One plant at Vilayat was under shutdown and production from that plant was
impacted for 18 days. This led to volume loss in 1QFY25.
B2B E-commerce
Quarterly run-rate of revenue was INR5.5b and there has been a gradual scale up
across categories, geographies and new customers. The company executed its
first export order to Nepal and products are now being delivered in 200+ cities
across 25 states and union territories in domestic market.
Its private label products are available across three product categories- Plywood,
doors and tiles. The target is to achieve a revenue of US$1b in 3 years.
August 2024
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CEMENT | Voices
Gross margin of different products of this business will be in the range of 1.5-4%.
Renewable business: It will double the capacity to 2GW from 1GW in FY25. The
target is to commission 1GW capacity every year for next 2-3 years.
Working capital management led to higher OCF in 1QFY25 and hence; net debt
increase was lower despite higher capex and lower profitability. Net debt stands
at INR63.1b vs. INR59.8b in Mar’24.
JK Cement
Current Price INR 4,300
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand pricing and operational highlights
Cement demand is weak, and JKCE expects it to revive in Sep-Oct’24.
Cement
prices are also under pressure and down 1.0-1.5% vs. 1QFY25.
JKCE’s Central India plant achieved an average 90% capacity utilization in 1QFY25.
Green energy usage/thermal substitution rate stood at 57%/17.3% in 1QFY25 vs.
51%/16.3% in FY24. It targets to increase green energy/TSR to 75%/35% by FY30.
Fuel consumption cost stood at INR1.62/kcal vs. INR2.19/INR1.80/ kcal in
1QFY24/4QFY24. The company’s
pet coke consumption stood at 60%.
Lead distance was down 19km YoY and 8km QoQ to 419km.
Blended cement sales stood at 67% vs. 66% in 4QFY25 and trade sales stood at
63% vs. 61% in 4QFY24. Premium products sales as a % of trade sales stood at
13%, similar to 4QFY24).
Raw Material cost declined due to lower volume (down 7%) and there was some
extraordinary item in previous quarter (purchase of traded goods of INR300m).
Further, other expenses lower sequentially due to previous quarter has certain
annual adjustments pertaining to SAP4 Hana and deferment of branding expenses
(including dealers tour), which are expected in 3Q onwards.
The company is targeting a cost reduction of INR 150-200/t in the next two to
three years. Major areas of cost savings will be 1) Logistics optimization
–
reduction of cost by INR30-40/t; 2) increasing green power share; and 3) use of
AFR. It expects INR70-75/t saving in first year and similar saving in the next year.
Capacity expansion and Capex update
3.3mtpa grey clinker expansion at Panna (line II) and 3.0mtpa cement capacity
expansion at Panna, Hamirpur and Prayagraj is progressing as per schedule. Actual
expenditure incurred on this plant till Jun’24 is INR950m. It has done land
acquisition for a greenfield grinding unit in Bihar and placed order for main plant
and machinery. It expects scheduled
commissioning by Dec’25.
The company has target to double it grey cement capacity by FY30 and positioned
as among the top five cement players in the country. In its long term capacity
expansions, the company is planning to add a greenfield capacity in Jaisalmer
followed by brownfield expansion at Karnataka (line 2), Panna (line 3) and Orissa.
The company has land for expansion at all these plants, however, for any split
location grinding unit land acquisition will require.
Toshali plant, volume during the quarter stood at 0.03mt and it expects to ramp it
up upto 0.1mt per quarter by 4QFY25. Further, there is no material progress on
limestone lease transfer in the company’s name, primarily due to change in
government. It is now expecting this to close
by Sep’25.
Capex stood at INR1.75b in 1QFY25. It marinated capex guidance of INR19b/
INR18b for FY25/FY26.
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Other highlights
Paints revenue stood at INR570m with an operating loss of INR100m in 1Q. JKCE
expects a revenue of INR3b FY25 in Paint segment.
There is continued pressure on Putty prices, led by aggression from Paint players
namely Asian Paints and low realization of putty.
JK Lakshmi Cement
Current Price INR 793
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand and pricing
Lower realization and lower volume hit profitability. Post-Holi, demand continued
to be weak followed by the general elections. A few markets have higher
dependency on migrant labour, which hurt overall demand. Further, price was
under pressure and in Jul’24, prices further declined (down INR5-7/bag
on an
average).
The company’s realization drop was higher due to change in distribution
mix and slightly higher clinker sales (which has lower realization). Cement demand
growth is now expected 6-7% in FY25 vs. (earlier est. of 7-8%).
Operational efficiency
Focus on geo-mix optimization, supply chain efficiency, increase in AFR, and green
energy led to cost reduction. AFR share increased to 12% vs. 7% in 1QFY24. Green
energy share was ~48% vs. 39% in FY24. Further lead distance declined to 372km
vs. 384 in 1QFY24. Premium product share was at ~30%.
Non-cement revenue stood at INR1.32b vs. INR1.33b in 1QFY24. RMC revenue
stood at INR720m vs. INR630m in 1QFY24. Margin stood at ~5%.
Average fuel cost stood at INR1.63/kcal vs. INR1.68/Kcal in 4QFY24. It expects fuel
cost to be at INR1.62-INR1.65/kcal.
Expects cost savings of INR50-70/t through various initiatives i.e. increasing AFR
share, as Phase I commissioned at Sirohi and planning 2nd Phase to increase AFR
share to 17-18%. At Durg, the AFR share stood at 10% and trying to increase to
upto 12%. Further, adding more solar power plant to reduce cost and increase
green power share. Working on technology side to optimize pyro process, which
will drive some savings. Secondly, product mix optimization will also lead to some
savings. While the company maintaining its Geo-mix strategy.
Capacity expansion and capex
UCWL line 2 ramp up is expected to be gradual as the grinding capacity was
commissioned in Mar’24 only. It expects capacity utilization to reach ~60% by
4QFY25 and further ramp-up upto 75% in FY26.
The brownfield expansion of 1.35mtpa grinding capacity at its GU in Surat,
Gujarat, is as per schedule and expected to be commissioned in CY24. Further,
4.6mtpa expansion in East and Central will be commissioned in phases. Phase-I of
Durg expansion, which includes
–
1) brownfield clinker/cement expansion of
2.3mtpa/1.2mtpa at Durg, Chhattisgarh; and 2) greenfield split location grinding
units at Prayagraj by FY26-end. The remaining two split location GUs in
Madhubani, Bihar, and Patratu, Jharkhand, are expected to be commissioned in
FY27. Total project cost for 2.3mtpa clinker and 4.6mtpa cement is estimated to
be INR25b.
The company is in the process of land acquisition and getting external approvals,
such as environment clearance, etc., which is expected to materialize by end-
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CEMENT | Voices
FY25. After these approvals and land acquisitions, it will take 14-18 months to set
up the cement plant in the Northeast. It expects north-east plant on stream by
FY26-end vs. earlier estimate of FY27-end.
Awaiting approval for the conveyor belt at Durg plant it is in the final stage and is
expected in next one months, final approvals taking longer time.
The company has limestone reserves at Sirohi for 15-20
years’, which are due for
renewal in 2030. The Udaipur limestone reserves are available until another 40-50
years and it acquired adjacent mines with a life of at least another 10 years. The
company also has a limestone mine in Nagaur, with reserves of 50-60 years.
Consolidated capex stood at INR1.5b in 1QFY25, with an expected spending of
INR15-16b over 9MFY25. Consolidated gross debt stood at INR20.5b and net debt
stood at INR16.5b as of Jun’24.
Shree Cement
Current Price INR 24,801
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Cement demand and pricing
Cement demand was sluggish with a combined impact of the elections and
extreme weather conditions (heatwaves) in 1QFY25. The company’s overall
volumes grew ~8% YoY, led by ~15% YoY growth in the East, and ~7% YoY growth
in the North, while volumes in the South declined ~5% YoY (up 11% QoQ in the
East, down 3% QoQ in the North, and down 4% QoQ in the South). SRCM’s
volume mix was 55% from North followed by 35% from the East and balance from
the South/Maharashtra. Capacity utilization was 76% in 1QFY25.
It expects cement demand to remain weak till CY24-end amid monsoon, slow
government spending followed by festive season. It expects full recovery in
demand from 4QFY25. It expects SRCM demand growth would be in line with the
industry growth.
Weak demand and higher competitive intensity led to weak pricing. Its cement
realization declined 6% YoY (down ~5% QoQ) to INR4,469/t in 1QFY25 due to
weak cement prices and slight change in geo-mix as the company sold higher
volume in the east region (a low priced market as compared to North).
Operational highlights
Average fuel consumption cost/kcal stood at INR1.76 vs. INR1.82 in 4QFY24. The
share of green power stood at ~54% in 1QFY25 vs. 56% in 4QFY24. In Jun’24, it
commissioned 19.5MW WHRS capacity in Andhra Pradesh. It is additional solar
power capacity of 135MW across its plants in Rajasthan, Panipat, Jharkhand,
Uttarakhand, and Uttar Pradesh. With additional investment in renewable energy
capacity, green power share to further increase to ~62% by 1QFY26.
Lead distance increased 21Km QoQ in 1QFY25 due to change in geo-mix, which
lead to QoQ increase in freight cost/t. Other expenses were higher due to
additional spend on store and spares of INR520m for stabilization of newly
commissioned capacities (Navalgarh and Guntur) in 1HCY24.
The company’s premium cement share stood at 7.6% of the trade volume.
The Navalgarh plant has state subsidies on the amount of GST collected from sales
in the state of Rajasthan. It is selling the cement produced at the Navalgarh plant
mainly in the state of Rajasthan for state incentive benefits. The Etah, UP grinding
unit is likely to be commissioned by 4QFY25. It expects synergies of Navalgarh
plant will be realized post commissioning of Etah, UP GU.
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Capacity expansion and capex plans
It is working on 15.4mtpa grinding capacity addition in next two years, which
includes - Ras, Rajasthan (6.0 MTPA), Kodla, Karnataka (3.0 MTPA), Baloda Bazar,
Chhattisgarh (3.4 MTPA), and Etah, Uttar Pradesh (3.0 MTPA).
Maintain Capex guidance of INR40b annually for the next three years.
In the RMC business, the company currently has 7 plants with total capacity of
624 cubic meter/h. It plans to setup 100 concrete plants over the next five years
operating in over 50 cities.
The Ramco Cement
Current Price INR 813
Neutral
Click below for
Results Update
Capex and project update
The company is expected to increase its cement capacity to 30mtpa by Mar’26
through the commissioning of line-II at Kurnool, de-bottlenecking at existing
plants, and expanding grinding capacities at current locations with a minimal
capex.
A brownfield expansion of clinker/cement capacity of 3.15mtpa/1.5mtpa at
Kurnool plant (including 15MW of WHRS) is estimated to be completed by
4QFY26.
The thermal power plant of 18MW was commissioned in Jul’24. The railway siding
is scheduled
to be commissioned by Sep’24. The company has started to see
synergies in the cost for usage of limestone mined from the lands purchased from
Prism.
WHRS plant with a capacity of 10MW in Ramasamy Raja Nagar is scheduled to be
commissioned by 4QFY25.
Expansion of the Dry Mortar Plant in Andhra Pradesh was commissioned in 1Q
and Odisha will be commissioned in Sep’24.
It has acquired 50% of the mining land for a greenfield project in Karnataka.
Cement demand trend and volume guidance
Cement capacity utilization stood at 77% vs. 79%/96% in 1Q/4QFY24. Cement and
building product volume declined 21% YoY to 4.291 m/t and 0.067m/t
respectively. Volume share from South/East was 76%/24% in 1QFY25 vs.
79%/21% in 1QFY24.
Operational highlights
The share of premium products was 27% vs. 29% in 1QFY24 in the South region. In
the East region, the share of premium products was 20% vs. 18% in 1QFY24. OPC
share was ~31% of total volumes in 1QFY25 vs. 32% in 1Q/4QFY24 (each).
Blended coal consumption cost was USD137/t (INR1.49/kcal) vs. USD170/ USD137
(INR2.03/INR1.65 per kcal) in 1QFY24/4QFY24. It used 58% pet coke vs. 52%/51%
in 1QFY24/4QFY24. Green energy contributed 33% of power requirements vs.
29%/36% in 1QFY24/ 4QFY24. Green power share is likely to reach 42% in FY25.
Avg. lead distance was 273kms in 1QFY25 vs 274kms in 1QFY24 & 294kms in
4QFY24.
Debt and other highlights
Net debt (including working capital borrowings) stood at INR49.7b vs. INR44b/
INR48b as of Jun’23/Mar’24. The cost of debt was 7.92% for 1QFY25
vs. 7.95%
1QFY24.
August 2024
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CEMENT | Voices
Ultratech Cement
Current Price INR 11,203
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand and pricing
In 1Q, UTCEM’s rural volumes grew by 9% YoY, while there was lower demand
from the infrastructure segment. Demand should improve going forward as
construction activities resume in Bihar and Andhra Pradesh. Demand momentum
should pick up in 3QFY25.
Industry volume growth is estimated to be 3-3.5% YoY in 1QFY25. Industry
demand should grow by 7-8% in FY25, while UTCEM volume should grow in
double digits.
Cement prices
in Jul’24 are further down 1.5% from the 1QFY25 average. Any
price improvement will be seen only in 2HFY25. Price improvements start
happening when all-India capacity utilization goes above 85%.
Industry capacities and utilization trends
The industry started FY24 with a capacity of 585mtpa and the year-end capacity
was 626mtpa. Demand in FY24 is estimated at 425mtpa and hence, capacity
utilization was ~70%. However, the industry is seeing 50mtpa of inefficient
capacities and hence, actual capacity utilization should be 76%.
UTCEM’s capacity addition accounted for 32% of 41mtpa grinding capacity added
in the industry in FY24. UTCEM achieved a capacity utilization of 85% in 1Q on an
increased base. In FY25, the company will expand its capacity by 16mtpa,
representing ~40% of the total industry capacity addition. UTCEM’s capacity
utilization was 85-90% in the south and west regions, 82-85% in the north and
central regions, while the east region had the lowest utilization of 80%.
Capex and efficiency plans
Capex in 1Q was INR20b and will be at INR80-90b in FY25. Capex in FY26/FY27 will
also be in the similar range. The company commissioned two integrated units in
1Q and each unit has a clinker capacity of 3.5mtpa. Other integrated units too will
have similar clinker capacities.
The efficiency program has started yielding benefits and the lead distance
declined to 385km vs. 400km in 4Q, resulting in savings of INR45/t of cement. The
lead distance will reduce further as the company increases its network of grinding
units to 70 locations (considering planned expansions) vs. 59 now. The target was
to reduce the lead distance by 25km, but the reduction will be higher than the
target. About 73-75% of volumes were transported by road, 23-25% by rail, and
2% via the sea routes.
23MW of WHRS capacity was added in 1Q, taking the total capacity to 301MW.
Average cost of power production through WHRS is INR0.85-0.9/unit vs.
INR7.3/unit from thermal power plants. Power consumption through WHRS was
18.2%. The company has 650MW of renewable power, which will further be
increased. Average cost of power generation through renewable sources is
INR4.3/unit. Green energy contributed 29.4% of power requirements in 1Q, which
will increase to 40-45% by FY25-end and 60% by FY26.
Other expenses included a one-time expense, which will normalize going forward.
Other expense/t was INR755 in 1Q, while FY25 average should be at INR675/t.
Overall, marketing spending was higher by INR1.5b in 1QFY25.
August 2024
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There should be further reduction in coal cost as pet coke usage should increase
to ~45% from 37% in 1QFY25. Long-term
contracts of fuel will be over by Dec’24-
Jan’25 and 1QFY26 should see much lower consumption cost of fuel.
The company consumed 1.5mt of alternate fuel in FY24 and this was consumed in
14 kilns out of 17 kilns of the company. Few plants had AFR usage of ~25%.
Alternative fuel has a 50% calorific value of imported coal, but it is value accretive.
AFR usage was at 6.5% in 1Q and will keep on increasing. The company consumed
33.6mt of fly ash and slag in FY24.
Trade sales stood at 68% in 1Q, while blende cement sales stood at 71%. The C:C
ratio was 1.46x and the target is to increase it to 1.54x. Overall, the cost reduction
target now stands at INR300/t over the next three years vs. earlier guidance of
INR200-300/t.
Other highlights
Investments in India Cements is non-controlling financial investment.
UTCEM has increased its holding in RAK Cement, Dubai, to 54% after an open
offer in 1Q. RAK will become a subsidiary of UTCEM in 2QFY25. The company has
received CCI and shareholder approvals for the Kesoram acquisition. After the
approval is received from creditors, the final scheme will be filed with the NCLT of
Kolkata and Mumbai. The effective date of merger will be 1st Apr’24. The
company has also received an order for amalgamation of its wholly owned
subsidiary, Ultratech Nathdwara.
August 2024
61
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CHEMICALS-SPECIALTY | Voices
CHEMICALS -
SPECIALTY
Various management teams mentioned that while destocking is over for most of the companies, pricing
pressure persists in the sector. Companies highlighted that they expect 2HFY25 to be better than 1HFY25.
They also emphasized that the lead time has increased, which is taking longer than expected for the FG to be
delivered to customers and RM to reach the plants of the companies as well. This has been creating some
pressure on the margin as RM prices, freight, and container rates have also increased.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Clean
Science &
Tech
Outlook
Quarterly snapshot
The company anticipates improved margins within a
CLEAN’s reported EBITDA in 1QFY25 was below our estimate
at
few quarters as it scales up and covers fixed costs.
INR947m (+24% YoY), with a gross margin of 65.4% (vs. 61.4% in
Lower raw material prices are boosting the parent
1QFY24). EBITDAM expanded to 42.3% from 40.5% in 1QFY24.
company's performance currently. Sustainable
The revenue contribution of Performance Chemicals increased 2%
demand and quarterly volume growth indicate
YoY, while that of Pharma & Agro Intermediates declined 1% YoY.
potential for increasing future volumes.
PAT grew 12% YoY to INR659m.
Deepak
Nitrite
Fine
Organic
Galaxy
Surfactants
Navin
Fluorine
Management highlighted that while demand
recovery in agrochemicals continues to be soft,
various other end-user segments, including dyes &
pigments, paper, homecare, etc., are indicating
marginal signs of improving demand. There are
multiple projects set for commissioning in FY25 for
DN, and with the expectation of Chinese destocking
getting over by the end of FY25, this positions DN
well for sustained growth and profitability from a
long-term perspective.
Management highlighted that domestic demand
remains quite strong, with some uptick seen in the
US market, while the European market is still
experiencing weakness. Prices of some vegetable oils
have risen, and the company expects volatility to
continue due to the weather impact on the crops.
The overall lead time and freight costs are also high
due to the container availability issues because of the
Red Sea crisis.
A rise in rural spending owing to above-normal
monsoons would drive strong demand in the Indian
market. In the RoW region, improving household
spending has slowly translated into strong demand
for masstige categories. The management is
confident of delivering high-single-digit growth in
FY25 in the AMET region.
Barring any further escalations in geopolitics issues,
management expects 6- 8% volume growth going
forward as well. Volumes are likely to tilt toward
premium specialty products in 2HFY25. EBITDA/kg
(including other income) guidance remains at INR20.5-
21.5 for FY25.
Management indicated in the concall that R32 prices
have shown an uptick, while R22 prices are also
showing signs of improvement in the export market.
R22, R32, and HFO plants are running at optimum
utilization currently. The AHF and R32 capex are on
track to be commissioned by end-FY25/early-FY26
and Feb’25, respectively.
Management expects demand in Spec Chem to
recover in 2HFY25.
Deepak Nitrite (DN) delivered a beat in 1QFY25 led by a strong
performance in Deepak Phenolics (DPL) driven by improved
realization. EBITDA was above our estimate by 12% in 1QFY25 and
stood at INR3.1b (+47% YoY). Adj. PAT was INR2b (estimate of
INR1.8b, +35% YoY). EBIT margin contracted YoY in Advanced
Intermediates (AI). Management highlighted that there was
continued inventory destocking while logistical challenges led to
an export slowdown to the US and the EU.
Fine Organic Industries (FINEORG) reported EBITDA in line with
our estimate at INR1.2b (down 20% YoY) in 1QFY25. EBITDAM
contracted 460bp YoY to 24%, while gross margin contracted
60bp YoY to 42.2%. PAT declined 13% YoY to INR990m (our est.
INR941m).
Galaxy Surfactants (GALSURF) reported EBITDA/kg of INR19.4 in
1QFY25, down 7% YoY (est. INR17.3). The company reported total
volume growth of ~8% YoY to 64.1tmt (est. 64tmt), with broad-
based volume growth across regions. Subsequently, EBITDA stood
at INR1.2b (up 1% YoY), while PAT came in at INR797m (up 6%
YoY).
Navin Fluorine’s (NFIL) EBITDA/ PAT in 1QFY25 came in 21%/31%
higher than our estimates due to strong performance in HPP and
CDMO businesses. Gross margin stood at 56%, while EBITDA
margin dipped 410bp YoY to 19.2%. Earnings declined 17% YoY to
INR512m in 1QFY25.
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CHEMICALS-SPECIALTY | Voices
NOCIL
Management is confident of the long-term prospects
of the tyre industry as it looks to invest in capacity
expansion, technology upgrades, and R&D to
enhance product quality and sustainability. NOCIL
also introduced a product in accelerators, and there
have been various new products in the pipeline that
it has been working on.
Guidance: Management maintains its revenue
growth guidance of 15% in FY25, with gross/ EBITDA
margins of ~50-51%/25-26%. It expects the tax rate
for the year to be ~22-23%. Capex: The company
plans to incur a capex of ~INR8-9b in FY25 (~INR1.5b
already incurred in 1QFY25).
CSM: The order book position remained healthy at
~USD1.50-1.55b. Pi will focus on aggressive
commercialization of new products in FY25 (~8-10
launches). Around 40% of the new product
commercialization and ~40-45% of the product under
development will be from the non-agrochem
segment.
The Chemical business is likely to witness a revival in
2HFY25. Despite weak 1Q, it is confident of achieving
~20% revenue growth, within chemicals business in
FY25. The FY25 margin would be plus or minus 2% of
FY24.
Packaging business: The BOPET films segment
continued to witness an oversupplied market. The
business also had tough competition from the
Chinese players in the Southeast Asian markets.
Aluminum foil export sampling is under way, and
production is expected to ramp-up from 2HFY25.
Demand-Supply scenario: Overall, soda ash demand
is balanced and is expected to remain similar for the
next couple of quarters. However, the company is
watchful of demand from China, which has been
fairly good so far.
Guidance: The company has commissioned
230KMT/330KMT/70KMT of soda ash/salt/bicarb
capacity as per its ongoing expansion plan. It expects
~INR4b of incremental EBITDA in FY26 from new
capacities. It will incur ~INR20b of capex over FY25-
28E to increase soda ash capacity by ~20%, bicarb by
~30% and silica by 5x.
PI
Industries
NOCIL's EBITDA/kg stood at INR27.3 in 1QFY25, down 33% YoY,
missing our estimate. Sales volumes increased 8% YoY to 14.6tmt.
Realization was down at INR255/kg (down 13% YoY) due to
continued pricing pressure from Chinese suppliers. Hence, EBITDA
was at INR398m (down 27% YoY), while PAT was at INR272m (up
19% YoY). Management highlighted that employee expenses were
higher due to the annual revision in salaries along with retiral
provisions.
PI Industries (PI)’s revenue grew 8% YoY in 1QFY25, led by a
healthy growth in the CSM business (up 14% YoY). However, the
domestic and the pharma businesses continued to see subdued
demand (revenue down 8%/43% YoY). EBITDA grew 25% YoY in
1QFY25 as EBITDA margin expanded 370bp YoY on account of
favorable product mix (gross margins up 530bp).
SRF
SRF posted muted 1QFY25, with a material decline in operating
profitability (EBIT down 20% YoY), due to the continuing weakness
in the Chemical businesses (EBIT dipped 33% YoY), which offset
the strong performance in the Packaging Film/Technical Textile
businesses (EBIT grew 69%/12% YoY).
Tata
Chemicals
TTCH’s 1QFY25 consolidated EBITDA declined 45% YoY, due to
subdued operating performance across geographies, with
India/US/UK/Kenya reporting EBITDA decline of
19%/58%/84%/61% YoY.
August 2024
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 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
Navin Fluorine Intl
Current Price INR 3,321
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Made progress in diversifying business portfolio in the quarter
Adverse market conditions were seen in 1QFY25
Revenue growth because of robust ‘Orchid’ operations and R32 playing out well
2HFY25 would be better than 1HFY25 for NFIL
HPP
Revenue growth YoY was led by stable HFO operations and strong sales of new
R32 capacity
Order book remains strong for R32; uptick in prices seen
R22 prices are also showing signs of improvement in export markets compared
to 4QFY24
R22, HF and R32 capacity plants ran at optimum utilization
Spec Chemicals
Impacted because of inventory level rationalization among global agrochemical
players
Pressure from China generics will persist
Differentiating for customers would be key
Demand to recover in 2HFY25
Continued to strengthen portfolio and relationships with customers
New molecule added in Surat in 1QFY25 with peak revenue potential INR40-50cr
in the next 2-3 years
Signed a supply agreement for a patented agrochemical product catering to
Japanese market with revenue potential of INR20-30cr every year from CY25
CDMO
Revenue declined YoY; lumpy business and cannot be seen on QoQ basis
Reiteration of USD100m revenue from CDMO business
R&D on the Advanced Performance Materials segment continues to progress
well
Capacity expansions updates
All projects are on track
Agro specialty is targeted to commence commercial production in Sep’24
AHF project to be commissioned by end FY25/early FY26
Phase-I of CGMP capex to be commissioned by CY25 end
R32 capex is on track to be completed by Feb’25
Additional capacities to be ramped up at a faster rate due to increased demand.
P I Industries
Current Price INR 4,364
Buy
Click below for
Detailed Concall Transcript &
Results Update
Exports (CSM)
Export (CSM) revenue grew 14% to INR17.2b, driven by growth in new products
(up 24% YoY) and healthy volume growth
In 1QFY25, over 20% of the revenue is coming from new products (newly
commercialized products over the last three years)
Currently, non-agrichemical revenue mix is less than 5%
PI is the first Indian company to receive approval from the International
Organization for Standardization (ISO) for an insecticide named
"PIOXANILIPROLE”
August 2024
64
 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
PI will focus on aggressive commercialization of new products (~8-10 launches in
FY25). These new products will be mix of agrichemical, electronic chemicals and
other chemicals
Around 40% of the new commercialization is non-agrichemical and ~40-45% of
the product under development is non-agrichemicals
Out of the 30-40 products commercialized in last 7-8 year, many have the
potential to cross INR5b annual revenue
Order book as on Jun’24 stood at USD1.5-1.55b
Domestic Agri inputs
The domestic agrochemical revenue declined 8% YoY to INR3.2b due to the
delayed sowing and erratic spread of monsoon, which was partially offset by a
favourable product mix.
The domestic brand business declined marginally by 1.0-1.5% YoY in this
quarter. The overall decline for Domestic Agchem is on account of the export
products that has been delivered to the customer in India and is clubbed under
domestic business
Biologicals products are driving the growth (revenue increased by ~39% YoY).
These products currently contribute ~10% of the segment as on Jun’24 and
company expects this to reach ~15% by FY25 end.
Company has commercialized 2 new products in Domestic Agri Brands -
Pressedo and Osheen Ultra. Company will be launching another 5 products in
rest of the year.
JIVAGRO did not launched any new product in Q1. It plans to launch three
products in 2Q and three products in 2HFY25. The segment witnessed healthy
growth in 1Q and the growth trajectory is expected to continue for the rest of
the year.
Pharma
Pharma revenue stood at INR253m (~1% of total revenue) in 1QFY25, down 43%
YoY.
The revenues in Pharma declined due to supply deferment of few products
Further, high inventory with some of the innovators (2 long term customers)
adversely impacted revenue during the quarter (customers asked to slow down
supply).
The company is currently reviewing the inventory position in the market and will
comment on FY25 growth in next quarter.
Company has incurred capex of INR372m in 1QFY25 for the segment
Hyderabad R&D facility is fully operational with 8 labs (6 PRD, 1 Flow Chemistry
& 1 Process Safety) and 65 fume hoods
Jaipur R&D facility Phase 1 upgradation nearing completion with 2 labs & 18
fume hoods
New GMP Kilolab in Lodi is nearing completion
PI is looking to cater to big pharma companies and the company is currently
building the base for this by spending on technology, infra and R&D.
Capex
Total capex for 1QFY25 stood at ~INR1.5b v/s ~INR1.2b in 1QFY24
Company plans to incur capex of ~INR8-9b in FY25
Company has operationalized Hyderabad R&D facility, while new GMP Kilolab in
Lodi is nearing completion.
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 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
Guidance
The management expects revenue growth of 15% in FY25 with sustained
improvement in profits
The company witnessed better margins in 1Q due to favourable product mix.
The management maintains its guidance for FY25 with ~50-51% Gross Margins
and ~25-26% EBITDA margins
Management expects margin expansion from not only new products but also
from the domestic business
Management expects tax rate of 22-23% for FY25
New potential acquisition
PI has offered to acquire PHC which is a technology platform company with
strong growth history.
PHC had consolidated revenue of ~USD11m with gross margin of 60% for the
year ended Dec’23 and growing at 20%+ YoY in the current fiscal.
PHC has industry-leading knowledge, products, IP and experience in protein/
peptide technology in the agriculture biological space.
PI will gain access to cutting-edge biological/ peptide technology platforms as
well as the global markets.
This acquisition is expected to be completed by the end of Q2FY25.
Other key points
Working capital days improved
to ~55 days as on Jun’24 v/s ~83 as of Jun’23.
Inventory days declined from ~73 days as of Jun’23 to ~50 days as of Jun’24
Free Cash Flow generation increased 62% to INR5,067m vs INR3,132m in
Q1FY24
During 1QFY25, PI commercialized two new products in Exports and two in
domestic Agri Brands
Overall overheads expenses increased on account of scale-up of exports, higher
promotion expenses due to launch of the new products (~11%) and newly
acquired Pharma businesses (~5%).
The company is continuously looking for M&A opportunity.
SRF
Current Price INR 2,480
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Chemicals business:
The Specialty Chemicals Business continued facing headwinds during the
quarter as the agrochemicals segment was sluggish due to inventory
rationalization by certain key customers.
Overall, demand was subdued for certain key Agro intermediates. The Chinese
manufacturers have continued pushing cheaper Agrochemicals and
intermediates within the market
However, company expects agrochemicals segment to show improvement as
demand is expected to pick up gradually
SRF will focus on ramp-up of multiple new plants commissioned in FY24.
SRF has multiple AIs in advanced stages of commercialization. This coupled with
launch of new pharma intermediaries will also contribute to future growth of
the company going ahead.
August 2024
66
 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
Fluorochemicals segment was hit by low margin in the Chloromethane segment.
However, the domestic refrigerant gases business improved during the quarter,
boosting the overall performance.
HFC volumes remain strong on YoY basis as the company was able to penetrate
into domestic market and also grow export volumes. However, pricing remains
subdued for certain key products
The company is targeting ~70-75% utilization for the new R32 capacity
(commissioned in Dec’23) in
FY25
Going ahead, global Ref gas demand is expected to remain stable to strong, with
growth in India and the Middle East, while the US market may see a decline due
to reduced HFC consumption
SRF expects CMS demand and prices to be stable going ahead. It also expects
healthy traction within PTFE value added grades from 2HFY25
New HF plant will be commissioned in 2Q and should provide cost advantage
post stabilization.
Two pharma products have seen good traction in 1QFY25
The overall chemical business is expected to revive in 2HFY25. Management
believes that ~20% growth rate in FY25 is still achievable
Margins are expected to improve as the plant ramps up. However, chemical
plant takes time to ramp up leading to overall drag of ~1.7-1.8%. FY25 margin is
expected to be in the similar range of FY24 (plus or minus 2%).
Packaging film business
The business performed well on YoY basis with BOPP films witnessing higher
margins led by balance demand-supply scenario.
Company witnessed volume as well as realization growth during the quarter.
However, the BOPET films segment continued to witness an oversupplied
market. The business also had tough competition from the Chinese players in
the Southeast Asian markets
BOPET witnessed some pricing improvement towards the end of June; however,
supply still outweighs demand
The segment witnessed a spike in VAP on YoY basis. Currently, Aluminum foil
export sampling is under way and company expects to ramp-up the same from
2HFY25.
Utilization levels in Hungary has improved in 1QFY25
Going ahead, SRF’s continued focus on optimizing product mix, increase VAP
sales and new product development coupled with cost efficiencies is expected
to counter market challenges
Technical textile business:
The business witnessed steady performance led by healthy volumes in Nylon
Tyre Cord Fabrics (NTCF) and Polyester Industrial Yarn (PIY)
However, belting fabrics segment witnessed lower volumes
Going ahead, demand for NTCF likely to be stable
Focus on high-end VAPs in Belting Fabrics and expanded capacity is likely to
drive growth ahead.
Capex:
Company expects overall capex of ~INR15-19b in FY25
August 2024
67
 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
Majority of this will be towards Fluorochemicals segment (three new
fluoropolymers facility for capex of ~INR6b). These facilities will come online in a
phase manner by Nov-Dec’25
Company expects to complete the earlier guided capex of ~INR120-150b in 6
years against previous guidance of ~5 years.
Tata Chemicals
Current Price INR 1,063
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Operating Performance
Demand has been fairly stable across end-user industries. Detergent demand
moderated in monsoon, but it generally picks up after monsoon.
Chinese soda ash demand was high during Jan-May’24.
Imports into India were high during Jan-May’24
but have moderated now due to
high freight costs.
The Chinese soda ash facility was operating below the optimal levels due to a
quality issue.
Export volumes in the US market increased YoY and prices grew sequentially.
Rallis witnessed a mixed quarter as the domestic business performed well but
pricing in international markets was down.
Incremental EBITDA during the quarter was largely contributed by incremental
pharmaceutical salt capacity (70KMT in UK) and incremental soda ash, salt and
bicarb capacity in India.
Outlook
Overall, soda ash demand is balanced and is expected to remain so for the next
couple of quarters.
The company is currently fully sold out in terms of global capacities.
Market conditions for some customers have bottomed out and should improve
going ahead.
However, the company is watchful of demand from China, which has been fairly
good so far.
Inner Magnolia capacity is fully commissioned. The company is facing some
quality issues (Inner Mangolia soda ash has higher iron component and solar
glass requires soda ash with low iron content) and is working on the same.
Geographical performance
India inventory is lower than the previous quarter’s level due to lower imports
(23% vs. ~31% earlier) and better demand in some of the key regions. The
region has not witnessed any disruption due to rain. The region is expected to
witness INR2b incremental EBITDA from the new capacity next year.
US: Domestic prices should remain same until Dec’24. Export prices will be in
sync with the market. Export order margin is likely to increase due to better
realization. The cost of energy has declined, resulting in lower power & fuel
costs and better margins within the region in 1QFY25.
UK witnessed a decline in volume during the quarter due to a drop in energy
business. The company expects the region to deliver similar margins (like 1Q)
throughout the year. The region witnessed a one-off expense of INR130m
related to a fine paid during the quarter. The company expects a loss of
~INR300-450m per quarter for rest of the year. It expects INR2b of incremental
EBITDA from the new capacity next year.
August 2024
68
 Motilal Oswal Financial Services
CHEMICALS-SPECIALTY | Voices
Kenya pricing is in sync with the market. The company witnessed higher
shipping and transportation costs in 1Q, which are expected to moderate going
ahead.
Sodium Bicarbonate
The company has commissioned new capacity of ~70KMT in 1QFY25 (Phase 1).
Another 70KMT will come online by Oct’24.
Incremental volume from the first phase is expected to be absorbed (optimally
utilized) in FY25. Next 70KMT is expected to be optimally utilized by 1QFY26.
Key driver for sodium bicarbonate: Feed for cattle, pharmaceuticals,
desulphurization for coal plants
Debt
Debt has increased because of higher working capital requirement due to
stocking of inventory (INR8b).
The company has stocked up some of the inventory before monsoon, as the
availability is lower during monsoons.
The company will deploy any surplus cash flow for debt repayment.
Capex
The company will incur ~INR20b of capex over FY25-28E.
It will increase soda ash capacity by ~20%, bicarb by ~30% and silica by 5x.
It has already commissioned 230KMT/330KMT/70KMT of soda ash/salt/bicarb
capacity as per the ongoing expansion plan.
Others
The current global capacity is ~5.5mmtpa. Natural capacity will start to pressure
synthetic capacities over the next 2-3 years (mostly pressure will be on China).
INR1.7b was capitalized for lease of a warehouse as per accounting standards
during the quarter.
Demand for soda ash will continue to grow from the solar glass segment thanks
to the strong focus of the Indian government on solar energy.
The company has done mobile and laptop battery recycling for cobalt.
TTCH is working on sodium-ion batteries, which are used more for stationery
applications.
August 2024
69
 Motilal Oswal Financial Services
CONSUMER | Voices
CONSUMER
The consumer companies have experienced a sequential improvement in demand, with signs of recovery in
the rural market due to price cuts and enhanced consumer offerings. However, harsh summer conditions and
election-related restrictions have hurt consumption in categories such as home insecticides, beverages,
alcoholic beverages, and paints. Management anticipates implementing price increases in the 2HFY25 to
offset rising raw material costs and drive revenue growth. The outlook for rural markets remains positive.
EBITDA margins are expected to improve at a moderate pace over the medium term, supported by operating
leverage, a better product mix, and growth in the premium portfolio.
Salient takeaways from the 1QFY25 performance
Outlook for FY25
Apr’24 and May’24 were challenging months, but Jun’24
In 2Q, inflation is expected to be in the range of
showed signs of recovery, especially in rural demand.
~1.4% to 1.5%. Consequently, there may be further
The company delivered 7% volume growth in domestic
price increases.
decorative paint in 1QFY25 on the healthy base of 10% volume
The gap between value and volume is around 5% to
growth in 1QFY24. The five-year CAGR in volume is healthy at
6%.
15.3%.
The management observed 1.8% inflation in 1Q and
implemented a 1% price increase in response.
New products contributed 12% to overall revenue in 1QFY25.
The company has previously implemented price rollbacks but is
The company expects inflation of 4-5% in the coming
now focusing on consolidation and may only offer occasional
months, driven by increases in flour, sugar, and cocoa
promotions.
prices.
Flour, sugar, cocoa, and milk have seen inflation, offset by a
BRIT aims to achieve 2% cost efficiency annually.
softening in the prices of palm oil, laminates, and corrugated
boxes.
Direct reach now stands at 2.82m outlets and BRIT has also
strengthened its rural distribution reach to 30k distributors.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Asian Paints
Britannia
Dabur
Godrej Cons.
Hindustan
Unilever
Volume growth has been increasing sequentially, with a 5.2%
increase in 1QFY25 and there was no slowdown in volume
growth in Jul’24.
E-commerce and modern trade posted robust double-digit
growth and now contribute ~20% to India business.
Food inflation is currently high, and the company may need to
take price increases in the food segment.
Organic revenue growth stood at 6%, and this quarter is
expected to be the last with negative pricing.
The company has gained ~1,000bp of share gain in the two top
modern trade channels stores.
The company took a month or two to respond to the palm oil
price increase by adjusting its prices.
Godrej Pet Care (GPC), a subsidiary of GCPL, has entered the
INR50b pet care market in India, which has strong double-digit
growth potential in the coming decades.
There was an improvement in the demand trends with UVG of
4% in 1QFY25.
The premium portfolio’s contribution grew ~300bp over the last
three years.
There is ~50% growth in E-commerce and 20% volume growth
in high-growth portfolio.
There is a sequential improvement in volume growth in the
domestic business. Pricing growth remained flat YoY, but both
HPC and Foods saw an increase, with HPC seeing notable
growth in the past six months.
The company had an 800bp correction in its margin in the Food
business last year.
MRCO continues to focus on urban-centric and premium
portfolios through the organized retail and e-commerce
channels.
The company is committed to investing in its brands,
which may impact gross margins, but expects
operating margins to grow beyond 19.6%.
The company anticipates a deflationary environment
in 2Q, which should help maintain flat inflation, but
expects inflation to return in 3Q and 4Q.
Owing to additional expenses for RCCL, the EBITDA
estimate of the company has gone down to ~INR1.5b
vs. earlier estimate of INR1.6b for FY25. RCCL prior to
acquisition had reported an EBITDA of ~INR600m.
It aims to increase EBITDA margins in Indonesia from
the current 20% to 25%.
GUAM's EBITDA margins stood at 14% in 1Q, which
GCPL aims to increase to 15%.
HUVR expects price growth in low-single digits in
2HFY25.
There will be a moderate pace of improvement in
EBITDA margin over the medium term with operating
leverage, mix improvement, and growth in the
premium portfolio.
The company aims to deliver double-digit revenue
growth in FY25.
The company expects volume trends to maintain the
upward trajectory, supported by stable retail
inflation, a favorable monsoon season, and
government budget allocations aimed at boosting the
rural economy.
The company might implement another round of
price increases if copra prices rise further.
The digital-first brands are striving to achieve double-
digit EBITDA margin by FY27. Beardo is expected to
hit double-digit EBITDA margin in FY25.
Marico
August 2024
70
 Motilal Oswal Financial Services
CONSUMER | Voices
Pidilite
UVG was 9.6% in 1QFY25, considering constant prices for all
products. However, total volume growth was at 19%.
In the rural market, 90% of revenue growth is coming from
same-store sales.
VAM’s consumption costs stood at USD1,022/t vs. USD1,137/t
in 1QFY24.
UNSP
The price mix was 4.8%, contributing to an overall portfolio NSV
growth of 8.3% for the quarter, with P&A growth at 10.1%.
New excise policies have been released across the northern,
central, and eastern states. The company also received some
headline pricing in a few states.
The company approved investments in V9 Beverages Rise Up
and Indie Brews and Spirits as part of its strategy to add
premium Indian provenance craft brands.
Management has maintained its guidance of double-
digit underlying volume growth for FY25.
PIDI aims to achieve growth of 1-2x of GDP in its core
category and 2-4x in its growth category.
Management has projected that rural market growth
will be 1.5x of urban markets over the next 2-3 years.
It has maintained its capex guidance at 3-5% of total
revenue.
Revenue growth is expected to be high-single digits in
1HFY25 and double digits in 2H. Overall, the
management expects to meet its double-digit growth
guidance for FY25.
ENA continues to experience inflation, while the rest
of the commodity basket remains stable. The ENA
inflationary trend is expected to continue for the next
couple of quarters.
Asian Paints
Current Price INR 3,151
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Business environment and performance
Demand was affected by heatwaves and general elections for both retail and
institutional businesses.
April and May were challenging months, but June showed signs of recovery,
especially in rural demand.
T3 and T4 cities showed faster growth compared to T1 and T2 cities.
The company delivered 7% volume growth in domestic decorative paint in
1QFY25 on the healthy base of 10% volume growth in 1QFY24. The five-year
CAGR in volume is healthy at 15.3%.
The value segment has been under pressure, down 3% vs. 7.8% growth in
1QFY24. The five-year CAGR value is 12.7%.
Value growth was hurt by an inferior product mix and market inflation. Overall
demand was weak, leading to lower value growth.
Industrial business saw double-digit revenue growth, driven by the Automotive
and General Industrial segments.
The combined growth of decorative and industrial segments showed a value
decline of 2.2% vs. growth of 8.5% in Q1FY24. Volume growth was 7% vs. 10% in
1QFY24.
New products contributed 12% to overall revenue in 1QFY25.
The gap between value and volume is around 5% to 6%.
Cost and margins
The management observed 1.8% inflation in 1Q and implemented a 1% price
increase in response.
In 2Q, inflation is expected to be in the range of ~1.4% to 1.5%. Consequently,
there may be further price increases.
Employee costs have increased due to policy changes and higher investments in
personnel due to the expansion of distribution and retail footprint.
Segmental performance
Kitchen business revenue grew 5% as sales have been rising for the past two
quarters.
Kitchen business has maintained positive PBDIT for six quarters, with a PBIT loss
of INR30m vs. INR20m in 1QFY24.
Bath business revenue rose 10%, albeit on a lower base of last year. It reported
a PBT loss of INR20m.
August 2024
71
 Motilal Oswal Financial Services
CONSUMER | Voices
White Teak and Weather Seal delivered double-digit growth and expanded its
store count in FOFO and COCO models.
Home Décor now has more than 61 stores, with work-in-progress for several of
them, which are expected to open in 2Q.
Home Décor is adding ~15 to 20 stores annually.
APNT has opened its second BH studio in Guwahati, following the first in Anna
Nagar, Chennai. This 16,000+ sqft store offers a premium digital customer
journey, featuring high-end décor products like lighting, fabric, wallpaper, and
furniture.
SmartCare, Waterproofing, Wood Finishes, and Textures performed strongly
during the quarter.
Economy emulsions, primers, premium ranges, and waterproofing all
underperformed.
International Business
International operations posed challenges for the overall business, with a 2%
decline in revenue. Adjusted for constant currency, it would have seen 1.8%
growth, despite currency depreciation in Ethiopia, Egypt, and Bangladesh.
Ethiopia showed strong performance, and Sri Lanka has recently shown
significant improvement. Middle East operations have slowed down.
In Nepal, the economic situation has been challenging for the past seven to
eight quarters, affecting the overall performance.
Other
The distribution footprint continues to expand and it has ~1.65 lakh retail
touchpoints.
The installed capacity in Mysuru increased from 3lakh KL to about 6lakh KL,
contributing to a total organizational capacity of over 22lakh KL.
Britannia Inds
Current Price INR 5,831
Neutral
Click below for
Detailed Concall Transcript
& Results Update
Business environment and performance
The FMCG industry saw value growth of 6.6% and volume growth of 6.5%.
Rural growth has started to rebound after lagging behind urban areas, driven by
better monsoons and moderate inflation.
BRIT has a higher market share in urban areas compared to rural markets.
Volume growth during the quarter was 8%.
The company has previously implemented price rollbacks but is now focusing on
consolidation and may only offer occasional promotions.
The distributor management system provides real-time data and actions, with
retail face time up 42% since 2018.
The rural ordering app allows direct orders from RPDs, aiming for 50% of orders
to be placed digitally.
The company is trailing its competitor in the Hindi belt, particularly in rural
areas. It is concentrating on deepening its presence in urban markets, while
expanding its reach in rural areas.
Cost and margins
Overall commodity costs remained benign during the quarter. Flour, sugar,
cocoa and milk have seen inflation, offset by a softening in the prices of palm oil,
laminates, and corrugated boxes.
August 2024
72
 Motilal Oswal Financial Services
CONSUMER | Voices
The company expects inflation of 4-5% in the coming months, driven by
increases in flour, sugar, and cocoa prices.
BRIT aims to achieve 2% cost efficiency annually.
The company plans to take slight price increases if inflation sustains.
Cake and rusk have double-digit net margins.
Bread, once negative in margins, is now nearing double digits.
Gross margins for bread and croissants are 25% higher than the base category.
Others
At Ranjangaon, it collects 3000k litres of milk, with 90k litres coming directly
from 3,300 farmers in 105 villages. The company is increasing this by 90k litres
each month, supported by 70 collection centres.
The company has launched Pure Magic Stars, a new product with performance,
which is still to be assessed. Additionally, it introduced 50-50 Golmaal, a butter
garlic variant of a previous product.
The company has consistently gained about 10bp market share per year over
the past 8-10 years, bringing its current market share to 18%, while the top
player holds 40%.
In the cheese market, the company has a double-digit share but is significantly
smaller than Amul, which has a 6x larger share.
The company is the number two player in the cheese market, though many
competitors are clustered with 2-3% shares.
There is considerable room for growth, given the large gap between the
company's market share and that of the leading competitor, especially in focus
markets.
Direct reach now stands at 2.82m outlets and BRIT has also strengthened its
rural distribution reach to 30k distributors.
International business remained strong during the quarter.
Its Nepal strategy involves seeding products and then establishing a
manufacturing footprint. This business has grown from INR200m to INR1,800m.
BRIT's manufacturing footprint includes 54 factories nationwide, with 16 owned
factories supplying 65% of the total requirement. The company also operates 38
third-party factories and has 154 manufacturing lines, 81 of which are in its own
factories.
B2B makes up 4% of total sales.
Dabur
Current Price INR 635
Buy
Click below for
Detailed Concall Transcript
& Results Update
Environment and outlook
The FMCG industry has been witnessing a gradual pickup in rural markets for the
past two quarters.
Volume growth has been increasing sequentially, with a 5.2% increase in Q1 and
no slowdown in volume growth in Jul’24.
In rural areas, consumption is recovering thanks to decreasing inflation,
increasing elasticity of demand, good harvest, normal monsoon, and
government initiatives.
E-commerce and modern trade posted robust double-digit growth and now
contribute ~20% to India business.
August 2024
73
 Motilal Oswal Financial Services
CONSUMER | Voices
Modern trade margins are now in line with GT margins. E-commerce margins
are in line with GT margins, with some negotiation for margin reduction.
The company has created bundles of INR10 and accessible price points across
different portfolios, which have done well in emerging channels.
The international business recorded strong growth of 18.4% in CC.
In international markets, Dabur reported 19% YoY growth in Turkey, 64% in
Egypt, 13% in MENA, 21% in SFA business, and 25% in Bangladesh.
The international business of Badshah declined due to supply chain constraints.
Food inflation is currently high, and the company may need to take price
increases in the food segment.
Inventory levels are gradually and slowly coming down, which had previously
filled up.
Cost and margins
Gross margins expanded by 120bp, driven by moderation in inflation and cost-
savings initiatives.
A&P expenditure increased by ~16% during the quarter, with digital spending
now accounting for more than 30% of overall media expenditures.
The company is committed to investing in its brands, which may impact gross
margins, but expects operating margins to grow beyond 19.6%.
Gross margins for Badshah have improved by 500bps.
The company anticipates a deflationary environment in 2Q, which should help
maintain flat inflation, but expects inflation to return in 3Q and 4Q.
Segmental highlights
HPC
The portfolio achieved 8.1% growth.
Shampoo segment grew by 14%, driven by the strong performance of the Vatika
brand.
Hair oil category grew by 3.3%, with coconut oil posting a strong 20% growth.
Perfumed hair oils outperformed the category, gaining ~100bp market share.
Oral care portfolio recorded a growth of 11.4%, with Dabur Red growing by 12%
and Miswak growing by 18%.
Dabur Red Toothpaste continued to gain market share during the quarter, with
Dabur Oral K products reaching one out of every two households in the country.
The company has compared and contrasted its prices with competitors' prices
across all SKUs and identified opportunities to not lose share in oral care.
Home care segment achieved 8% growth during the quarter.
Odonil saw high single-digit growth, with particularly strong performance in
aerosol and gel formats. It recently lunched Odomos liquid vaporizer.
Healthcare
The healthcare portfolio grew by 7%, driven by an 11% increase in the digestive
segment.
Health supplements also saw a 7.8% rise YoY. Dabur Glucose, a key brand in the
health supplements portfolio, surged by over 30% amid harsh summer
conditions, gaining 70bp in market share.
The OTC and ethical category, health juices, baby care, and branded ethical
products all clocked double-digit growth.
There were adverse effects of heatwaves on brands like Shilajit and Honey
during the quarter.
August 2024
74
 Motilal Oswal Financial Services
CONSUMER | Voices
The company continues to focus on consumer-centric engagement initiatives,
strengthen doctor advocacy channels, and launch innovative campaigns aimed
at reinforcing relevance and expanding market penetration in the healthcare
business.
Food & beverages
The food and beverage segment grew by 4%, with the foods business showing
exceptional performance at 21% growth.
Badshah also reported strong YoY growth of 15%.
The drink portfolio grew in double digits.
The J&N segment was impacted by heatwave, leading to a shift in consumer
preference toward thirst-quenching products like carbonated beverages.
In the JNN segment, its market share expanded by 330bp.
In Badshah, Dabur cut prices due to a softening in commodity prices.
Emami
Current Price INR 812
Buy
Click below for
Detailed Concall Transcript
& Results Update
Performance and outlook
In 1QFY25, sequential improvement was seen in rural demand.
The increase in food inflation will hurt the discretionary consumption.
Due to the severe summer, healthy performance was witnessed for the summer
products, while sales of non-summer products and out-of-home consumption
were hit during the quarter.
Company is optimistic about future growth, supported by a favorable economic
landscape, forecast of a normal monsoon, anticipated rural market recovery,
and government initiatives.
MT grew 25% and e-commerce rose 29% YoY in 1QFY25, contributing 11% each
in revenue contribution.
The general trade has rebounded in the positive territory.
Domestic volume grew 8.7% in 1QFY25. Excluding the strategic investment (D2C
portfolio), volume growth from core business is also more than 7%.
The company will only take moderate price increase (1-2%) in FY25.
Summer portfolio (Navratna and Dermicool range) contribution in revenue
stood at 50%.
The International market delivered 10% YoY growth (11% in CC terms) led by
double-digit growth in MENA and SAARC regions, despite the currency
fluctuations and geopolitical disturbances in key geographies.
Cost and margins
GP margin is expanded due to benign raw material prices and price action taken
by company.
The A&P spending will remain in the range of 18-19% for the full year. Normally
it is higher in first quarter (20% of sales in 1QFY25).
Segmental information
Company launched two extensions for Dermicool: Dermicool Her and Dermicool
Soap in the modern trade and e-Commerce channels.
In the Kesh King brand, Organic Rosemary Oil & Rosemary Shampoo were
launched in the ecommerce space.
The premium hair fall oil market is seeing subdued demand.
Kesh King is a more rural-salient portfolio. With green shoots in rural areas and
strategic initiatives taken by Emami, recovery is expected in the range.
August 2024
75
 Motilal Oswal Financial Services
CONSUMER | Voices
Kesh King’s annual revenue contribution is over INR3b vs INR2.3b at the time of
acquisition. Kesh King shampoo is one-third
of the Kesh Ling’s overall portfolio.
Emami introduced five new digital-first products: Dia-BTS tonic, DiaBTS tablets,
Zandu Neelibhringar Hair Oil, Zandu Ashwagandha 66 (KSM-66) and Zandu
Shilajit Gold Plus Resin capsules on the Zanducare portal.
In healthcare, OTC & Medico range posted high single digit growth while
Zanducare grew strongly led by Digital first portfolio
In male grooming range, Fair and Handsome nature first range of cream and
facewash performing well.
Google display ad-branding initiative undertaken in 7 oils in One to increase the
awareness in metro cities.
The D2C portfolio increased 23% in 1QFY25.
In Zandu care, the focus is on the online sales. Therefore, pricing is premium
than the products available on general trade, however, it is aligning with the
competitors.
Management guided double-digit growth in healthcare range going forward.
The D2C portfolio (The Man company and Brillare) contributes ~ 5-6% in
revenue in FY24.
The overall oral care category is grew by 10% in 1QFY25.
Other points
The tax rate was higher in 1QFY25, but will moderate in the subsequent
quarters of FY25. Management maintained an effective tax rate guidance of
~10-11% for the next two years.
The amortization will be ~INR920m in FY25 and will be ~INR800m in FY26.
Godrej Consumer
Current Price INR 1,391
Click below for
Detailed Concall Transcript
& Results Update
Buy
Performance and Outlook
Organic volume growth in India was 8%, with reported growth at 10% on a high
base of 10%.
Organic revenue growth stood at 6%, and this quarter is expected to be the last
with negative pricing.
The company achieved strong share gains in modern trade, e-commerce and
rural markets, but it has lost some share in urban general trade.
The company has gained ~1,000bp of share gain in the two top modern trade
channels stores.
The company noted that it might be slightly behind the profit targets for the
Raymond acquisition for FY25, but expects to achieve higher margins than those
inherited.
The company has not touched the quality of its SOAP despite extremely high
prices and will not do so in the future.
The RCCL merger involved integrating systems with GCPL, except for condoms,
where a separate OTC system was created and some GCPL products were added
to it.
Owing to additional expenses for RCCL, the EBITDA estimate of company has
gone down to ~INR1.5bn as compared to earlier estimate of INR1.6bn for FY25.
RCCL prior to acquisition had reported EBITDA of ~INR600m.
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Cost and margins
The company took a month or two to respond to the palm oil price increase by
adjusting its prices.
It aims to increase EBITDA margins in Indonesia from the current 20% to 25%.
GUAM's EBITDA margins stood at 14% in 1Q, which GCPL aims to increase to
15%.
International Market updates
Indonesia volume grew by 7% despite a tough 12% comparator. Due to currency
devaluation in 1Q, rupee revenue grew by 3% and EBITDA by 24%, while
constant currency revenue and EBITDA grew by 11% and 32%, respectively.
GUAM had a challenging quarter, with organic volumes down 21% and organic
revenue down 25% due to currency volatility, the shipping crisis, tough pricing
decisions, and a one-time distributor issue in Nigeria.
High interest rates in African markets may continue to pressure volume growth
for the next few quarters, but this does not significantly affect off-takes or
profits.
Organic growth in LATAM: 1% decline in revenue, 11% constant currency
growth, and 2% UVG.
In LATAM, despite poor revenue performance, profit growth was strong.
Compared to 1QFY24, the combined revenue contribution of GUAM and LATAM
fell from 29% to 21%, while profit contribution increased from 11% to 12%.
New launches
Laundry liquid and sexual wellness are both experiencing exponential growth
with strong market share gains.
The product launch in body wash has been successful so far.
The company has developed some muscles on category development and
believes the sexual wellness category can benefit from it.
The company has launched HITS MATIC product in e-commerce, with surprising
results during Amazon's big day.
Acquisition
Godrej Pet Care (GPC), a subsidiary of GCPL, has entered the INR50b pet care
market in India, which has strong double-digit growth potential in the coming
decades.
Currently, only about 10% of Indians own pets, and just 10% of those feed them
packaged foods, which is only 40% of the time.
Calorie conversion in India for pet foods is only 4%, similar to 15 years ago when
pet ownership was 20% and calorie conversion was 25%.
Godrej Agrovet (GAVL), group company, leads in animal feeds and has expertise
in pet foods, R&D, and supply chain.
GCPL will invest INR5b in Godrej Pet Care over five years, aiming for GPC to
become cash positive afterward.
GAVL will be a manufacturing and R&D partner. With a long lead time for capex
setup, it expects to begin manufacturing in the second half of next year.
August 2024
77
 Motilal Oswal Financial Services
CONSUMER | Voices
Hindustan Unilever
Current Price INR 2,790
Click below for
Detailed Concall Transcript &
Results Update
Buy
Operational environment
There was an improvement in the demand trends with UVG of 4% in 1QFY25.
With the forecast of a normal monsoon and better crop realization, the gradual
recovery in rural demand has been sustained.
The RM basket remains within a range on a deflationary base.
HUVR continues to focus on boosting volume growth, strengthening
competitiveness, and maintaining healthy margins.
Business winning shares and corporate value shares increased. The focus was on
driving premiumization and reshaping the portfolio in high growth spaces.
The premium portfolio’s contribution grew ~300bp over the last three years.
There is ~50% growth in E-commerce and 20% volume growth in high-growth
portfolio.
HUVR's distribution channels include 70% through GT, 20% through MT, and
10% through e-commerce and quick commerce. In the top metro cities, modern
trade would be ~40-50%.
HUVR expects price growth in low-single digits in 2HFY25.
With the total reach of over ~9m outlets, HUVR has a value-added distribution
of over 95%.
Costs and margins
Advertising and promotional investments rose to 10.7% of sales, a 100bp YoY
rise. Absolute A&P investments were INR16.8b in 1QFY25 vs. INR15.1b in
1QFY24.
Excluding the one-off
indirect tax impact in Sep’23 (led ~80 bps margin
expansion in Sep’23),
EBITDA margin will remain at the current level for the near
term.
There will be a moderate pace of improvement in EBITDA margin over the
medium term with operating leverage, mix improvement and growth in the
premium portfolio.
Segmental highlights
Home Care
Home Care delivered strong performance with 4% underlying sales growth
(USG) and high-single digit underlying volume growth (UVG).
Fabric Wash grew in high-single digits due to structural actions across the
portfolio. Premiumization journey in fabric wash liquids was further bolstered
by the expansion of Rin liquids.
Household Care delivered mid-single-digit volume growth, driven by premium
dishwash portfolio.
Both categories (fabric and Household care) continued to see price declines,
reflecting commodity deflation.
Beauty & Wellbeing
Beauty and Wellbeing delivered 3% USG with mid-single digit UVG.
Hair Care clocked double-digit volume growth, driven by Sunsilk, Clinic Plus, and
Dove; good growth in large packs.
Focus on innovations and market development actions in high growth demand
spaces continues to yield results.
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Skin Care and Colour Cosmetics saw muted volume performance due to a
decline in the mass portfolio. However, premium skin portfolio and new formats
showed healthy results.
HUVR launched Dove glycolic hydration range, Vaseline gluta-hya overnight
lotion and a range of innovations under Lakme skin and cosmetics capturing
new trends.
Personal care
Personal Care delivered low-single digit UVG with a 5% decline in USG.
Skin Cleansing posted low-single-digit volume growth, but revenue declined due
to pricing actions.
Lux and Lifebuoy were re-launched with superior product formulations, aimed
at enhancing their market performance.
Oral Care saw mid-single-digit growth driven by pricing.
Food & Refreshment (F&R)
F&R saw stable performance with 1% USG and stable volumes.
Nutrition Drinks saw subdued performance but continued competitive wins.
Tea strengthened market leadership, and coffee achieved double-digit growth,
driven by pricing.
Tea crops were impacted by the hot summer, which led to a 15% YoY increase in
prices during the quarter. However, the company will continue to gain market
share both in terms of value and volume.
Foods posted low-single-digit volume growth, led by food solutions,
mayonnaise, peanut butter, and international sauces.
Ice Cream delivered double-digit volume growth with strong summer season
launches.
Indigo Paints
Current Price INR 1,470
Buy
Click below for
Detailed Concall Transcript &
Results Update
Performance and outlook
The company has consistently surpassed industry growth (-2% in 1QFY25, +1% in
4QFY24, +7% 1QFY24) over the past five quarters, including 1QFY25.
Kerala sales have declined for all paint companies. However, Indigo Paints has
been more impacted, as 25% of its revenue comes from Kerala.
The company has developed differentiated products to grow its market share
and expand its product portfolio on the back of inorganic growth initiatives.
It has expanded into the non-decorative segment and forayed into adjacencies,
like construction chemicals and waterproofing.
The company is expected to take a price hike to pass on higher costs. The paint
industry is going to take a ~2% price hike in Jul’24 and Aug’24.
It has launched stain-free interior emulsion and Acrylic distemper (Bronze)
during the quarter.
Indigo Paints witnessed high sales growth in Jul’24 compared to the past 6-7
months.
There is no pricing pressure from the new competitor and the competitive
intensity remains unchanged for the company.
The demand scenario for the paint industry has been muted for the last two
quarters, leading to a minor increase (~1%) in channel discounts.
Waterproofing and construction chemicals contribute ~5% to revenue. The
company aims to increase this contribution to 8-10% by FY26.
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There is seasonality in the product mix. Sales of distempers and enamels grow in
2Q, while emulsions show higher growth in 3Q and 4Q. Sales of putty and
primers remain steady throughout the year.
Costs and margins
Gross margin declined due to elevated discounts, a slight increase in RM prices
and price cuts taken in 2HFY24.
The company expects that margins will improve ahead, aided by the price hike
and the upcoming festive season in 3QFY25.
A&P expenses for FY25 are expected to decline marginally as a % of sales,
despite increasing spending on digital advertising.
Distribution network
Indigo Paints added 368 tinting machines, taking the total to 10,210 in 1QFY25.
As of Jun’24, the number of active dealers stood at 18,500, up 395 QoQ.
The company continues to focus on improving the throughput per dealer and
giving long-term loyalty points to dealers.
Apple Chemie (acquired entity)
Apple Chemie is expected to clock high growth in revenue in FY25 due to the
expansion in sales and marketing activities in many states.
WPCC products for the retail channel are launched and marketed under Indigo
brand (Protect Plus Series), while Apple Chemie continues to target B2B, fast-
growing infrastructure segment.
Apple Chemie business expanded to Maharashtra, Telangana, Tamil Nadu,
Orissa, West Bengal, Madhya Pradesh, Delhi (NCR), Bihar, and Karnataka.
Others
In Jodhpur, the foundation work is nearing completion at new solvent plant with
a capacity of 12,000 KLPA.
The foundation work is completed and erection work progressing in full pace at
the water based plant with capacity of 90,000 KLPA.
The plan of doubling the putty plant's capacity in Jodhpur has been commenced.
The Cochin plant caters to the Kerala region, while the Jodhpur plant covers
most of western, northern, and large parts of eastern India.
The Tamil Nadu plant will serve the southern part of India.
Jyothy Labs
Current Price INR 566
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Performance and outlook
Demand is expected to accelerate with normal monsoons. Rural demand pickup
is key for positive momentum.
JYL delivered 11% volume growth and continued focus on volume-led growth to
gain higher market share for each brands.
The value-volume gap is due to the increase in grammages and price cuts taken
by the company.
Price cuts were taken across segments, with the most significant reductions in
dish-wash, followed by Fabric care, and then Personal care.
JYL is not expecting any price hike in FY25.
The company focuses on rural distribution, innovation, and introduction of
SKU’s to cater to specific consumer
segments.
The contributions of modern trade and e-commerce to revenue have increased
to 15%, up from 10% two to three years ago.
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 Motilal Oswal Financial Services
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Costs and margins
Management guided double-digit sales growth mainly led by volume.
The gross margin expanded due to a more favorable product mix and improved
operational efficiencies.
It maintains an EBITDA guidance of 16-17% for FY25.
Segmental details
Fabric care
It delivered 9% sales growth in 1QFY25.
Distribution, ground-level activities, and product differentiation helps in faster
growth and expansion across product categories.
The company launched More Light 5L liquid detergent pouch during the quarter
at reasonable price of INR70/L.
The liquid category will grow faster on a low base compared to powder.
Dish wash
It delivered 7% sales growth in 1QFY25.
JYL will continue to enhance the brand equity by driving LUP’s, enhanced digital
awareness, ground activations to strengthen their position.
Pril larger packs gaining momentum in MT. Pril Tamarind delivered continuously
delivered strong double-digit growth.
Exo has 13.8% market share in dish wash bar and Pril has 14.4% market share in
dish wash liquids.
Exo's market share in the eastern region increased from low single digits to
double digits.
Household Insecticides
The sales increased 2% YoY in 1QFY25. The category has been hit by summer in
North and East India.
Strengthening the liquid portfolio by focusing on continued brand investment,
and emphasizing the unique automatic feature of the Maxo machine.
Maxo Coil and liquid vaporizer market share stood at 25.8% and 9.1%.
Personal Care
It delivered 11% sales growth in 1QFY25.
Neem-based Margo Soap with its natural benefits proposition delivered a
double-digit growth.
Strengthening the brand equity of Margo to venture into new formats and
categories.
Other points
Capex will be INR0.5-0.6b for FY25.
Cash balance is over INR6.5b at the end of 1QFY25.
Marico
Current Price INR 679
Buy
Click below for
Detailed Concall Transcript &
Results Update
Business environment and outlook
The FMCG sector has seen a steady increase in demand, with rural growth
surpassing urban growth.
There is a sequential improvement in volume growth in the domestic business.
Pricing growth remained flat YoY, but both HPC and Foods saw an increase, with
HPC seeing notable growth in the past six months.
Premium segments continued to outpace mass segment.
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 Motilal Oswal Financial Services
CONSUMER | Voices
MRCO continues to focus on urban-centric and premium portfolios through the
organized retail and e-commerce channels.
There was a gradual improvement in core categories growth in the domestic
business through the ongoing initiatives.
Marico is actively pursuing inorganic growth opportunities to bolster its
competitive position and achieve long-term value creation.
Phase1 of Project Setu was executed in six states in 1QFY25. The new outlets
have responded well to the core and new portfolios.
The company expects volume trends to maintain the upward trajectory,
supported by stable retail inflation, a favourable monsoon season, and
government budget allocations aimed at boosting the rural economy.
Over 90% of the business maintained market share and penetration on a MAT
basis.
Competitors have intensified their activity at the lower end of the market by
offering attractive pricing.
The company aims to deliver double-digit revenue growth in FY25.
Brands, such as Aloe and Jasmine, which play in the mid and premium
segments, grew well ahead of the category.
Material costs, margin and guidance
Mild inflation is anticipated for certain commodities, especially copra, in the
second half of the year.
The company might implement another round of price increases if copra prices
rise further.
The Digital-First brands are striving to achieve double-digit EBITDA margin by
FY27.
Beardo is expected to hit double-digit EBITDA margin in FY25.
The company had an 800bp correction in its margin in the Food business last
year.
The company is concentrating on driving growth through investments rather
than engaging in BTL spending and competing on pricing at the lower end of the
market.
Segmental performance
Parachute coconut oil
Volume was up 2%, impacted due to stock adjustment in GT.
Volume offtakes grew 8% during the quarter.
Gained ~100bp in market share on a MAT basis.
The company expects that Foods and Premium Personal Care portfolios
contribution will expand to ~25% by FY27 in domestic revenue.
Flanker brands, such as Nihar Coconut Oil and Oil of Malabar, compete with
regional brands and some heavily discounted national players.
Saffola edible oil
Saffola edible oils delivered mid-single digit volume growth as RM costs and
consumer pricing remained stable.
Pricing growth is likely to pick up during the year, with Saffola oil price drops
moving into the base completely from 2Q.
Revenue declined marginally YoY, due to the last leg of pricing corrections not
factoring in the base.
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Foods
Foods posted robust 37% value growth YoY.
Saffola Oats delivered 20%+ growth, while the relatively newer franchises also
scaled up on expected lines.
The company launched Saffola Muesli with Flavour Pops in three flavors during
the quarter, i.e., Kesar Crunch, Berry Crunch and Choco Crunch.
True Elements and the plant-based nutrition portfolio of Plix maintained their
accelerated growth momentum.
MRCO aims to grow Foods at 20-25%+ CAGR to 2x of FY24 revenues in FY27.
The company believes that to scale up foods, it needs to ensure some price
points to drive growth, and Indianize flavors and offerings.
The company plans to expand its breakfast cereals and snacking portfolio with
the introduction of a new INR10 snacking product.
VAHO
VAHO declined 5% in value terms amid persistent sluggishness and competition.
Secondary sales and offtakes grew in low single digits.
Mid and premium segments of VAHO continued to perform relatively better.
Gained ~60bp in market share on a MAT basis.
There is expectation of gradual pickup in FY25.
Premium-personal care
Premium personal care sustained its strong growth trajectory in 1QFY25, led by
the Digital-first portfolio.
Beardo continued to scale well and on track to deliver double-digit EBITDA
margin in FY25.
Just Herbs and the personal care portfolio of Plix continued to gain traction.
The Digital-first portfolio is expected to exit FY25 with ARR of INR5.5-6b and
scale to 2x of FY24 ARR in FY27.
The collaboration with Kaya is projected to generate a revenue opportunity of
INR1b over the next four years.
International business
Bangladesh registered 10% CC growth as the business stayed resilient and
sustained its momentum.
South-East Asia was flat in CC terms, as the recovery in HPC demand in Vietnam
was offset by a weak quarter in Myanmar.
MENA delivered 20% CC growth with the Gulf region and Egypt faring well.
South Africa registered 28% CC growth, driven by the ethnic hair care segment.
NCD and Exports posted 14% growth.
MRCO maintains double-digit CC growth guidance over the medium term.
Page Inds
Current Price INR 41,551
Click below for
Results Update
Neutral
Performance and Outlook
The operating environment was stable in 1Q and largely consistent with
previous quarters, with no significant improvement in consumption.
The company has seen better footfalls and a revival in demand.
Discounting in the industry decreased significantly in 2HFY24 and was not
observed in 1QFY25.
Secondary and tertiary demand was ahead of primary demand.
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 Motilal Oswal Financial Services
CONSUMER | Voices
Inventory holding in the value chain has contributed to better secondary and
tertiary numbers compared to primary.
The company believes the gap with its competitor, Jockey, has only reduced
because Jockey has stuck to its prices for the last 24 months.
PAGE has a 17% market share, dominating the market.
Inventory days decreased to 72 from 93 at FY24 end.
Working capital days were 73, consistent with the end of FY24.
The company is re-evaluating its previous guidance due to recent business
turbulence and a challenging FY24.
Accessories will contribute in high single-digits to total revenue.
Costs and margins
Input costs, particularly for fabric and yarn, are not anticipated to put enough
pressure on prices to necessitate an increase in FY25.
Cotton prices remained stable and on the lower side.
The operating margin at the EBITDA level is expected to stay within the range of
18% to 21% annually.
Margins in e-commerce are comparable to those in offline business, though D2C
channels typically have slightly lower margins due to higher marketing and
delivery costs.
Segmental performance
The women's innerwear market is more competitive, with a larger number of
credible players in the branded sector compared to the men's innerwear
market.
To address the competitive women's innerwear market, the company has a
dedicated sales vertical and an independent team for product design,
marketing, management, and sales.
The company has introduced new products, particularly in the athleisure
category, at competitive price points to cater to value-seeking consumers.
Distribution channels and supply chain
PAGE has a distribution network comprising 104,696 MBOs, 1395 EBOs, and
1,137 LFS.
It plans to expand EBOs by 150 to 180 stores annually.
The company is now focusing on its distribution network, with an emphasis on
metros and tier 2 and 3 cities.
Metros and tier-1 cities contribute just over 50% of the business, while tier-2
cities account for the less than 40%. The remaining business is spread across
tier-3 and tier-4 cities.
The e-commerce channel clocked 32% growth in 1Q.
Quick commerce is a new venture for the company. Recently, it has expanded to
four players and will soon start with two more.
Since implementing auto-replenishment for primary billing to distributors,
inventory levels have decreased by about six days.
At the distributor level, inventory has decreased by over 10 days, especially for
athleisure products.
August 2024
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 Motilal Oswal Financial Services
CONSUMER | Voices
Pidilite Industries
Current Price INR 3,059
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Demand environment and outlook
The demand has been subdued, impacted by election-related restrictions and
heatwaves in many parts of the country.
The management remains optimistic about demand, expecting a boost from a
healthy monsoon season and the upcoming festive season.
The management has maintained its guidance of double-digit underlying volume
growth for FY25.
UVG was 9.6% in 1QFY25, considering constant prices for all products. However,
total volume growth was at 19%.
There are demand challenges in Kerala, similar to those faced by the paint
industry.
PIDI aims to achieve growth of 1-2x of GDP in its core category and 2-4x in its
growth category.
The company implemented mid-single-digit price cuts in FY24 but has not made
significant cuts in 1QFY25.
Further price cuts may be considered if raw material prices decline.
The gap between volume and value is expected to close in 2HFY25.
Growth in emerging markets continues to outpace that in urban markets.
There is double-digit growth in rural markets, with the B2C category performing
well.
In the rural market, 90% of revenue growth is coming from same-store sales.
The management has projected that rural market growth will be 1.5x that of
urban markets over the next 2-3 years.
The current ratio of core vs. new category products is 55:45, compared to 80:20
about 7-8 years ago.
In the B2B business, all three large verticals—Industrial, Pigment, and B2B
projects—are performing well, with strong growth in the Pigment segment due
to a low base, leading to an 18% UVG in 1QFY25. While this 18% growth is not
sustainable, the company expects to deliver double-digit growth.
Cost and margin
Gross margin expanded on moderate input prices.
VAM’s consumption costs stood at USD1,022/t vs. USD1,137/t in 1QFY24.
EBITDA margin would be in the range of 20-24% for FY25.
Others
Working capital remained healthy and in absolute terms, lower than Mar’24
resulting in strong cash flows.
The company continued to invest in brands, upgrading and building new
manufacturing facilities and expanding our distribution network.
It has maintained its capex guidance at 3-5% of total revenue.
PIDI continues to expand distribution, reaching 14,000 stores and ~10,000
villages under the 'Pidilite ki Duniya' program.
August 2024
85
 Motilal Oswal Financial Services
CONSUMER | Voices
Tata Consumer Products
Current Price INR 1,177
Click below for
Detailed Concall Transcript &
Results Update
Buy
India packaged beverages business
The India Packaged Beverages business witnessed a revenue decline of 1% YoY
in 1QFY25. Volumes stood flat on a YoY basis.
The business was impacted by an intense summer in 1QFY25.
Tea: Erratic weather patterns have affected tea production in India, leading to
volatile prices.
Coffee continued its strong trajectory and grew 28% YoY in 1QFY25.
India foods business
The business registered 30% YoY revenue growth in 1QFY25, with LFL revenue
growth (excluding Capital Foods) of 14% YoY. The segment recorded a volume
growth (excluding Capital Foods) of 10% YoY during the quarter.
Tata Sampann’s portfolio witnessed another strong quarter with 37% YoY
growth.
The company did multiple innovations over the last few years, which are now
driving strong growth (such as entering into branded dry fruit market).
Currently, the company is doing INR700-800m run rate in dry fruits on e-
commerce.
Around 2/3rd of the business is coming from new launches (~12-18 months old
products).
Tata Sampann business margins are inching up every quarter.
India salt business
The salt portfolio grew by 9% YoY during the quarter, led by ~8% YoY volume
growth.
Value-added
salts grew 35% YoY, in line with the company’s premiumization
agenda.
The company witnessed market share gain in salt during the quarter.
Ready-to-drink (RTD)
RTD segment witnessed revenue growth of ~7% YoY to INR3.1b on the back of a
high base (up 60% YoY in last year).
The strong summer hurt category demand due to a reduction in out-of-home
consumption, especially within the single serve packs.
Further, in Gluco plus, the company did not react quickly on pricing (to be in line
with competition), which resulted in lower sales.
Tata Copper maintained strong growth momentum (up 22% YoY).
TATACONS recent introductions such as Tata Spring Alive and Himalayan Saffron
continued to perform well.
Capital Foods and Organic India
Capital Foods/Organic India revenue stood at ~INR1.6b/INR0.7b in 1QFY25.
Newly acquired businesses witnessed decent performance in 1Q despite
channel inventory clean-up in Capital Foods and the integration phase in
Organic India.
Combined gross margin for both these businesses stood at ~48.4% (margin
accretive for the company).
JV: Starbucks
Tata Starbucks revenue grew 4% YoY in 1QFY25 as heatwaves affected business.
August 2024
86
 Motilal Oswal Financial Services
CONSUMER | Voices
The company added 17 new net stores in 1QFY25, taking the total count to
~438. Starbucks entered four new cities during the quarter, taking its overall
presence to 65 cities.
Non-branded business
Non-branded business (including Vietnam in constant currency) revenue grew
32% YoY in 1QFY25 on account of higher coffee realizations across soluble and
plantations.
The soluble and plantation business witnessed ~34% YoY revenue growth each
in 1QFY25.
EBIT margin for non-branded business increased by 600bp YoY on account of
unprecedented coffee prices. Volatile coffee prices remain a key monitorables.
New distribution channel
The company has brought in new distribution channels, such as pharmacies and
food services.
Pharmacies: TATACONS now has a portfolio well suited for the pharma channel.
It has initiated a pilot in six cities. It is entering this channel to sell premium
products such as premium coffee, tea, salt, sauces, etc.
Food services: Key customers under this channel include HoReCa, corporate
canteens, and B2B. The company has planned pilots in two cities. Noodles,
Soups, Ketchup, etc. will be more suitable in this market. Companies in
developed countries follow this channel.
International operations
The international business maintained healthy growth momentum, growing 8%
YoY (in constant currency) with a 420bp EBIT margin expansion, led by structural
interventions and tactical pricing.
US business
–
Coffee revenue declined 4% YoY (constant currency) due to
category headwinds in K cups. Tea business witnessed 8% YoY growth (constant
currency).
UK business revenue grew 14% YoY (constant currency). The business saw
strong improvement in EBIT margins, driven by operating leverage and
structural interventions.
Other highlights
India Foods includes Capital Foods; India Beverages includes Organic India
Proceeds from right issue will be used to repay short-term financing raised for
acquisitions
Higher amortization due to acquisition (quarterly charge of amortization was
INR550m and will continue going ahead) and higher finance costs (led by
drawing up bridge financing for acquisition) led to lower profitability.
The A&P-to-sales ratio increased to 7.8% in 1QFY25.
Growth business is now 29% of India Business with 66% YoY growth (20%
organic) in 1QFY25. Growth business mix is still lower than anticipated (30%)
due to lower sales in NourishCo.
North India tea prices were 16% higher YoY for the quarter due to drought,
while South India tea prices were 4% higher YoY.
Arabica prices continued to inflate during the quarter. Robusta prices touched
record highs during the quarter due to global supply shortages. Averages prices
for 1Q were 57% higher YoY.
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 Motilal Oswal Financial Services
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E-commerce business grew by 61% YoY in 1QFY25, with ~35% of business
coming from quick commerce.
India Branded margin impacted by extra A&P spending during the quarter as it
added feet on the street (increasing the sales person).
Historically, the company had ~11-12% contribution from e-commerce and 14-
15% contribution from modern trade.
United Breweries
Current Price INR 2,009
Sell
Click below for
Detailed Concall Transcript &
Results Update
Environment and outlook
The volume growth was limited to 5% due to election-related restrictions and
the lack of approval for inter-state transfers. Management believes that without
these impacts, the volume growth would have been 8-9% in 1QFY25.
Volume growth was driven by Karnataka, Andhra Pradesh, Uttar Pradesh,
Maharashtra, Haryana, and West Bengal, partially offset by a decline in
Telangana and Delhi.
Price increases in multiple markets incl. Rajasthan, Karnataka, Andhra Pradesh,
Maharashtra & Tamil Nadu.
To drive volume growth, the company plans to focus on innovation, deeper
understanding of consumers, and investment on stores.
The company expects high single-digit volume growth in the category and
double-digit revenue growth over the long term.
The price of beer has increased significantly due to the duty increase, making it
a challenge to price for commodity change fluctuations.
The company is operating at a lower margin of 50-70% vs. its potential, due to
the complex pricing regime with the government.
Costs and margins
GP margin expansion is driven by state mix, brand mix, product mix, and
strategic revenue management.
Manufacturing locally will improve margins. The company sees potential for
margin accretion with their plans to continue investing behind their brand and
capabilities.
The company's EBIT margins are currently ~6% in India, but expected to reach
10-11% in the next two to three years.
Supply chain and Market share
The company experienced supply chain disruptions due to election restrictions
in certain states, which led to a loss of market share.
The company lost almost 200bp of market share due to election restrictions in
Andhra Pradesh and other states, which prevented them from exporting and
manufacturing locally.
The company also lost market share in Telangana, Rajasthan, and Odisha due to
capacity and election-related issues, resulting in a loss of almost 10bp of market
share in Telangana. However, it is back on track with market share in June and
ahead in July.
The company gained market share nationally in their premium portfolio, which
was less reliant on interstate transfers.
August 2024
88
 Motilal Oswal Financial Services
CONSUMER | Voices
UBBL is increasing its footprint in local production, which has led to growth in
the premium segment, particularly in states where it has started producing
locally, such as Odisha.
The company's intention is to gain market share within the premium segments.
Product development
The company launched Heineken Draft and is gaining distribution for it.
The launch of Heineken in Karnataka was successful before local manufacturing
began.
The company is working to launch Heineken in Delhi.
The launch of Heineken Draft is expected to drive 100-200bp of share growth
every quarter in the premium segment.
Others
The company plans to triple their investment in capex over the next 12-18
months for building their own brewery and brownfield expansion.
In M&A, the company's focus is on backward integration opportunities to
achieve a better sustainable cost structure.
United Spirits
Current Price INR 1,432
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Operational environment and outlook
Demand continued to moderate and remained slower than it was two years
ago. However, the last couple of quarters showed slight improvement.
In alcohol, consumer spending remains relatively slow but more selective, with a
preference for brands that offer a strong price-value proposition.
Green shoots are emerging in the economy, driven by rural consumption
recovery and the expectation of a normal monsoon, which may lead to
consumption revival going forward.
The premiumization ladder is intact, but below the company's aspiration and
what was experienced in FY21-22 and FY22-23.
The price mix was 4.8%, contributing to an overall portfolio NSV growth of 8.3%
for the quarter, with P&A growth at 10.1%.
The company maintains that the price mix as a whole, the volume value delta,
will stay in the range of about 6-8% on a full year basis.
New excise policies have been released across the northern, central, and
eastern states. The company also received some headline pricing in a few states.
Revenue growth is expected to be high-single digits in 1H and double digits in
2H. Overall, the management expects to meet its double-digit growth guidance
for FY25.
Costs and margins
ENA continues to experience inflation, while the rest of the commodity basket
remains stable. The ENA inflationary trend is expected to continue for the next
couple of quarters.
A&P spending during the quarter was 7.4% of net sales and is expected to
increase going forward.
The company benefited from a 100bp reduction in overheads (true-up the
provisions) in 1Q. Lower A&P spending due to seasonal business trends resulted
EBITDA margin expansion of 170bp YoY to 19.5% which will normalize to 16-17%
going forward.
The Supply Agility Program started delivering 40% of its benefits in FY24, with
the remaining benefits expected to come in FY27-28.
Brands/new launches/re-launches
The Antiquity trademark continues to build stronger equity with consumers.
August 2024
89
 Motilal Oswal Financial Services
CONSUMER | Voices
The company has launched the 375ml pack in the hipster format for Royal
Challenge American Tribe in key markets, Uttar Pradesh, Telangana, and Assam.
UNSP launched a renovated McDowell's Number One whiskey with a new brand
world and retail toolkit.
The company launched the McDowell trademark X series, a range of whites
including vodka, Gin, Citron Rum, and dark rum, operating in the upper prestige
price segment.
Blue Label has scaled up in key markets, including Delhi, Mumbai, Bangalore,
and Hyderabad.
Don Julio has seen strong initial consumer traction and growth across states.
Premiumization is evident, with Don Julio Reposado growing faster than the
entry-level Blanco. Significant activations include partnerships with Marriott
Bonvoy and American Express, bringing the world’s number one restaurant from
Lima, Peru, to India.
New policy in Karnataka
The new policy in Karnataka suggests slab changes with a reduction in duty,
which is a positive development. However, the rollout of the new policy has
been put on hold as the industry awaits further clarification.
Changes in excise policy will help to revive demand in the state and enable some
premiumization of the spirits category, which is currently heavily skewed
towards the lower end.
By Aug’24, UNSP expects more clarity and a return to normal business in
Karnataka.
The policy announcement is positive and should drive some premiumization, but
the product will remain relatively expensive compared to other markets.
Varun Beverages
Current Price INR 1,545
Buy
Click below for
Detailed Concall Transcript &
Results Update
Volume Performance
The India market witnessed a strong volume growth of 22.9% supported by
expanded capacities, enhanced distribution network, and a strong summer
season. However, there is an effect of lower out of home consumption in this
quarter. The company is confident of growing in double digit volume growth in
India going ahead
International markets remained relatively flat; moreover, it was a seasonally
weak quarter for the African market. Besides, volume in Zimbabwe was affected
due to portfolio transition to zero sugar without affecting profits. The
management has guided 3Q to witness healthy volume growth
BevCo did volume of ~28m cases in 2QCY24 vs. full year volume of ~112m cases
in CY23.
Volume mix for the quarter was 76%/ 8%/ 16% for CSD/Juice/Water in 2Q.
Net realization per case was flat due to consolidation of BevCo (realization per
case for own brands is lower). Also South Africa has lower realization while DRC
will have higher realization
~46% of consolidated sales volumes came from Low sugar / No sugar products
in 2Q. Of this, majority will be in the International market
In 2Q, the company Increased the growth in juice and CSD while deliberately
kept the growth lower in Water as it's a lower margin business. Water sales has
increased only in Morocco as there the realization is high
August 2024
90
 Motilal Oswal Financial Services
CONSUMER | Voices
Operational Metrics
VBL has enhanced capacity of preform manufacturing, with majority of preform
requirement now being manufactured in-house leading to shifting of conversion
costs from COGS to other expenses.
Depreciation increased by 41% in 2Q on account of acquisition of BevCo and
setting-up of new production facilities.
Finance cost increased by 86.2% in 2Q primarily due to new production facilities,
acquisition of BevCo as well as increased cost of borrowing. Also, higher stocking
of PET chips (~INR2.5b) was an arbitrage between savings in cost of goods sold
and partial offset with enhanced interest cost. This will be normalized in couple
of months
Net debt
stood at INR58.8b as on Jun’24vs INR47.3b as on Dec’23
Working capital days increased to ~33 days as on Jun’24 from ~21 days as on
Jun’23. This increase is attributed to strategic purchasing of pet chips in India
and in-organic expansion in the new markets (BevCo and DRC plant).
New Ventures and International Expansion
VBLL further expanded its partnership with PepsiCo by entering into an Exclusive
Snacks Franchising Appointment to manufacture, distribute, and sell "Simba
Munchiez" in Zimbabwe by Oct'25 and in Zambia by Apr'26. This follows VBL's
recent announcement to manufacture and package Cheetos in Morocco by
May'25. These agreements complement the company's existing distribution of
PepsiCo's portfolio, marking another significant step forward in their strong,
symbiotic partnership.
In next couple of years, the company expects to earn USD100m from these
geographies
VBL would not be entering into snacking business in India on its own.
The company commenced commercial production of CSD and packaged drinking
water at greenfield facility in DRC. With the region representing an untapped
market for PepsiCo, this expansion offers a huge growth opportunity for the
company. DRC will be big opportunity as it's a 100m population and its situated
on equator I.e. summer all year
Capex
Total capex in 1HCY24 was INR18b of which the company spent ~INR12b for
capex of CY24, ~INR6b for capex of CY25.
During 1HCY24, the net capex capitalized amounting to INR30b (excluding
BevCo assets) includes: 1) setting up greenfield production facilities for INR24.5b
(location-wise split is Supa (Maharashtra) for ~INR10b, Gorakhpur (UP) for
~INR9b & Khordha (Odisha) for ~INR5.5b; 2) brownfield expansion in Morocco
for INR2.5b including backward integration; 3) balance capex comprises
International / visi-coolers / containers / vehicles / net of write-offs / forex
fluctuation.
As on Jun’24, the CWIP and Capital advances of ~INR12b are primarily towards:
1) INR4b for DRC plant which commenced commercial production in Jul’24; 2)
~INR2b for Phase 2 of Gorakhpur plant primarily for Juice / VAD lines expected
to commissioned in 3QCY24; and 3) balance for capex for next year including
brownfield expansion in other international territories.
Net capitalization capex for CY24 is expected to remain around INR36b and
capitalization in CY25 is expected to be ~INR25-26b.
August 2024
91
 Motilal Oswal Financial Services
CONSUMER | Voices
Capex outflow in 2HFY24 will be ~INR10b for capitalization to be happening in
CY25
Outlook
The company expects strong double digit growth in 3QCY24 led and indicated
that the company is on track to deliver healthy double-digit volume growth in
CY24.
The company witnessed almost ~100% utilizations of plant in April’24 before
commissioning of new capacities
It maintains its long-term guidance given in the past
Others
African market: The per capita consumption in Africa is 5-6x of India and
population growth there is 2-3% p.a. (South Africa being the highest). PepsiCo is
underpenetrated in Africa and VBL has only 2-2.5% market share there. Soft
Drink is food in Africa vs. luxury in India, the population consume that every
afternoon.
Indorama JV will be operational next year and will supply the 30% recycled
plastic requirement to VBL
VBLL’s market share: South Africa has low digit; 71% in Zimbabwe; 35% in
Zambia and 30% water market share in Morocco.
August 2024
92
 Motilal Oswal Financial Services
FINANCIALS/BANKS| Voices
FINANCIALS/BANKS
The first quarter has seen a seasonally slow quarter, and most of the banks have reported slower deposit
growth too in 1QFY25. We cut our growth estimates for several banks amid slower deposit growth and a
higher C/D ratio across many banks and the system. Most of the banks have raised their deposit rate in 1Q,
amid rising competition in deposits. Banks are still increasingly relying on the bulk TDs and CDs to fund their
asset growth. The decline in industry-wide CASA mix led to higher funding costs. With rising costs, NIMs are
likely to witness a mild moderation, albeit at a slower rate.
PSU Banks have continued to report steady earnings led by improving asset quality. Opex growth normalized
after elevated wage/pension provisions, which lasted until 4QFY24. The SMA pool continues to remain lower,
while slippages from the restructured pool continue to remain lower. With healthy PCR and healthy
contingency buffers, credit costs are expected to be lower, supporting earnings. Most of the banks have
guided for lower credit costs amid healthy recoveries and contained slippages. While caution prevails on the
potential increase in delinquencies for unsecured loans, it is anticipated that credit costs will remain under
control in the coming quarters.
Outlook for FY25
Asset quality and collection efficiency
The corporate segment has driven Axis Bank’s loan
Fresh slippages were elevated as a result, GNPA
growth; bank has identified promising opportunities in
increased by 11bp QoQ to 1.54%, while Net NPA inched
corporate lending and is prepared to proceed as long as
up to at 0.34%. PCR stood broadly stable at 78%.
the underwriting standards are met.
In 1QFY25, the net credit costs did not reflect the full-
The bank anticipates deposits outpacing industry growth
year outlook due to timing differences. Approximately
by 300-400bp in the medium to long term for deposits,
55% of the increase was attributed to lower recoveries
targeting a 13% growth in deposits for FY25.
in the corporate portfolio.
The bank has 25bp of cushion in the NIMs, and currently
Excluding the 55% impact from timing differences, the
it maintains a NIM of 4.05% and remains vigilant
effective credit costs would be 67bp (reflecting a 30bp
regarding deposit competitiveness in the industry.
impact).
A key part of the strategy is focusing on deposits, which
GNPA/NNPA ratio deteriorated 9bp/6bp QoQ to
have fallen short of expectations due to seasonality. Net
1.33%/0.39%. PCR dipped 283bp QoQ to 71.2%.
accretion is within the expected range, but there was a
HDFCB holds total provisions (contingent + floating) of
flow out of current accounts in 4QFY24, leading to a
INR273b/1.1% of loans.
higher share of CA deposits.
The bank holds INR50b in contingent provisions.
Borrowings plunged, amounting to INR750b in 4QFY24
Previous Covid provisions have been reallocated to ECL
and INR600b in the 1QFY25. Of the INR150b in
provisions.
commercial papers, a decrease occurred as they
matured. 60% of the borrowings are scheduled to
mature in the next three years.
The bank is not bound by a specific LDR; lowering LDR
lies in the bank’s interest.
In terms of the C/I ratio, it aims to stabilize the cost-to-
earnings ratio with a downward trend, prioritizing
longer-term targets over short-term pressures.
ICICI Bank has set no target for loan growth, and
Slippages were slightly higher at INR59.16b/ 2.2%
deposits will be sufficient to support this growth.
owing to seasonal KCC slippages. GNPA/NNPA
Deposits remain tight, with wholesale deposits being
ratios stood broadly flat at 2.15%/0.43%, while
even tighter, leading to some increases in deposit rates.
contingency buffer remained unchanged at
Deposits are not a constraint for loan growth, although
INR131b (1.1% of loans).
there is competition for advances.
The pace of recoveries in retail will vary, and a
LDR is in the low to mid-80s and is expected to stay
slowdown is expected.
around these levels.
Credit cards make up less than 5% of the loan
Yields decreased despite an increase in the share of
portfolio. The bank views this as a growth area
high-yielding products. Yields remained decreased due
to high competition, with other private banks competing
and aims to expand in this business. Credit cost is
similarly in the corporate segment.
currently at 50bp and should gradually normalize.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Axis Bank
HDFC
Bank
ICICI
Bank
Though predicting the long-term average is
challenging, it is likely to be better than historical
levels.
August 2024
93
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
IndusInd
Bank
Kotak
Mahindra
SBI
Loan growth is anticipated to be around 18-
23% during the PC-6 cycle.
IIB was cautious on disbursements in vehicle
and microfinance during elections, and run
rates have already picked up this month.
NIM is expected to remain range bound at
~4.3-4.4%, and the bank will be able to
manage NIM in this range.
In other segments, the bank expects ~18-20%
YoY growth in vehicle finance, 28-30% growth
in retail, ~18-20% growth in mid-corporate,
and ~10-12% growth in large corporates.
The CD ratio stood at 87.2%, which IIB
expects to maintain in the range of 88-90%
going forward.
On the RBI order, the bank demonstrated
commitment, added resources, and laid down a
formulated plan in consultation with the RBI.
Due to the RBI order, there was no impact on
existing business operations. However, Kotak 811
and the Credit Card business have been affected by
the order. Other businesses are not entirely digital.
Its customer assets grew 20% YoY/3% QoQ in
1QFY25. Due to leveraging on the customer side,
credit card growth was not healthy for the industry.
The bank is making efforts to build the deposit
franchise across all of its businesses and get
deposits at low cost with sustainable growth. A
majority of the repricing has been done.
CoF will move up, but the move will ebb gradually
vs. the past trend.
Bank delivered a healthy performance with 16%
credit growth and guides for 15% growth, backed
by broad-based sector growth. The CD ratio is
expected to be 70%, potentially rising to 72%.
The bank is happy to garner deposits as long as the
rates remain comfortable.
The bank expects NIMs to stay at the current
levels, with an expected variation of +/-10bp. In
terms of asset quality, there is no sign of stress
buildup, as underwriting remains strong, with
some slippages in the agricultural sector.
Infra bonds amount to INR600b, and the infra book
is INR3t, with ample scope for expansion. The bank
is exploring multiple channels for growth in this
segment.
The rate increase for term deposits in the past 1-2
quarters has impacted the cost of deposits, leading
to an overall increase in costs.
Fresh slippages increased 7.6% QoQ to INR15.4b,
primarily due to a rise in slippages in the
consumer finance book to INR14.9b.
GNPA/NNPA ratios increased 10bp/3bp QoQ to
2.02%/0.6%.
The bank did not utilize any contingent provisions
and held INR10b of contingency buffer as of
Jun’24.
The bank writes off loans according to the
approved policy of the bank and it does not keep
retail loans more than 180-240 days.
110-130bp is the credit cost expected by the
bank, including having excess provisions on MFI
and vehicles.
GNPA/NNPA ratios remained stable at
1.39%/0.35%. Credit costs stood at 55bp.
The bank will maintain prudence in its
underwriting approach, ensuring quality without
compromising standards.
Credit remains benign on the corporate side. On
the secured side in retail, there is no issue.
Unsecured retail advances (including retail
microcredit) as a % of net advance stood at 11.6%
in 1QFY25.
GNPA ratio improved 3bp QoQ to 2.2%, while
NNPA ratio was flat at 0.6%.
The restructured book declined to INR160b
(0.4% of advances), while SMA 1/2 portfolio
stood at INR46b (12bp of loans). The bank
guides FY25 credit cost at 0.5%.
Slippages mounted in 1Q due to aging
provisions in standard assets and some delays
in salary credit for unsecured personal loans.
Slippages are typically higher in the first
quarter, but they were lower in 1QFY25 than in
1QFY24. There are no signs of concern as
underwriting remains strong, with some
slippages in the agricultural sector.
The temporary increase in GNPA in Xpress
Credit should recover significantly. Digital credit
in Xpress Credit is being strengthened.
AU Small Finance Bank
Current Price INR 625
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
The bank has submitted an application for a universal banking license, marking a
significant milestone as such licenses are hard to obtain.
Efforts in MSME, credit, affordable housing, and skill training will benefit both
the country and the bank in the future.
August 2024
94
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
On the business front, the focus will be on lower-cost deposits. Deposit costs
have decreased by 7bp, with the bank prioritizing cost over volume, resulting in
flat QoQ deposit growth.
The bank is on track, and the full realization of its deposit franchise will be seen
over time.
The asset strategy is well executed, with a focus on high-yield assets, targeting
60,000 disbursements, 20% of which were achieved in 1Q, yielding a higher rate
of 15.8%.
VF, SBL, MFI, and AFH have shown promising numbers, with disbursements
positively surprising in 1Q.
Asset quality remains strong, with normalized credit cost expected to be
between 1.1% and 1.15%, staying within the guided range for the rest of the
year.
The merger is progressing well in terms of people, product, and technology
integration.
1Q has been promising, and the application for the universal bank adds further
optimism.
The focus will be on branch banking, with significant efforts directed toward the
deposit franchise. Feedback from the MFI business indicates a heated market,
necessitating corrective measures.
MFI will constitute 10% of the loans, with 3% provisions allocated for this
segment.
Labilities
The liabilities book remains at the same level as FY24. The decision to maintain
deposits was a strategic move to improve the cost of funds in 1Q. As part of this
strategy, the bank chose not to renew INR10b of deposits, mainly from Fincare
SFB.
The liquidity situation is being closely monitored and remains tight.
The financialization of savings is in its early stages and is expected to grow. The
market size in CA will continue to expand, driven by MSME and SME sectors.
Granular savings are fundamental for overall savings.
There is a sustainable opportunity for deposit growth in India, supported by a
well-seasoned and dedicated team for raising deposits.
The corporate deposits team has been restructured to focus on the salary and
SME segments.
Deposits are expected to grow by 25% in FY25, with close monitoring of the
liquidity situation.
The bank aims to increase CA as a percentage of overall deposits, leveraging
AD1 products to improve in the SME sector.
As part of the Fincare integration, 136 Samridhi branches have been converted
into AU SFB branches, with existing customers to be migrated by the end of the
year.
11 new branches have been opened, and new products have been launched to
attract deposits.
The bank will adapt to market conditions, closely monitoring rates and the
liquidity situation.
August 2024
95
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
The focus is on raising low-cost, stable retail deposits by engaging with
customers.
At the merged level, the savings account CoF is 5.59%, down from 5.8% in
Mar’24, as the bank adjusted savings rates for calibration. The term deposit (TD)
rate has been reduced to 7.92% to accommodate Fincare deposits.
The LCR is 115-120%, and the ALM is in good shape, with no large wholesale
book. CASA and retail TDs, which are not callable, stand at 84%.
Advances
The asset strategy is well-aligned, with volume, yields, and asset quality
remaining stable.
The CD ratio stands at 4%, indicating potential for deposit growth.
The main challenge lies in cost, not deposits. The bank can build INR250b of
deposits, though this may come at higher costs.
Currently, asset growth is not facing significant risks.
In the previous Q1, the bank did not grow deposits, but with expanded
distribution, it can now grow deposits at a healthy pace.
Throughout the year, the bank will focus on raising deposits.
Due to the cyclic nature of the MFI business, the bank aims to maintain the MFI
portfolio at 10%.
Regarding the CD ratio, the regulator has its definition, and assets that have
been refinanced are not in a safe zone. The CD ratio is 84%, and the RBI is
content with it being at 85%.
Universal banking license
The bank plans to apply as soon as possible (in Aug’24), having received board
approval on 25th Jul’24.
As SCB, the bank is already compliant with regulations, so there will be no
complex regulatory changes.
The transition guidelines are very clear, and the chairman will personally
oversee the process.
Transitioning to a universal bank will not involve significant changes, though as
an SFB, there has been less trust in the franchise. The board will make the final
decision.
Brand acceptance will improve, and the bank's presence in various regions will
lead to better growth in both geography and products.
Yields, cost and margins
The bank has a healthy RoA and aims to maintain its RoA at 1.6%, with no
impact of uncontrollable variables.
The bank has successfully redeemed high-cost deposits, leading to reduced costs
in 1Q.
NIMs are expected to be in the 5.5% range (+/- 15bp).
Yields have increased since the start of 4QFY24, particularly in Wheels and MBL
segments, and other peers have also raised yields to offset rising costs.
The increase in yields does not imply higher risk.
Market intensity in yields has decreased. The bank has regrouped and focused
on higher-yield assets, a strategy that has been effective in the past two
quarters. If there are no rate cuts moving forward, the bank can improve its
yields without impacting asset quality.
August 2024
96
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
The gold loan portfolio has moved to the Fincare strategy unit under Rajeev's
leadership. Fincare has been building the book at a 16% rate, and the strategy is
to grow this book. Gold yields have been in the 16-16.5% range, and with the
introduction of technology, gold loans will be rolled out to AU SFB branches.
Credit card yields have improved due to a better performance in the term book,
with revolve rates remaining stable over the past few quarters.
Endeavour is to sustain the disbursements, and yields should be maintained.
Asset quality
The bank has 93% coverage on its overall MFI book, with total provisions
(excluding write-offs) of INR670m, accounting for 70%.
MFI saw cyclical trends in 1Q, with lower collection efficiency due to elections,
heatwaves, and increased customer leverage.
No state accounts for more than 12.5% of exposure, and except for one district,
no district exceeds 2% of the overall exposure.
Credit cost was at 0.22-0.23%, with an additional 0.7% set aside as a special
provision. The bank expects credit cost to stabilize at 1.1%.
The bank has been building contingent provisions, with a stringent policy of
100% provision on 180-day credit cards. The bank is comfortable with its
aggressive recognition and provisioning policies.
Contingency provisions for the MFI business have been created, with 3% set
aside for MFI advances.
Credit cost guidance was at 1.1%, with net credit cost at INR2.8b, translating to
1.28% credit cost.
Write-offs were predominantly higher due to MFI and credit cards.
In the last quarter, the bank mentioned calibrating the credit card business, with
minimal activity of new cards issuances at 75k. The full-year target for credit
cards is 500k.
Credit card credit cost stands at 6.5-7%.
Opex and other income
Opex is cyclical, with some appraisal costs incurred in 1Q. The CI ratio is
expected to be in the range of 61-63%.
The last quarter included one-off expenses due to the merger with Fincare,
making 1Q sluggish in terms of overall opex.
Fees: Overall fees reached 1.7% and are expected to remain at this level. Other
fees are decreasing, and processing fees and AD income are also expected to
increase; gaining traction in AD1.
PSLC fees: Each quarter is evaluated, and there is an opportunity for assignment
and securitization, with demand primarily from the SMF book. However, there is
currently limited scope for selling SMF, as PSL offers little potential for other
income.
Axis Bank
Current Price INR 1,175
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Opening remarks by the management team
Achieved higher growth and increased market share in certain advance
segments.
The bank remains well-capitalized and continues to pursue growth effectively.
Management remains focused on executing the GPS strategy.
97
August 2024
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
New corporate salary accounts grew 39% QoQ.
NTB accounts opened reached a historical high for the bank.
The bank’s ongoing focus is on driving growth in business segments.
Open by AXSB is rated among the top mobile banking services.
The integration of Citi Bank's business was completed in Jul’24, two months
ahead of schedule, acquiring 2m customers and completing a smooth transition.
The successful integration program demonstrates the strength of the brand.
Open saw a 55% increase in deposits and introduced a new FD journey this
quarter, achieving significant volumes.
Rural advances rose 24%, and deposits from Bharat branches grew by 9%. The
balance sheet size has doubled over the past two years.
Management anticipates that deposit growth will drive credit growth, and it is
expected to be in the range of 12-13%.
In the first quarter, AXSB’s operating
performance was on track. NIMs stood at
4.05%, NII grew by 12% year-on-year and 3% quarter-on-quarter, fee income
grew by 15%, with granular fees accounting for 93% of the total. Operating
expenses decreased by 2% QoQ.
Cost to Assets was 2.4%, net credit costs increased 47bp to 0.97%. The increase
in net credit costs in 1Q was due to certain timing differences.
Seasonal factors affected Agri loans, with 55% attributed to lower recovery
rates, which is likely to improve.
Profit after tax grew 4% YoY. NNPA declined 7bp, and PCR remained flat at 78%.
ECL provisions included INR50.12b in extra provisions, providing a cushion of
40bp over the reported capital ratio.
The bank is not in need of capital in the near term.
Interest reversals QoQ were offset by an increase in IT refunds in 1Q.
RIDF bonds decreased INR98.5b, comprising 1.4% of overall assets compared to
2.3% as of Jun’23.
Fee income improved in the wholesale business, reflecting its strength.
The bank opened 50 branches in the first quarter.
The decline in operating expenses was due to a decrease in other operational
expenses.
The bank infused INR2.5b into Axis Securities during 1Q.
Axis Capital completed 22 investment banking deals.
The bank holds a 19.02% share capital in Max Life.
Gross slippages increased due to small accounts under INR1b. Filters have been
implemented for retail.
Gross slippages breakdown: Total INR47.93b, comprising INR42.29b in Retail,
INR1.78b in CBG, and INR3.86b in Wholesale. In 1Q, 32% of gross slippages were
from borrowers whose accounts were upgraded during the quarter.
Margins related
Margins experienced a normal reversal due to slippages, with any additional
reversal offset by an increase in income tax refunds.
The bank maintains a 3.80% NIMs rate and remains vigilant regarding deposit
competitiveness in the industry.
There is a 25bp cushion in the NIM. As long as the bank achieves profitable
growth, it will continue to expand. Deposits may constrain credit growth. The
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bank is committed to ensuring growth does not come at the expense of
profitability. Improving the deposits franchise is a priority; acquiring the right
deposits at the right price will sustain its growth trajectory.
The integration has been successfully completed ahead of schedule. The bank
has exceeded its previous guidance, with synergies benefiting a significant
portion of the portfolio.
LDR and opex related
There has been an expansion in the LDR, primarily driven by corporate lending.
The bank has submitted its LDR strategy, which has been well-received by the
RBI, and the bank is aligning its operations with regulatory guidelines.
Cost to Assets: The bank plans to continue investing in its franchise while
maintaining the ability to tighten belts. Expenses grew 29% YoY and are
expected to see moderate growth through FY25.
New investment guidelines
New investment guidelines had a net positive impact of INR12.19b, reducing the
RoE by 82bp and RoA by 7bp. However, CET 1 improved 14bp.
Investment yields have improved, with the AFS reserve now at INR 17b. This has
resulted in a higher yielding portfolio.
Advances and deposits related
Loan growth is driven by the corporate segment. The bank has identified
promising opportunities in corporate lending and is prepared to proceed as long
as the underwriting standards are met.
The focus sectors are MSMEs and mid-sized corporates, which will sustain
strong growth while adhering to underwriting standards. Currently, MSMEs and
mid-sized corporates comprise 21% of the portfolio and are expected to expand
further. Other segments of the portfolio face pricing pressures.
Retail assets have grown by 18% year-on-year. The commercial banking business
continues to show robust growth, with retail assets also poised for expansion.
Regarding credit growth and personal loans, the bank will carefully manage
growth. In the first quarter, the bank saw growth in cards, which were
previously limited to customers with 1m and above. The bank will continue to
calibrate growth in selected segments to enhance performance.
With respect to asset quality
In 1QFY25, the net credit costs did not reflect the full-year outlook due to timing
differences. Approximately 55% of the increase was attributed to lower
recoveries in the corporate portfolio.
The credit costs remained below the cycle average and are expected to
gradually increase from these lower levels. There are currently no clear signs of
stress in the portfolio.
At the portfolio level, no thresholds have been breached in the corporate
segment.
The BB and below category has increased by INR6b; investments without ratings
fall into this category. BB and below shows positive MTM value, exceeding their
carrying costs.
Excluding the 55% impact from timing differences, the effective credit costs
would be 67bp (reflecting a 30bp impact). About 32% of gross slippages are
linked accounts that are standard; as these slippages regularize, so do the linked
provisions.
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Unsecured loans linked to unsecured accounts attract 100% provisions, leading
to higher provisions.
Slippages are uniform across various segments, with a notable increase in
unsecured loans driven by high leverage. The key leading indicators remain
within acceptable ranges, and the bank continues to monitor them closely.
The credit card portfolio typically lags behind; the bank adjusts its portfolio
based on RaROC and takes appropriate measures.
The bank holds INR50b in contingent provisions. Previous Covid provisions have
been reallocated to ECL provisions.
Miscellaneous
RWAs have increased 300bp due to heightened operational risk, primarily
observed in the first quarter of the fiscal year. Approximately 50% of this
increase in RWAs is attributable to operational risks.
Transaction banking fees have decreased, reflecting the proportion of clients'
operational cash flows passing through these services. Many fintech customers
prefer using APIs for transactions. The bank has introduced Neo for business and
revitalized its corporate offerings, aligning with the evolving technological
landscape rather than traditional business approaches.
Bank of Baroda
Current Price INR 254
Buy
Click below for
Results Update
Opening remarks
Global advances grew 8.1% YoY, domestic advances grew 8.5% YoY and
International advances rose 6.5% YoY. Growth was muted vs. guidance.
The percentage of investments
in SLR Securities to NDTL as of Jun’24 was at
26.28%.
BOB has continuously shed certain low-yielding assets and therefore advances
growth was muted.
Bank has reduced dependency on bulk deposits, deposit grown by 8.9% and it
has grown more than advances.
BOB is continuing with its CASA ratio at more than 40%, which is currently at
40.6% in 1QFY25.
A dip in treasury income due to new valuation norms by the RBI led to a decline
in operating profit.
Yields on advances have moderated further whereas cost of deposits remained
stable during the quarter.
Asset quality, profitability, and growth will be the sequence of focus for BOB.
Advances and deposits related
There is a reclassification benefit due to the RBI guidelines of ~INR20-30m and
the bank has also reduced its bulk deposits in the current quarter.
BOB has an LCR ratio of 138% in 1QFY25.
Corporate loans declined, as BOB allowed some assets to mature. The bank has
a strong pipeline in place in corporate book to expect an advances growth of 12-
14%.
Focus would be more on the retail side to protect the margins in future.
Bank expects LDR ratio to be ~80-82% with a bias towards 80% going forward.
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~30-35% growth in PL is expected and bank wants to grow more in Agri and
MSME book. MSME will grow at ~14%-15%.
Gold loan book base is low; focus will be more on retail gold loan as it gives
more margins.
Bank has received board approval for raising capital of INR70b in the current
year.
Deposits growth stood at 8.9% YoY as against guidance of 12%. The bank is
reducing its dependency on wholesale deposit.
RoA was at 1.13% for 1QFY25 as against the guidance of 1.1% for FY25.
Cost, margins and yields related
Domestic Yield on investment has gone up due to new investment guidelines by
RBI.
Bank need to focus on fee based growth as processing fee has gone down and
wealth business income has also seen a dip of ~30% and therefore fee based
income declined.
Recovery from written-off account last quarter was a one-off and is therefore
very high which was low in this quarter.
~INR3b has been recovered from Government-guaranteed account and
therefore provision has been reversed on this.
The RBI guidelines related
Domestic investment book comprises 74.62% in HTM; 21.67% in AFS; 2.11% in
FVTPL; 0.26% IN FVTPL-HFT and 1.34% in Subsidiaries / Joint Ventures and
RRB’S.
Adjusted for 1QFY25 profits, CET-1 would have been 13.53% and CRAR 17.27%.
Impact on CRAR is 30bps due to new investment norms and stands at 16.82%
ex-profit.
There has been write back of depreciation and reduction in treasury gains due
to new investment guidelines by RBI.
Bank expects no substantial impact due to ECL guidelines.
Asset Quality related
Bank’s GNPA ratio improved 4bp QoQ to 2.9% and NNPA ratio stood at 0.7%.
GNPA ratio for Housing loans (ex-pool) is 1.14%, Auto loans (ex-pool) is 1.48%;
Personal loans is 2.54%; Retail Gold loan is 0.62% as of 1QFY25.
PCR under NCLT accounts is 99%.
PL is mostly to service class people and bank doesn’t see any concern on the
same. Bank has a stable outlook on asset quality of MSME.
Slippage in retail has gone up due to seasonal factor and also one group asset
which has dependency on subsidiary has gone bad.
1QFY25 credit cost stood at 47bps.
Slippages guidance was 1-1.2% and current quarter slippages is at 1.05%.
With respect to Guidance
Bank maintains previous NIMs guidance of 3.15% (+/- 5bp).
Total advances growth is expected to be 12%-14% for FY25.
Bank is expected to maintain CD ratio in the range of 80-82%.
Deposit growth is expected to be ~10-12% with focus on casa deposit.
Bank expects growth CAGR of 13.5% for next 5 years.
Credit cost guidance is of less than 0.75%.
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Bandhan Bank
Current Price INR 204
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
Despite global uncertainties, India’s macro indicators
remained strong.
Net advances grew 23.8% YoY supported by all-round growth across verticals.
Deposits grew 22.8% YoY, supported by 24.9% YoY growth in retail TD.
It added 0.8m customers during the quarter with the total customer base
reaching to 34.4m (EEB
–
25.8m, Non EEB
–
8.6m)
The Board is looking for a new MD and CEO; until then Mr. Ratan is appointed as
the Interim MD & CEO for a period of three months from Jul’24.
In this quarter, an all-round performance is seen in the bank led by healthy NII
and other income.
The bank has been able to protect its margin at 7.6% during the quarter.
It focused on credit quality; especially the steps taken in Apr’23 have been
seeing fruitful results.
Launched Bharat QR code for the current and savings account customers.
Leveraging data analytics to study customer behavior to enhance customer
experience.
The bank focuses on strengthening the senior leadership team; it has several
members of experienced senior management.
Advances and deposits
~18-20% of credit growth guidance for the next 2-3 years and bank is aiming at
faster deposits growth vs. advances growth.
CASA growth was hit by the reduction from short-term CA balance of the
previous quarter. CASA ratio stands at 33.4%.
Focus is on growing the secured loans like housing and retail finance etc. The
bank has sorted the problems in the housing book.
Top 5 states in terms of geographical distribution of advances formed 59% of
the total gross advances, of which West Bengal formed 24%
CASA + Retail TD to total deposit continued to remained stable at 69%.
About 39% of total deposits are contributed by West Bengal vs. 43% last year.
Asset growth will happen both in MFI and secured books, but the % growth will
be more for secured book that will led to an increase in the share in secured
book.
Stable outlook on NBFC MFI and growth there will be comparatively muted
going forward.
CD ratio stood at 94%, a key focus area. The Bank is following a liability-first
approach and so expects the CD ratio to improve from hereon.
Margins, costs, and ratios
NIMs improved to 7.6% due to reduction in slippage rate as well as due to focus
on business.
Despite pressure in Cost of funds, bank is able to protect its margins.
RoA for 1QFY25 was at 2.5% and RoE at 18.8%.
There were no one-offs in other income. In the market, there is pressure on cost
of fund and bank is cognizant of this pressure.
BANDHAN expects NIM to be ~7.0%-7.5% going forward.
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The yield on advances (YoA) stood at 16%. The shift towards a higher mix of
secured assets led to a pressure on YoA, but this will be offset by lower
slippages. YoA is expected to be ~15-16% going forward.
As a part of the strategy, the bank will continue to invest in people, tech,
branches and creating the key capabilities that are required. The bank is looking
at the area of operational efficiency in the great detail. But as the operational
efficient improves the C/I will gradually improve.
INR0.6-0.7b of ARC recovery is expected in every quarter, and this includes the
provision release.
CGFMU related
Bank is waiting for the audit outcome and then only will take decisions on how
to account for the same.
CGFMU, the audit is in progress and should be completed very shortly. The bank
is expecting the positive result.
Capital related
In Jun’24, CRAR declined due to impact of increase in risk weights in EEB book
from 75% to 125%. Impact of 362bp on capital adequacy can be seen due to this
and accordingly CRAR for Jun’24 is 15.7%.
Net worth stood at INR218.8b as on 1QFY25.
CRAR (excl. profit) is at 15% and including profit, CRAR stood at 15.7%.
Recomputed CRAR for Mar’24 will be 14.7%.
BANDHAN is well capitalized for any further growth in assets.
The bank found that there is a specific point for exemption of increase in risk
weight for MFI in NBFC, but not for banks, and therefore BANDHAN has been
conservative.
Asset quality related
CE Pan-India stood at healthy levels of 98.7% in 1QFY25 (excluding NPA).
CE stood at 98.5% for the EEB book.
Bad debt recovery of INR460m is from the written-off account.
For FY25, credit cost is expected to be ~1.8-2.0%.
Credit cost of 1QFY25 is not indicative of full-year credit cost.
PCR increased to 73.7% in 1QFY25 and bank is expecting it to increase this
further going forward.
Stress is coming from Punjab and Maharashtra but this is manageable.
Steady decline in slippages can be seen and focus is to improve this from hereon
but there will be an inherent risk of EEB DPD pool and therefore credit cost
guidance is a little higher.
Slippages totals to INR8.9b and EEB is INR5.43b in 1QFY25.
In EEB segment
–
SMA-0 was INR5.8b an increase of 30bp due to less collection
led by heat waves and general elections.
In EEB segment- SMA 1 currently at INR4.2b/0.7% of loans, SMA-2 forms
INR4.36b/ 0.7% of loans. Overall the reductions have been healthy.
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Canara Bank
Current Price INR 112
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
The global business touched INR23.1t growth; global advances grew 9.86% YoY;
while global deposits growth stood at 11.97% YoY.
Due to shedding of low-yielding assets and corporates, advances grew 11% YoY.
CET-1 had 12.05% with a 55bp YoY improvement first time.
Credit cost was at 0.9% with a decline of 20bp YoY.
RAM sector touched 57% of the total book as RAM alone grew 12.26% YoY.
The Bank currently has a global CD ratio at 73.04%.
The RoA/RoE improved to 1.05%/20.88% in 1QFY25 as against the guidance of
1%/18% for FY25.
GNPA/NNPA both improved 9bp/3bp QoQ to 4.14%/ 1.24%. PCR stood at 89.2%.
Advances and deposits related
Retail advances grew 12.39% QoQ and agri declined 4.86% as the bank stopped
offering gold loans in metropolitan regions for agricultural purposes. It has
introduced a retail product in gold loan with a little higher rate of interest and
lower LTV and this product received very well response in the metropolitan
regions.
The entire RAM business growth is solely derived from bank’s brick-and-mortar
branch outlets without portfolio buyouts or significant co-lending participation.
Agri gold loan book yield was ~8.75%.
The incremental deposit growth, excluding CASA, saw retail term deposit growth
at ~7% and bulk deposit growth at ~7.5%-7.8%. The average cost of incremental
deposits has risen above 7.5%, and is expected to persist for the next few
quarters amid ongoing liquidity concerns and competition from mutual funds.
Despite higher costs, deposits have grown over 11%, supported by the central
government's sovereign guarantee. Meanwhile, the yield on advances has seen
minimal change, primarily due to reclassification of penal interest income,
resulting in a slight 6bps reduction to 8.66%. Further improvement in advance
yields hinges on potential repo rate, as current corporate sector yields have
peaked at an all-time high of 8.21%.
~INR190b is there under retail gold loan. ~INR960b in housing loan and INR170b
in vehicle loan, INR160b under educational loan.
51% of the loan book is linked to MCLR, 38% RRLR, and the remaining is staff
loan and loan against deposits.
The savings bank initiative has started generating results and SB individuals have
gone up at a healthy pace.
The bank received funds of INR150b in the current account in the March
quarter, which has been converted into bulk deposits now.
CBK has already raised INR100b against infra bonds as approved by the Board.
~INR480-520b comes from institutional deposits, out of which ~INR220b will be
of government.
In case of NPL, we are making 100% provision specially in case of doubtful and
loss asset, but if there are good security then they can make less provisions if
new accounting system comes.
Investment in MF of INR75b has led to increase in non-SLR as bank has surplus
fund so they had put that in MF and CD.
104
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Yield, costs, and margins related
NIM in 1Q was low as it was calculated on the
basis of the hour’s business with
initial quarter reflecting higher figures that tapered gradually. Management
expects NIMs to be ~2.95% by exit-FY25.
One accounting policy has changed and therefore Yields and NII were affected;
earlier, the penal interest was shown in interest income and now it is shown in
other income, and difference due to this has been ~INR1.5-1.6b.
Last quarter, interest income from overnight deployment of surplus funds was
INR20b, which has decreased to INR18b this quarter, resulting in a shortfall of
INR2b that has affected NII.
C/I have reduced to 47% as staff cost was very high in March quarter and all
arrears has been paid at that time and now this has improved.
The staff cost, as per the bipartite settlement, has been fully provisioned by the
bank based on a 17% rate, and all associated expenses have already been
accounted for.
Asset quality related
Slippages break up: INR9b in Agri, INR12.2b in MSME, INR5b in retail and INR6b
from Corporate including existing NPA.
O/S restructured book is INR160b, out of which INR110b are standard asset and
~INR49b are ~5000days under NPA.
SMA-0 increased due to one account which is central public sector undertaking
based in Andhra Pradesh.
Bank is trying of further reduction of ~INR1-2b reduction in slippages QoQ and is
confident of reaching that.
Impact due to the RBI’s investment guidelines
Impact on yield on investment due to guideline is increase of 3bps to 6.94%
from 6.91%.
INR14b that got added due to guidelines, out of this INR11b is added on reserve
and INR3b has gone to HTM.
CET-1 is healthy and so bank has no need to raise capital, bank has taken
approval of board to raise capital through AT-1 bonds of INR40b and tier-2
bonds of INR45b.
Canara Robecco disinvestment is expected to come in 4Q which will support
CET-1 further.
Due to new investment guideline, there is no chance of shifting periodically
from healthy maturity to available for sale and therefore investment has shown
an improvement but at the same time treasury yields have to come down.
Guidance
CBK gives guidance on a conservative basis and the bank wants to outperform
on the guidance.
CBK aims to maintain the guidance of 10% growth on advances and deposits.
The bank guided NIM to be at 2.95% by exit-FY25.
Management guides GNPA/NNPA of 3.5%/1.1% in FY25 and global PCR of 90%.
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DCB Bank
Current Price INR 123
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
In 1Q, the bank’s advances grew 19% YoY, while deposits grew 20% YoY.
Mortgages (Home Loan + LAP), MSME/SME, Gold Loan, Co-lending, AIB,
Construction Finance are expected to lead the growth.
In CASA, the focus is on savings accounts; savings growth was 21% YoY. CASA
improvement would be led by the digital channel and relationship manager-led
engagement.
LCR was well above 120%, which is the threshold use internally.
On the non-financial front, the bank had two very important technology
upgrades: 1) it upgraded the treasury system, and 2) from a cyber-security
perspective, the bank upgraded the SIEM system.
Mortgage products are undergoing a revamp. They will be reoriented to
business loans. Moreover, the bank is reclaiming the INR5m-INR10m space very
well within the MSME self-employed segment.
Top 20 deposits came down to 6.88% of total deposits in a tight liquidity market.
SME book will be more focused on the overdraft product than what it is
currently.
Advances and deposits
On the deposit front, the bank aims to focus on CASA, for which the bank has
launched new products and announced an effective fintech tie-up, which
resulted in an increase in SA deposits.
DCBB has always been a playing key role in alliance and partnership and is
involved in more than 10 co-lending partners. It also has relationships with
many financial institutions.
The bank has not seen any deterioration in the MFI book and the repayment is
consistent.
~1.5-2% will be the yield difference between the customer taking business loan
and the customer taking home loan.
If EBLR rate is cut going forward, the bank will have savings deposits, in which
rates can be cut to maintain margins.
The transition from home loans to business loans is in process, which gives the
bank additional yields.
Construction finance book is ~4-5% of the total book.
Bulk of SA account balances for the bank come at the lower bucket of the pricing
band. The bank offers higher rates on higher ticket size to attract customers for
SA.
Repricing of long-tenor term deposits will continue until the middle of 3Q, after
which there will be a stabilization in the cost of deposits.
Movement from 50:50 business loans to higher business loans and a reduction
in thread SME will lead to higher yields going forward.
CD ratio stands at 81.6% currently and there is sufficient cushion. The bank
expects it to be under 80% in the short term to have strong liquidity.
Improving liability profile by focusing more on individual, then on institutions
and entities.
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Business loan as % of mortgage is 50% currently, but the bank expects to
improve it going further.
Cost and income
NIMs moderated 23bp QoQ to 3.39%. NIM compression was a result of two
components. One is that the bank is in the last leg of term deposit renewals and
the other is that some regulatory changes in loans resulted in interest reversal,
which was a one-time event and included replacement of penal interest with
penal charges.
Also, the bank has ensured that loan disbursal interests are accrued from the
handover date and not necessarily from the disbursal date, and so on an
ongoing basis, NIM is expected to go up as the bank expects this one-off to get
eliminated.
The pace of increase in the cost of deposits has come down and is expected to
stabilize by the middle of third quarter.
Three drivers for NIM expansion going forward are:
Rejig of the mortgage book, which would lead to higher quantum of business
loans over home loans. The onboarding rate on business loans is significantly
higher than that on housing loans.
Focusing on overdraft SME at the expense of SME thread, which is a smaller-
tenor loan at a lower yield. It will compensate with SME overdraft facility and a
difference in the yield can be seen.
As and when hybrid loans come up from fixed to floating, the bank gets the
benefit of the increased EPLR, which is not being passed on because of the
benchmark changing.
The cost-to-avg assets is expected to come down to 2.5% in the near future.
There has been a considerable usage of capital as the bank works on 53% RWA,
which resulted in RoE being ~12.5x RoA.
If the bank expects 20% growth, then the fresh infusion of capital would
certainly happen.
In case of a rate cut, the bank will ensure that there is a simultaneous drop in a
similar rate on a savings account book, where the proportions would be similar.
The bank has ~INR110b book on savings accounts and if that particular portion
of INR420b of asset book were to have a benchmark-related reduction, the bank
would see a similar reduction in a similar timeframe happening on the savings
account book too.
INR1.14b of fee income was primarily due to some good performances from the
third party, distribution, processing fee, etc. It was also due to the penal charges
coming to play instead of penal interest, which would otherwise come in as fee
income.
Salary increases were done in 1Q. The incremental frontline workforce hiring
resulted in cost increases.
Income coming from IPO financing also helped to increase core fee income,
along with many one-offs. Core fee income is expected to reach the 1% mark
going forward.
The bank’s hiring strategy is a lever to maintain productivity.
Asset quality
GNPA/NNPA ratios deteriorated 10bp/7bp QoQ to 3.33%/1.18%. PCR stood at
76%.
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The bank has guided for GNPA of below 2.50% and NNPA of 1.00%.
Fresh slippages increased due to higher slippages in mortgages; however,
recoveries are expected to pick up.
Collection efficiency is improving and the bank expects this to continue.
DCBB has a vintage tool from which a recovery is expected to happen; ~INR7b of
mortgage and SME recovery tool is there.
The bank expects RWA to be in range of 53-54% going forward as well.
It guides for credit cost at ~45-55bp.
Guidance
The bank guides for RoA of 1% or above and RoE closer to 14% in the near term.
It expects C/I ratio of 55% or below in the near term and the cost-to-average
assets of 2.4% to 2.5%.
DCBB aims to double the book in the next 3-4 years.
The bank expects NIMs to be ~3.65%-3.75% going forward.
Comfortable 19-20% growth in advances expected.
The bank will continue to add the headcount to continue to fund the growth.
The bank plans to add branches every year.
Equitas Small Finance Bank
Current Price INR 84
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks by the MD & CEO Mr. P. N. Vasudevan
Deposit growth was healthy, with a surge in retail deposits. CASA growth
remained robust.
SBL experienced a 27% YoY increase, while MFI growth was subdued at 6% YoY;
the bank was consistent with its strategy to keep MFI growth below 20%.
The CD ratio was 86.75% and may slightly decrease in the coming period.
The mobile banking app is starting to show results and has become a valuable
source of leads.
Disbursements were lower, resulting in a slow loan growth. Non-MFI loans grew
27%. July looks promising and should see improvements.
Credit cost is elevated, with PCR rising to over 70% to meet the requirements of
having NNPA below 1% and applying for the universal banking license.
Adjusted for PCR, credit costs remained high due to weaker collections and the
seasonally weak first quarter.
4.49% of slippages were from MFI and CV, with MFI contributing INR850m
compared to INR350m in 1QFY23. Slippages in CV are expected to rebound, and
MFI will need to be monitored.
Slower disbursements in MFI have led to a decline in NIMs and yields.
Credit cost for the first quarter stood at 1.44%, excluding floating provisions.
Loan growth guidance is 25%, with 1Q at 17%. The rest of the year should
achieve the 25% target.
CI is expected to remain at last year’s levels.
For SBL, 45% of the book grew by 27%, with CE remaining at 99.3%. Micro LAP
should be expanded.
VF’s used car segment grew
by 59% to INR13.39b, with CE at 96.4%. Credit costs
are slightly elevated.
AFH grew 35% YoY, with CE at 99.2%. The second quarter, being the festive
season, is expected to improve AFH performance.
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Mass banking and existing customers have led to an increase in retail TD.
The NR book displayed positive signs and has deepened relationships, with the
fee-based activity gaining attention.
The AD1 license is seen as a key opportunity for increasing deposits.
PCR is at 70.29%, up from 56% QoQ, and the management aims to maintain
these levels.
The total CRAR was 14.99% in 1Q.
Assets related
In housing finance, disbursements occur in tranches based on the progress of
construction, which generally results in smaller ticket sizes.
There is a significant concern regarding MFI, and vehicle finance should return
to more reasonable levels. Advances growth is not an issue, and PL and CC will
be introduced once they are ready.
MFI slippages are not showing any signs of improvement. If current practices
continue, industry-wide challenges are expected, and greater discipline across
the board is essential.
If slippages remain high over the next 2-3 months, the bank may reduce its MFI
share.
With respect to Yields, CoF, and margins
NIM contracted due to an 11bp drop in the portfolio.
Yields on housing finance book are at 12%.
The goal is to achieve an RoA of 2.25%.
The CoF is influenced by the cost of savings accounts and the volume of retail
deposits, which have been repriced at higher rates. Consequently, the impact on
CoF is only 2bp. In 1QFY25, the bank reduced interest rates by 200bp in some
segments.
Disbursement yields have increased; SBL was at 16.29% in 4QFY23 and has risen
to 17.49%. VF was at 16.69%. This increase is primarily due to changes in the
product mix.
Yields on advances: Micro LAP yields are similar to those of the MFI book. A 5%
decrease in MFI disbursements could lead to a 1.5% drop in yields. However, the
bank plans to offset this by focusing on other high-yielding businesses.
MFI yields stood at 25% for personal loans.
On Asset Quality
The PCR was at 70%. While the bank had previously projected a credit cost of
1.25%, it expects to provide a more accurate forecast post-2Q.
In response to collection stress, the bank increases its investment in collection
resources. The SBL segment is performing well, but VF requires attention.
Collection in July, excluding the bucket, remains stable. VF collection rates range
between 95-99%, with the 94% rate in 1Q attributed to seasonal factors.
MFI delinquencies are elevated. While MFI performance was stable last year,
the past 10 months have seen increased delinquencies spreading to other
regions. This issue may be linked to the recent RBI guideline changes, which
could have led to over-leveraging and higher customer eligibility, resulting in
increased delinquencies. A similar issue occurred in 2010. Maintaining discipline
is essential in the MFI business across peers.
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Current slippage levels have not been seen since the demonetization period.
Even during COVID, collections improved once the moratorium ended. However,
recent months have experienced significantly higher slippage rates.
Stress is observed in Punjab, Haryana, Gujarat, and some branches in Tamil
Nadu and Maharashtra.
The CE for July, excluding the bucket, has been 98.8%, and efforts are being
made to increase it.
Federal Bank
Current Price INR 203
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
FB has achieved the highest ever PAT, NII, and other income during the quarter.
The first quarter sets a strong foundation for FY25, with the bank experiencing
significant business growth despite the challenging environment.
Deposits growth was robust, driven by the launch of several new products.
The environment is becoming more challenging, yet the bank has managed to
grow and gain market share.
Deposit growth outpaced peers, with NRE-led deposits growth rebounding and
gaining momentum.
The successor has been identified, ensuring the franchise will continue to grow
at a solid pace.
Opex related
The long-term target for the C/I ratio is 50%. Some costs, such as technology,
personnel, and expansion, are considered beneficial. Income is expected to
improve and approach the 50% C/I target over the next few quarters.
The bank has invested in IT and distribution, focusing on making investments in
the right areas.
There are no one-off expenses in terms of non-staff operating costs.
The new high-margin businesses are still growing slowly. The bank has a
cautious approach to these parts of the business and is investing in collection
costs. These businesses are not large enough to significantly increase costs.
Deposits related
The bank added 114 branches last fiscal year and plans to add 100 branches this
fiscal year, aiming to add about 40 in the first half and the remainder in the
second half. BC and other models will help expand the bank's reach into deeper
geographies.
Deposits growth is very strong, at twice the system rate. Although NR deposits
declined in the last two quarters, the bank is now back to growth path. Over the
past 3-4 quarters, the bank has focused on frontline initiatives, with most
deposits being branch-led. Various process improvements, digital
advancements, and new products have also contributed to deposits growth.
FB will launch new products every quarter and continues to gain market share in
the deposits segment.
Deposits growth has been strong while the cost of deposits has been declining.
The bank aims to grow credit at a pace that does not exceed deposit growth. It
avoids bulk deposits and has been successful in this strategy. The bank is also
retiring high-cost borrowings, which is beneficial.
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Management is targeting high-quality deposits, maintaining an LCR band of 105-
120%. It continuously calibrates its LCR and CD ratio.
NR deposits decreased in the past few quarters, but the situation has improved
as employees now target bringing funds into deposits rather than other
instruments. Remittances, which previously did not convert into deposits, are
now being deposited. FB's strong customer ownership has benefited this trend.
Asset Quality
Credit costs were contained within 30bp, significantly lower than normalized
levels. The business was undervalued for its conservative approach, which
proved beneficial during difficult times. The expected range for credit costs is
30-35bp, and credit quality should remain stable.
The mix of retail slippages was between INR2,100m and INR2,400m despite
significant growth in the denominator. Book slippages were 0.8% in the first
quarter, which were well below 1%. Of the total slippages, 60% was primarily
from retail and nothing substantial that could harm the bank.
The bank has not encountered any issues or triggers in the FLDG segment of
microfinance.
Yields, costs, and margins
Yields on advances decreased 5bp, although the high-yielding portfolio has
increased. Comparisons with the first quarter are not applicable due to higher
recoveries in the fourth quarter.
FB has worked hard to balance risk and growth, aiming to be a banker rather
than just a lender. In terms of margins, the bank is competitive with its peers.
The cost of deposits has been reducing, largely due to a rise in the fourth
quarter.
NIMs are expected to remain at the same level for the next two quarters.
The bank is targeting an RoA of 1.35%, up from the current 1.27%.
Co-branded cards
For co-branded cards, the bank is in discussions with regulators and expects to
receive the majority of clearances by the second and early third quarters. The
bank is also working organically with its existing business.
New investment guidelines
Between the investment revaluation and PSL, the net benefit is approximately
INR900m, with investment revaluation netting INR450-500m.
Recoveries from w-off account stood at INR400m, revaluation from investments
stood at INR500m, and income from PSLC and dividends from the life insurance
subsidiary stood at INR900m.
New investment guidelines had an INR3,350m impact on reserves and surplus,
net of tax, and resulted in an ~10bp improvement in investment yields.
Others
The total number of employees stood at 15,500, with the majority being IBA-
linked and only 10% not linked to IBA.
The successor is of high quality, appointed by the RBI to the bank. His presence
will greatly benefit the bank.
Every first quarter sees inflows of PSLC and dividends, and this quarter did not
record any significant amounts from the write-off account.
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The BBB and below ratings have decreased, as there were no revisions in the
last quarter, which appears to have positively impacted this quarter, leading to
improvement in the A and above book.
Mr. Shyam Srinivasan does not intend to pursue roles at any other institution,
after retiring from the bank.
HDFC Bank
Current Price INR 1,627
Buy
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks by the MD and CEO Mr. Sashidhar Jagdishan
The bank is in a period of transition following the merger.
A key part of the strategy is focusing on deposits, which have fallen short of
expectations due to seasonality. Net accretion is within the expected range, but
there was a flow out of Current Accounts in 4QFY24, leading to a higher share of
CA deposits.
Emphasizing period-end numbers creates unnecessary pressure, and the bank
aims to avoid this. There is a steady secular trend in deposit momentum. The
longer average tenure in deposits indicates stronger resilience.
The bank will grow at a slower pace compared to deposit growth. Over time, the
focus has been on profitable growth rather than just growth.
The bank aims to reduce its LDR faster than market expectations.
Since the merger, most metrics have remained stable, including NIMs, C/I, and
GNPA. RoA has been in the range of 1.8% to 2.1%.
Despite changes in the environment, such as competition and liquidity, and
efforts to reduce the LDR, the bank has remained stable and delivered
consistent performance.
Yields, cost and margins
The bank does not engage in rate competition to attract deposits. Instead, it
focuses on engagement and service delivery, emphasizing that the environment
is more important than rates.
The bank maintains disciplined pricing and wins customers through engagement
and service delivery.
Deposits
The bank added 2.2m relationships in the quarter.
Monthly inflows, compared to last year, are 20% higher across savings, salary,
and current accounts.
Deposit market share has increased by 50-60bp annually over the past 3-4 years.
Distribution market share stands at 6%. Half of the branches with a 10-year
history have 30-40% higher market share than the average, and the goal is to
further enhance this market share.
eHDFCL has seen INR 1.5t in corporate, trust, and institutional deposits. Term
deposits have decreased by INR 160b, which are rate-sensitive. The bank will
allow these deposits to flow out as they are influenced by rates.
This quarter saw growth only in term deposits, with CASA deposits absent in 1Q.
The CASA mix is affected by a 3-4% impact due to merger-related factors.
Borrowings
Borrowings saw a substantial decline, amounting to INR750b in the fourth
quarter and INR600b in the first quarter of FY25. Of the INR150b in commercial
papers, a decrease occurred as they matured.
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There remains an outstanding maturity profile, with INR650b still pending from
the INR250b matured in the 1Q, and additional maturing liabilities expected in
the upcoming year.
Loans
The growth in advances during the first quarter is not aligned with the bank's
strategic objectives. The resilience of the organization over the next three
quarters will demonstrate its strength in maintaining customer relationships.
Although the bank has adjusted its mix, this strategy is not intended for the long
term.
In the SMF category, the target remains at 10%, and there has been little change
observed as of June.
The Home Loan franchise aims to increase the primary account relationships of
home loan borrowers. Currently, 85% of home loan borrowers maintain savings
accounts with HDFC Bank.
Growth in unsecured personal loans has been deliberately slower, reflecting a
conscious decision made early within the internal system. This adjustment aligns
with regulatory requirements.
Market Linked Loans constitute 36% of the total, Mortgages account for 27%,
and Non-mortgage loans make up the remaining 40%.
PSL
PSL
–
The RIDF covers the entire book, while PSLC impacts the profit and loss
statement as it flows through.
Within the SMF category, vehicle finance is identified as a weaker section that
requires increased loans. The bank is adequately positioned in other PSL
segments. Due to loan term constraints in the agricultural segment, the bank is
exploring non-organic acquisitions for the SMF segment.
LDR
The bank is not bound by a specific LDR; lowering the LDR lies in the bank’s
interest.
The bank maintains a robust funding capability to provide loans to customers
and serves as a source for primary banking and liabilities. Despite a tight
liquidity environment, there has been a notable increase in gross deposit
inflows, though the bank lacks control over flows in current accounts.
The bank has internal benchmarks guiding its actions and is motivated to
decrease the LDR swiftly while ensuring profitability. The bank is mindful of
existing risks within the system.
Opex Related
C/I ratio: There is a period of adjustment ahead that the bank must
unfortunately endure. It aims to stabilize the cost-to-earnings ratio with a
downward trend, prioritizing longer-term targets over short-term pressures.
Staff costs have increased due to recent additions to the workforce, along with
ongoing compensation adjustments that are being implemented.
Miscellaneous
HDB credit cost: GNPA remained stable at 1.9%, with higher credit costs
attributed to seasonal factors such as reduced repayment ability and heatwaves.
Early defaults resulted in increased provisions.
INR4.8b of profits are allocated to reserves as per RBI's investment classification.
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The bank has observed positive progress in the distribution of AMC and general
insurance products, with business shares increasing significantly and moving in a
favorable direction. There is a positive trajectory in these developments.
EPS was INR24.4 during the merger and stood at INR24.3 this quarter, which
was in the range of INR21.
Fee income from third-party products shows seasonal variations, as does
recovery income, while dividends also contribute to the seasonal nature of
earnings.
ICICI Bank
Current Price INR 1,175
Click below for
Detailed Concall Transcript &
Results Update
Buy
Opening remarks
The Indian economy showcases resilience with strong performance indicators.
The bank focuses on increasing profitability, excluding treasury gains.
PAT, excluding treasury gains, increased by 11% YoY, with core operating profit
up 11%.
Deposits grew by 15.1% YoY and 0.9% QoQ. Time deposits increased by 19.9%
YoY. Average deposits grew by 17.8%, and average CASA grew by 9.7% YoY.
The LCR stood at 123%.
Loans grew, with retail loans increasing by 17.1% YoY and 2.4% QoQ. Retail
loans comprised 46.3% of the total portfolio. Business banking grew by 35.6%
YoY, SME by 23.5% YoY, rural loans by 16.9% YoY, and domestic corporate loans
by 10.3% YoY.
Overall loans grew by 15.7% YoY and 3.3% QoQ.
The net NPA ratio was 0.43%, with higher slippages due to seasonal factors.
PCR stood at 79.7%, with the bank holding INR131b/1.1% of loans.
CET-1 was at 15.92% (including profits), and CAR at 16.63%. These ratios reflect
the impact of new investment guidelines and increased operational RWAs.
"One bank, one team" will continue to drive business operations.
In the retail portfolio, mortgages grew by 14.2% YoY, vehicle finance by 13.3%
YoY, personal loans by 24.9%, and credit cards by 31.3%. The overseas loan
portfolio grew by 5.9% YoY.
Non-India corporate-linked loans declined by 9%, with 92% comprising Indian
corporates.
Gross NPA additions were INR59.1b, with KCC accounting for about INR7.21b,
showing seasonality in 1Q and 3Q. Net additions stood at INR26.24b.
Non-fund-based O/S to NPAs was INR35.43b, with provisions of INR19.64b.
NIMs were 4.36% compared to 4.4% in 4QFY24. Interest on IT refunds was zero
in 1Q and 4Q.
The cost of deposits was 4.84% compared to 4.82% in 4Q.
Of the total domestic loan book, 31% has a fixed interest rate, 50% is linked to
the repo rate, 2% is linked to other external benchmarks, and 17% is linked to
MCLR and other older benchmarks.
58% of fees are from retail, rural, and business banking.
Dividends came from ICICI Securities, ICICI Lombard, and ICICI Prudential Life.
Employee expenses increased by 12.5% due to salary increments, with tech
comprising 9.3% of total opex.
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The bank opened 64 branches in 1QFY25.
INR3.89b of provisions were released in 1Q due to AIF provisions. Credit cost
stands at 50bp, excluding the reversal of AIF and seasonality in KCC.
From 1Q, revised investment guidelines were applicable, and future treasury
actions will depend on market movements. The revised norms led to MTM flows
in equity through P&L now.
Other than two accounts, the maximum single borrower exposure in the
business banking and below portfolio was less than INR5b in 1Q. Total
provisions for the business banking and below portfolio were INR8.49b.
The builder portfolio is 4.3% of the total loan book, with 0.2% of builder loans
being BB and below or non-performing.
Advances and Deposits related
There is no target for loan growth, and deposits are sufficient to support this
growth. Deposits remain tight, with wholesale deposits being even tighter,
leading to some increases in deposit rates.
Deposits are not a constraint for loan growth, although there is competition for
advances.
LDR is in the low to mid-80s and is expected to stay around these levels.
There has been no significant tightening in personal loans and credit cards.
Some actions taken in the personal loan segment last year have slowed growth,
while credit cards continue to undergo refinements and are expected to grow.
A few banks are expanding in the corporate segment, and the bank has seen
growth in both the NBFC and corporate portfolios. The corporate book is
growing steadily, with considerable intensity in this area.
LCR Impact
LCR will impact advances and deposits, with an estimated 10-15% effect on LCR.
There will be efforts to refine both the advances and deposits sides of the
balance sheet.
Other income and opex
There were good gains in the SR portfolio due to redemptions. MTM on FVTPL,
now recognized in P&L, led to healthy treasury income.
Opex growth has been decreasing, with adjusted growth at 10% YoY, which is a
fair indicator; it should not increase further.
The new investment guidelines have increased the AFS reserve by INR32b.
Additionally, earnings have been added, leading to a better increment in
reserves.
Margins and yields
Yields decreased by 8bp in 1Q, partly due to the non-accrual of the KCC
portfolio. Other movements are minor and not noteworthy. There is high
competition in lending rates.
Yields decreased despite an increase in the share of high-yielding products.
Yields remained decreased due to high competition, with other private banks
competing similarly in the corporate segment.
For products like home loans and various asset classes, yields had increased but
are now stable and not rising further. The competitive intensity remains high in
corporate and mortgage segments. The bank remains competitive in terms of
yields for high-quality customers.
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Asset quality
The pace of recoveries in retail will vary, and a slowdown is expected.
Credit cards make up less than 5% of the loan portfolio. The bank views this as a
growth area and aims to expand in this business. Credit cost is currently at 50bp
and should gradually normalize, though predicting the long-term average is
challenging but it is expected to be better than historical levels.
Overall credit cost has been steady, though there may be some fluctuations in
recoveries.
Subsidiaries
ICICI Pru Life reported VNB of INR4.72b in 1QFY25 vs. INR4.38b in 1QFY24. VNB
margin stood at 24.0% in 1QFY25.
ICICI Lombard’s gross direct premium income grew by 20.4% YoY to INR76.88b
in 1QFY25.
ICICI Securities total assets grew 20% YoY to INR7.4t in 1QFY25.
ICICI AMC’s AAUM grew by 40.7% YoY to INR7.5t in Q1FY25. It has
a market
share of 13.1% as of Jun’24.
IDFC First Bank
Current Price INR 74
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks by the management
The bank’s total deposit stood at ~INR2t. About 80% of total deposits have been
retail in nature.
Retail deposits grew 44% YoY; the bank reduced the rate in retail savings
account to 3% for up to INR0.5m.
CASA ratio stood at 46.6% vs 47% last quarter.
Incremental CD ratio is 72.1% (from Jun’23 to Jun’24).
It was able to meet its PSL requirement by generating its own organic PSLC.
The bank transformed the liability profile in five years from wholesale to retail,
to diversify the deposit base.
It has a Google Play store rating of 4.9 currently.
92% of the fee income & other income is from retail banking operations, which
is granular and sustainable.
With respect to costs, yields, and margins
The bank has done massive digitalization across all business which are leading to
increased income.
C/I ratio of ~65% expected in three years as going forward the pace of increase
in branches will come down.
CoF increased 4bp; CoD was higher by 11bp due to the repricing effect on FD.
The NIM drop was primary due to higher sequential increase in average
investment book by 11.8% vs. 4.6% in average advances that impacted NIM by
~8bp.
CoF would be ~6.36% if adjusted for legacy high-cost borrowings, which will be
replaced by the bank’s deposits at normal rate.
The fee & other income as a % of total average assets was stable at 2.12% in
1QFY25.
Opex is expected to grow by 20% YoY in FY25. Income to go up by 23-24% YoY
expected in FY25.
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C/I ratio in credit card stood at 104.1% in 1QFY25, will reduce to ~75% with scale
by FY27.
The bank has given NIM guidance of 5.0%-5.5% for FY25.
There is an NCLT hearing which is expected to be completed by 2Q.
C/I ratio improvement to be coming from retail liabilities.
The bank has opened 10 branches in current quarter and currently at 955
branches.
The RoA/RoE stood at 0.91%/8.32% for 1QFY25.
With respect to loan and deposits
Bank has broadly retained its CASA ratio sequentially, if it is excluding temporary
inflow from one government account, which was called out last quarter.
JLG outstanding portfolio was only 6.1% of the overall loan book.
The expected impact of JLG portfolio is rangebound, and is likely to additionally
impact credit cost at overall bank level by about 18-20bp for FY25.
94% of the book (non-JLG), the asset quality is steady and on expected lines,
even factoring in the recent seasonal impacts.
Asset quality
GNPA has come down to 1.9%, NNPA is 0.59%. GNPA without infra is 1.6%,
NNPA at 0.43%.
Credit cost is expected at ~1.85% (including JLG book), and without JLG, it is
expected to be ~1.65% going forward.
Post-Jan’24,
the bank has insured incremental JLG loans with credit guarantee
from CGFMU. Bank pay 1% premium from CGFMU book. All the MFI are the JLG.
Credit cost to start normalizing going forward.
PCR after excluding infrastructure finance book was at 73.5% as on 1QFY25.
~0.26% of funded asset is restructured book. ~95% of restructured book is
secured in nature and bank hold ~20% provisions on this.
SMA book has gone up by 16bps in 1QFY25, SMA stood at 0.95% ex-JLG book.
The significant and growing part of the book, i.e. the Retail, Rural and SME
business financing business has low NPA levels because of high-quality
underwriting, credit bureaus, technology, cash-flow based lending capabilities.
Gross slippages of the bank stood at INR16.57b and net slippages of ~INR11.32b.
Collection efficiency also remains stable at 99.5%. The bank is quite comfortable
on their asset quality and slippages front.
Early bucket Collection Efficiency in JLG has reduced from 99.7% in Jun-23 to
99.2% in Jun-24, down by 50 bps.
Increase in credit cost is coming from JLG, due to heat wave, due to elections
and some effect in collection efficiency can be seen.
With respect to capital and investment guideline
Including profits for 1QFY25 and taking into account the fresh equity capital of
INR32b raised in 1st week of July 2024, total CRAR as on 1QFY25 would have
been 17.21% with CET-1 ratio at 14.67%.
Benefit of ~14bp which is included in CET-1 can be seen due to new investment
guidelines.
Guidance
RoA expected at ~1.2% in next year and flat in current year.
The bank has guided GNPA/NNPA ratio to be ~1.5%/0.4% by FY29.
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The bank expects a consistent balance sheet growth of ~20% with profit of
INR120b-130b by FY29.
In the next five years, the bank expects to open ~1,700-1,800 branches.
CASA ratio is expected to be ~50% going forward.
C/I ratio to be flattish for next quarter and is expected to go down from 3QFY25.
Indian Bank
Current Price INR 552
Buy
Click below for
Detailed Concall Transcript &
Results Update
Balance sheet and P&L
Business grew 11%, deposits up 10%, and advances rose 12%. CASA increased by
6% with a stable ratio of 41%.
Among segments, RAM grew 13%, with Retail up 14%, Agri rose 18%, and MSME
up 6%.
PAT increased by 41%, and operating profit grew by 9%, driven by NII growth.
Bad debt recovery was INR 5.04b. PSLC amortized, and the income for the
current quarter was INR1.57b.
NIMs improved from 3.52% to 3.53%.
RoA was 1.02%, and the CI ratio was 44%.
Yields have decreased due to penal charges now being recognized in other
income, interest reversal, and lower recovery in the MOI.
Yield on investments increased to 7.15%.
Collection efficiency stood at 95%.
Slippages were at 1.5% due to seasonality, with INR9b from MSME, INR6b from
the retail book, and the rest from other segments.
Recovery stood at INR19.37b compared to INR20.17b in 4Q.
CAR is above 17%, indicating strong capitalization.
Digital transactions account for 90% of the total, with 18.2m UPI users. The
number of transactions grew by 56% YoY.
The bank completed six digital journeys and plans for 44 more this fiscal year.
INBK launched an omni-channel app, which is on-boarding 2.37m customers.
Advances and deposits
There is no RBI prescription for LDR. Both deposits and advances have grown by
INR600b. The bank aims to maintain LDR at around 80%.
There are challenges in raising CASA deposits, and multiple steps have been
taken to address this.
The bank holds an excess SLR of INR440b and maintains LCR of 120%.
Garnering deposits is a challenge as competition is intense, while credit growth
is high.
In retail, 70% of the portfolio consists of housing loans, with 80-90% of
customers having a good CIBIL score. Retail repayments are steady, and the
bank is actively sanctioning loans, ensuring growth in retail and agriculture
segments.
The bank is performing well in the SHG segment, where asset quality is also
strong.
It focuses on robust underwriting, often on-boarding low-risk assets.
The international book is growing well, with advances up 27%. The focus is
shifting from buyer's credit/trade finance to loan syndication due to better
margins.
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Yields, costs and margins
Since 61% of the loan book is based on MCLR, an increase in MCLR will help to
offset the rise in costs.
Interest rates will take time to decrease. If they do, the cost of deposits will
decline. With a significant portion of the book linked to MCLR, the bank will be
better positioned to maintain its margins.
The cost-to-income ratio has decreased to 44%. The goal is to reduce it further,
ideally below 40%. However, the bank will need time to see the benefits of its
technology investments.
The cost of deposits may increase by 3-5bp. The bank's higher share of MCLR,
which was raised by 5bp in the previous two months, ensures that NIMs remain
stable.
Investment re-valuation
AFS stands at INR2.04b, with a decline of INR2b of general reserve.
Investment yields have risen, partly due to amortization allowed in AFS.
AFS is contributing to the AFS reserve. The bank has reclassified its investment
book. The HTM yield is 7.08%, the AFS book is INR650b, and there is an excess
SLR of INR440b available for use. The FVTPL yield is 7.79%.
Other income
PSLC has an amortization cost of INR6.27b, with INR1.57b booked and the
remaining to be recorded in subsequent periods.
INR420m of penal interest has been shifted from interest income to other
income.
Asset quality
Slippages are higher due to seasonality, elections, and heatwaves. The bank has
recovered INR3.12b of slippages, mostly from farm credit.
The bank has guided for AUCA recovery of about INR20b (INR5b already
recovered). The remaining INR15b is expected to be recovered, mainly from the
TWO book.
RBI new draft paper on LCR
The RBI has raised its 5% run-off factor for deposits linked to IMB. The market
value of the excess SLR is higher than its book value.
The bank may see a 4-5% impact on its LCR, resulting in a new LCR of 115%.
ECL
The guidelines are still in draft form and their impact is expected to be minimal.
The bank will also pass on charges to customers. The ECL impact is spread over a
five-year period, resulting in a minimal effect.
Budget announcement related to loans to MSMEs
In the budget proposal for MSME loans, the bank uses GST returns, CMR scores,
and various models to determine loan eligibility for customers. This model is
being improved further to enhance asset quality stability.
For MUDRA and Tarun loans, the bank can always extend additional loans as
long as previous loans have been repaid.
Guidance
Deposits are expected to grow by 8-10%.
Advances are projected to grow by 11-13%.
The CD ratio will be maintained at around 80%.
NIM guidance is 3.4% (±10 bp), with the bank aiming to exceed this guidance.
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The current credit cost is 0.71%, and is expected to decrease in the future.
The goal is to maintain or improve the current RoA level.
IndusInd Bank
Current Price INR 1,385
Click below for
Detailed Concall Transcript &
Results Update
Buy
Opening remarks
The bank navigated a challenging quarter, which is typically a seasonal and weak
quarter. The challenges were further fueled by issues from heat waves and
election-related disruptions.
Retail as-per-LCR deposits grew 10% YoY, above loan growth.
Increases in cost of deposit at 5bp QoQ, also remained under control despite the
ongoing liquidity conditions.
IIB was cautious on disbursements in vehicle and microfinance during the
election phase and run rates have already picked up this month.
Digital banking offering (Indy) continues to receive strong traction and has 1.3m
customers on the Indy app.
IIB’s liability initiatives of Affluent and NRI Banking maintained robust traction,
growing at 23% and 33% YoY, respectively.
The bank did not use any contingent provision in 1QFY25. Adjusted for this, the
core profitability remained resilient for a seasonally weak quarter.
Margins, yields, costs, and return ratios
PSLC fee stood at INR2.6-2.7b this quarter.
~INR300m for the quarter was the impact due to penal interests on yields.
~12.9% was the vehicle disbursement yield, ~22-23% was MFI yield and there
was a dip in disbursement yield, as it was more tilted towards secured loans.
NIM is expected to remain range bound at ~4.3-4.4% and the bank will be able
to manage NIM in this range.
C/I increased due to slower revenue due to seasonally weak disbursement in
vehicle and MFI.
Deposit and loan related
The spends market share has further improved to 5% as per the latest available
RBI data. IIB has been cautious in maintaining share of unsecured card and PL
shares of 5-6% of the overall loan book.
It is well capitalized as of now and there is no need to raise capital as of now.
In 1QFY25, the bank lost in MFI as it was cautious. Growth slowdown in vehicle
finance was due to the slow growth in rural.
In Odisha, IIB has seen a slowdown in MFI and INR30b exposure has been
reduced by the bank in this state two quarters back. Further, in UP and
Jharkhand, it has reduced its exposures.
Good business in Rajasthan and Maharashtra. Bank is range-bound in its credit
cost.
CD ratio at 87.2%, IIB expects this to remain in range of 88-90% going forward.
~4-5% impact is expected to be the effect from new guidelines on LCR.
No further improvement in heavy commercial vehicle will be seen, rest will be a
healthy growth.
During the T-20 World Cup, IIB mobilized INR70b of term deposits; impact of this
has been taken in 1Q itself
~55% will be corporate and ~44-45% will be retail.
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~18-20% YoY growth in vehicle finance, in retail at 28-30%, ~18-20% mid-
corporate, ~10-12% large corporate growth is expected going forward.
The card business is a concern for the management.
~18-22% growth is expected in advances by the bank for FY25.
The card fees dropped in 1QFY25 as: 1) the Regulator has come up with a
directive that over-limit fees cannot be charged, and this led to a INR240m drop
in card fees; 2) the new card acquisition rate was lower, and 3) the interchange
on rentals was eliminated, which resulted in a slight fee income loss (INR100m)
for the bank.
Asset Quality
Slippages breakup: INR6.6b for vehicle finance, INR3.38b for Bharat Financial,
INR480m for corporates, INR4.9b for other retail.
The bank writes off loans as per approved policy of the bank and it does not
keep retail loans more than 180-240 days.
110-130bp is the credit cost expected by the bank including having excess
provisions on MFI and vehicle.
MFI business
MFI disbursements were typically lower due to election activity, with average
loan outstanding per customer reducing by 4% QoQ.
However, collection intensity remains high, and bank aims to normalize the
overdue book in a few months, expecting stable YoY MFI credit costs.
Bharat Super Shop now has 700,000 merchants with a loan book growing 25%
YoY.
Bharat Money Stores have increased to 88,000, providing banking in remote
areas, and have sourced 2.6m savings accounts, growing 68% YoY. Bank’s focus
is on asset quality and restoring center-meeting discipline amid improving
monsoon conditions positions them well for future opportunities.
Vehicle segment
VF disbursements grew 15% YoY/2% QoQ, totaling INR112.6b for the quarter.
Despite the typically weak first quarter and challenges such as election-related
disruptions and extreme heat, bank saw sequential growth in commercial
vehicles, cars, and construction equipment, though two-wheeler and tractor
segments declined.
Asset quality remained stable with gross slippages improving to 0.75% YoY, and
the restructured book reduced from INR 5.47b to INR 4.17b due to upgrades
and recoveries.
Looking ahead, IIB anticipates vehicle loan growth to accelerate as government
spending resumes post-budget and post-monsoon season.
Bharat Financial Inc.'s loan book grew 17% YoY, with microfinance and merchant
loans increasing 16% and 25% respectively.
Despite collection efficiency being impacted, the focus on collections helped
contain forward flows, resulting in a gross leverage of INR3.38b for the quarter.
Total liabilities sourced through BFIL now stand at INR 23.5b, with 93% of loan
disbursements made to interested accounts.
Retail
Retail assets grew 23% YoY. MSME book under business banking reached grew
13% YoY, and the lab book maintained steady traction with 12% YoY growth.
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Bank tweaked its branch operating model last year to facilitate sourcing MSME
asset customers and redefined SME branches, enhancing capabilities and
upscaling the branch scope, resulting in increased contribution by branch-led
organization.
Corporate segment
Large corporates grew 10% YoY, mid-corporates rose 14% YoY, and small
corporates jumped 22% YoY, driven by increased coverage and focus on select
industry segments.
The diamond business showed sequential growth after previous contractions
due to weak global demand, with pristine asset quality and no NPA or SMA-1,
SMA-2 customers.
The proportion of A and above-rated customers improved to 79% from 76% YoY,
with the weighted average rating increasing to 2.48% from 2.61% YoY.
Gross slippages in the corporate book were only INR480m for the quarter, and
net slippages were just INR40m
Miscellaneous
The bank is set to elevate Affluent banking with the launch of Pioneer Private
Banking next month, targeting customers with over INR30m network
relationship value, further boosting the Affluent franchise's growth.
IIB is launching a revamped Wealth Management offering, Indy for Business, and
an enhanced NRI client experience on the Indy app, which continues to scale,
with Indus Mobile achieving a 30% YoY growth in recurring bill payments and
ratings of 4.5 on the App Store and 4.3 on the Play Store.
Kotak Mahindra Bank
Current Price INR 1,815
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
The bank reported 1QFY25 standalone PAT of ~INR62.5,b aided by an
exceptional gain of INR27.3b (net of tax) from the sale of its 70% stake in Kotak
Mahindra General Insurance to Zurich Insurance. Adjusted PAT stood at
INR35.2b (2% YoY growth).
Advances/deposits grew 18.7%/15.8% YoY.
On 18th Jun’24, Kotak General Insurance (KGI) ceased to be a wholly-owned
subsidiary and became an associate of the bank.
The bank’s holding in KGI has now come down to 30%.
The reversal of KGI investment in consolidated book stands at INR2840m.
The new investment guideline led to a post-tax gain of INR34.14b, which was
accounted for in reserves.
RoE/RoA at consolidated level (ex of KGI investment) stood at 13.12%/2.3%.
NIM moderated 26bp QoQ to 5.02% in this quarter.
Due to excess liquidity at the end, the bank provided credit lower yields, with
slower disbursements in micro-credit loans.
CASA ratio moderated 210bp QoQ to 43.3%. SA growth remains a challenge for
the bank.
The acquisition of Sonata Microfinance was completed in the fourth quarter by
the commercial bank.
The bank has a strong bench strength and people are stepping up in roles.
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The RBI order and technology
In 1Q, the bank demonstrated commitment, added resources and laid down a
formulated plan in consultation with the RBI.
The bank has achieved all its targeted milestones.
Due to the RBI order, there was no impact on existing business operations.
However, Kotak 811 and the Credit Card business have been affected by the
order. Other businesses are not entirely digital.
Technological changes are underway.
Demand is increasing at a favorable pace.
The focus has been shifted from customer acquisition to the enhancement of
existing customer relationships.
Business related
The bank’s customer assets grew 20% YoY/3% QoQ in 1QFY25.
The mortgage lending business grew by a healthy 17% YoY/4% QoQ, reporting
improved yields and robust performance while maintaining strong asset quality.
Mid-market and SME segments witnessed faster growth compared to others.
Unsecured book grew 25% YoY, with credit cards growing 29% YoY mainly led by
card spending as the bank cannot issue new cards due to restrictions.
Due to leveraging on the customer side, credit card growth was not healthy for
the industry.
Demand was robust, especially on the manufacturing side. Demand was good in
both secured and unsecured segments in business banking.
Stable demand in rural and semi-urban areas. Portfolio matrix remains healthy
with negligible credit cost.
Savings deposits continue to be a challenge for the bank. ActivMoney was flat in
this quarter.
The bank has bundled proposition for certain key segments and has re-launched
ActivMoney with an outreach program.
Deposit growth is in focus, mainly CASA and ActivMoney.
In LAP and home loans, yield has increased. Significant pressure in yield can be
seen in corporate segment.
Growth in unsecured advances affected the yield, but the bank expects the
unsecured lending trajectory to remain stable with mid-teen growth.
The bank aims to expand across various segments while maintaining business as
usual.
Risk-reward balance is closely monitored, with conservative provisioning,
ensuring full provision for anything overdue beyond 180 days.
Disbursements in the construction equipment segment increased by 16% YoY,
with further growth anticipated. Collection efficiency remains stable.
The tractor industry experienced stable growth; used tractor industry grew well.
The acquisition of Sonata has extended its presence to 16 states with a
customer base of 2.7m.
TDs saw a significant 28.5% growth, with wholesale deposits increasing
alongside a focus on customer segmentation and flow.
In terms of network expansion, the bank opened 150 branches last year and
plans to do the same this year, with a gradual expansion in the future. Branch
expansion will continue alongside a focus on digital initiatives to drive growth.
The bank expects to add 3,000-3,500 branches in five years.
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CoF, yields and margins
The bank is making efforts to build the deposit franchise across all of its
businesses and get deposits at low cost with sustainable growth. Most of the
repricing has been done.
The bank does not expect a pickup in C/I ratio but expects this to moderate in 3-
4 years.
The bank will continue to spend on IT.
CoF will move up but the move will slow gradually vs. the past trend.
Asset quality
The bank will maintain prudence in its underwriting approach, ensuring quality
without compromising standards.
Credit remains benign on the corporate side. On the secured side in retail, there
is no issue.
In unsecured retail, there is stress in lower-ticket unsecured credit cards.
GNPA/NNPA ratios remained stable at 1.39%/0.35%. Credit costs stood at 55bp.
Unsecured retail advances (incl retail microcredit) as a % of net advance stood at
11.6% in 1QFY25.
Subsidiaries
Kotak Securities:
Kotak Securities PAT grew 83% YoY to INR4b.
A revamped demat account opening journey is creating a seamless flow for
users and will boost acquisition conversion rates.
Derivate market shares at 12.1%.
Revamped NEO mobile app homepage featuring dedicated sections for Stocks,
F&O & MF with enhanced customer experience.
Kotak Mahindra Life:
Gross written premium grew 8.3% YoY and Individual APE NB premium grew
13.2% in 1QFY25.
1Q PAT declined 9.8% YoY, affected by higher distribution costs.
Overall protection premium stood at 43.1% of Individual new business and
Group premium in 1Q.
Other Subsidiaries:
Kotak Prime posted a PAT of INR2. It is well capitalized with a CRAR of 24.6%.
BSS microfinance clocked a PAT of INR0.5b due to higher branch expansion cost.
Punjab National Bank
Current Price INR 116
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
This quarter was one of the best quarters of the bank. And PNB delivered better
than what was previously guided.
Deposit grew 8.5% YoY/2.8% QoQ, while advances grew 12.2% YoY/4.6% QoQ in
1QFY25.
The Board has approval to raise funds: AT-1
–
INR75b (which is reduced to
INR55b), and Tier I
–
INR100b.
CAR
–
15.79%, CET 1
–
10.95%. PNB is not in an immediate need of capital.
CASA guidance is 42% for FY25, current CASA stands at 40.08%.
RAM is 55.5% of the total overall advances, bank aims to bring RAM to 60% in
next 2-3 years.
Net profit for 1Q was INR32b with growth of 159% YoY.
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GNPA and NNPA have reduced and are below the earlier guidance and the bank
has well achieved this guidance.
Yields, Costs, and Margins
Current NIM stands at 3.25% and the bank expects 2.9-3.0% of margin in FY25.
PNB aims for the absolute number for NII from hereon.
In net interest income, the impact of recovery has been in the range of ~INR6-7b
every quarter.
~INR130m is booked in penal interest in other income.
Cost of deposits is increasing due to tight liquidity conditions and increase in the
deposits rate.
Advances and Deposits
Credit growth guidance is at 11-12%, credit growth was more than the guidance
in all previous quarters.
PNB is not deliberately raising deposits through bulk deposits. Bank will
continue to focus on garnering CASA deposits.
LCR stood at ~125% in 1QFY25, the impact will be 10% due to new guideline on
LCR and expected to be ~115% due to this.
Short-term advances are also available in the book and therefore the bank has
given conservative credit growth guidance at 11-12%.
4.76 was the modified duration for the entire portfolio and 3.76 was the
modified duration for AFS and HFT.
Unsecured book stood at INR276.3b; of which, Credit Card was INR9.3b,
Education loan
–
INR49b, personal loan
–
INR44.5b and other personal loans
–
INR180.2b, of which PAPL
–
INR43b and remaining
–
INR137b.
In fixed rate loan, ~10% comes from agriculture. PNB aims to increase share of
RAM from 55% to 60% going forward.
Bank has INR1t of excess SLR and the bank has other levers to deposit this
money.
PNB remains opportunistic to the corporate growth.
The bank is maintaining its market share in the current account segment,
boosted by the launch of a corporate mobile app.
Asset Quality
Slippages Break-up: Agri
–
INR3990m, MSME - INR6,370m, retail
–
INR4,930b,
INR1,020m increase in existing slippages.
Slippage stood at 0.76% as against guidance of 1%, this is the lowest in last 12
quarters.
From the new book, NPA: Retail - 0.27%, Agri
–
0.52% and MSME
–
1.47%.
Of the PAPL book, NPA is 1.86% whether digital or non-digital
Recovery from NCLT book is INR2.9b, for the balance of the year expectation is
Q2
–
INR12b, Q3
–
INR9.97b, Q4
–
INR5b
Recovery in 1QFY25 was impacted as 60% of the staff was involved in elections.
In NCLT, ~813 accounts applied, ~790 accounts are admitted, ~23 account
remaining to be admitted and ~307 accounts are under liquidation.
~INR30b+ recovery from NCLT is expected for FY25 and which is normally
corporate in nature.
Recovery in 1QFY25: INR4.49b is Agri, INR9b is MSME and ~INR10b is in
corporate.
SMA 1 and 2 total stood at INR230b.
SMA-0 breakup: INR200b in retail, INR160b in Agri and INR8b in MSME.
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Opex related
~INR5.58b is for purchase of PSLC and therefore opex has increased but this is a
non-recurring expenses.
Discussions with tax consultants are underway for transitioning towards the
new tax regime, while the bank continues to benefit from certain provisions of
the old tax regime.
The RBI guidelines on investment
Due to revised guideline, yield on investment in not impacted.
~INR3.99b of investment depreciation has come from one account of a
subsidiary as bank is required to revalue subsidiaries as per new investment
guideline.
Due to change in investment norms
–
addition to CET -1
–
INR3.7b, to General
Reserve
–
INR2.99b and INR2.57b is MTM through P&L.
Guidance
NIMs domestic stood at 3.21%, NIM global is 3.07% for 1QFY25. NIMs guidance
stands at 2.9-3%, the bank will aim for better NII improvement in every quarter.
Bank expects GNPA/NNPA ratio to be below 4%/ below 0.5% respectively by
FY25.
The bank guides credit cost <0.5%.
FY25 slippages ratio will be <1%.
CASA ratio guidance is 42% for FY25.
Credit growth guidance is 11-12% for FY25
Bank guides for RoA of 0.8% but bank aims to take it to 1% by exit of FY25.
RBL Bank
Current Price INR 228
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks by the MD and CEO
–
Mr. R Subramaniakumar
The bank is on track to achieve its 2026 mission.
Retail advances increased by 30% YoY, with housing and business sectors
growing by 19% YoY.
The housing and business sectors saw good yields with a 50bp improvement.
The focus remains on granular deposits, which grew by 25% YoY.
CASA experienced a decline due to seasonal flows in 4Q, particularly in CA
deposits. The focus is still on granular deposits.
The LCR stands healthy at 137%.
Disbursements showed decent traction in HL and LAP. However, there were
lower disbursements in MFI due to 1Q weakness and the general election.
Non-BFL cards now account for 52% of the share. The bank signed five new
partnerships this quarter and aims to scale this.
Asset quality in credit cards saw some slippages in transition cards, with a
INR160m increase in slippages and a potential spillover into 2Q.
MFI slippages remain lower, though collections faced some disruptions due to
elections.
PCR and NPA levels are steady, with CC and MFI contingent provisions at
INR1830m.
The bank received a tax refund in Q1, reflected in NII.
Operating expenses grew by 13% YoY, with the CI ratio at 65.7%.
Operating expense growth is expected to be lower compared to advances.
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There was a recovery from the written-off account, with INR900m provisions
reversed on AIF provisions. The negative provisions of AIF in Q3 are now
neutralized.
RoA stands at 1.14%.
Asset quality metrics include GNPA at 2.69%, NNPA at 0.74%, and PCR at 73.1%.
Slippages in wholesale were negative.
Net restructured assets stood at 0.44% in Q1 FY25.
Total capital is at 15.56%, with CET 1 at 13.85%. There was a one-time impact
due to an increase in RWAs.
There is some pressure from slippages due to migration, but improvement is
expected from the second half of FY25 onwards.
The focus will be on secured retail, with newer retail businesses growing and
impacts expected to be seen from FY26 onwards.
The bank is well capitalized, with no immediate plans for raising capital in the
near term.
Yields, cost and margins
Interest on income tax refunds amounted to INR680-700m. There was a 25bp
increase in NIMs; excluding this, NIMs remained flat.
NIMs are expected to remain flat in Q2 and slightly improve thereafter due to
better risk-adjusted returns, with a focus on retail rather than pursuing growth
beyond 19%.
Deposits and advances related
Deposit growth saw a decline due to CA inflows in 4Q.
Deposits are expected to grow by 18-20%, with a focus on granular deposits
achieving 23-25%
growth. The bank’s market share is 0.4-0.5%,
indicating room
for improvement.
The LDR will range between 83% and 85%.
MFI growth was impacted in Q1 due to heatwaves and the general election, but
average growth is expected to return in Q2.
Gross acquisitions in cards and MFI are lower as the bank diversifies its pool.
Rural VF has declined, and some IBPC sell-offs have occurred, but the underlying
platform has grown well.
Credit card spending is higher in 3Q and 4Q due to cyclical factors affecting the
industry. The revolve rate and revolve income are decreasing, with a larger
portion shifting to EMI finance.
Term deposit rate is at 8%, and large private deposits are at 7.5-7.7%. The aim is
to grow deposits by 18-20% YoY.
Opex and provisions related
The transition in cards had some impact, and higher collection efforts led to an
increase in opex.
Provision breakdown: Total at INR4600m, including NPA at INR5130m, recovery
of INR700m in write-offs, standard asset provision at INR180m, INR900m write-
back in AIF, and INR200m still remaining outstanding provision in AIF.
Asset quality
Slippages breakdown: Cards
–
INR4000m, MFI
–
INR1750m, rest are negligible.
SMA in MFI: SMA 2 is INR600-650m and SMA 1 is similar. The focus is on early
buckets, with efficiency in 0 buckets progressing well.
MFI GNPA: An increase of INR900-950m, with slippages of INR1,350m,
representing 7-8% of the MFI portfolio.
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MFI slippages are trending up and similar trends are expected in Q2.
Improvement is anticipated in the second half if all goes well.
Transition collection, previously managed by a Bajaj Finance group entity, is now
controlled by the bank, temporarily increasing costs. New employees and a new
telecom agency were added, impacting slippages.
Others
There is a INR750m impact on capital, corresponding to a 7-8bp impact due to
new investment guidelines. The bank will burn 20bp of capital annually.
Capital was last raised after COVID-19 and the challenges in the wholesale
business. There is a 1% cushion.
The bank plans to raise Tier 2 capital this year. The QIP resolution will be
relevant at the AGM, allowing capital to be raised within the current year from
the date of resolution.
RWA increased due to higher operational risk. The step-up increase is not
expected for the rest of the year and will decrease as the balance sheet grows,
resulting in a 20-25bp capital burn annually.
The aim is to reduce dependence on DSA-based sourcing and achieve 50% non-
DSA-based sourcing.
Guidance
The target is to achieve an exit RoA of 1.15% by 4Q FY25.
C/I ratio: Income is expected to grow faster than costs, with the C/I ratio
anticipated to decrease by 2-3% annually.
Credit cost: The first half of the year is expected to be similar to 1Q.
Achieving a 15% RoE is unlikely without raising additional capital.
State Bank of India
Current Price INR 816
Buy
Click below for
Results Update
Opening remarks
Inflation is nearing targets, and the rate of disinflation is decelerating.
The US Fed is expected to cut rates by 25bp in Sep’24, which is positive for the
global economy.
A favorable monsoon and its distribution should help keep inflation in check.
Credit growth has outpaced deposit growth for three consecutive years.
The budget was market-positive, with infrastructure boosts benefiting the
banking industry.
RoA of over 1% is favorable for the bank. RoE stands at 20.98%, the C/I ratio is
42.95%, and NII has increased by 5.7%.
Deposits grew by 8.18% and CASA rose 2.6% YoY, aided by various measures
taken this year.
The corporate segment grew by 16%, and foreign advances also performed well.
LCR was 129% as of
Jun’24, well above the regulatory benchmark.
Progress in digital banking is good, with 63% of regular savings accounts opened
via YONO.
GNPA improved by 55bp YoY, reaching the lowest level in 10 years. The
slippages ratio improved by 10bp YoY, with PCR at 91.76%.
CET 1 was 10.25%, excluding profits, and well above regulatory requirements.
Subsidiaries are performing well and adding value for stakeholders.
Advances and deposits
The bank has increased deposit rates in certain categories.
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LDR was at 68%, and the cost of raising funds is another aspect.
The bank has excess SLR of INR3.7t and opens 60k savings accounts daily, with
30k-40k opened via YONO. SA deposits reached INR17t, 3x higher than the next
competitor.
The daily average balance has been improving as the bank implements various
initiatives on the ground.
The bank's SA market share is 27%. It has consistently gained market share, and
significant efforts have been made to achieve this.
Deposits could grow at 12%, but the cost is a crucial factor.
The composition of Xpress Credit has remained stable, and the bank is cautious
with this segment. RWA consumption is only 53%, and RoA should be
considered alongside RWA. There are ample opportunities.
Advances Book breakup: MCLR linked
–
36%, EBLR linked
–
27%, Fixed book
–
20%, T-bill + Others - 14%.
In terms of the pipeline, there are pending disbursements of INR4.6t, with 66%
from the private sector. The mid-corporate segment is showing promising
trends.
The retail book is growing at 16%, with sufficient demand expected to continue.
Retail growth will remain intact across all segments.
Infra bonds amount to INR600b, and the infra book is INR3t, with ample scope
for expansion. The bank is exploring multiple channels for growth in this
segment.
The bank is happy to garner deposits as long as the rates remain comfortable.
Yields, cost and margins
There are no interest reversals from IT refunds.
The rate increase for term deposits in the past 1-2 quarters has impacted the
cost of deposits, leading to an overall increase in costs.
The C/I ratio is below 50%, with the bank aiming for income growth. The bank is
addressing wage increases, which represent the new normal for operating
expenses, and expects opex to decrease.
NIMs should stay at current levels, with an expected variation of ±10bp.
Asset quality
Slippages increased in 1Q due to aging provisions in standard assets and some
delays in salary credit for unsecured personal loans.
Slippages are typically higher in the first quarter, but they were lower in 1QFY25
than in 1QFY24. There are no signs of concern as underwriting remains strong,
with some slippages in the agricultural sector.
The temporary increase in GNPA in Xpress Credit should recover significantly.
Digital credit in Xpress Credit is being strengthened.
SBI Card faced some issues in stress, but this does not reflect the overall
economy.
Home loans and unsecured loan slippages are INR30b, with a substantial
amount recovered. SMA1 and SMA2 have decreased to INR70b.
Slippages by sector: SME
–
INR20b, Retail
–
INR30b, the rest in agriculture, and
INR20b in CBG.
Provision breakdown: Provision due to increase in slippages
–
INR9.14b, Aging
provisions
–
INR2.47b, Agricultural provisions
–
INR1.06b.
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The target for Xpress Credit is different, focusing on salaried accounts, leading to
distinct trends in credit cards. The average ticket size in Xpress Credit is
INR710k.
Credit cost guidance is 0.5%.
Capital raising
The bank has board approval to raise capital of INR250b, with INR100b in Tier-1
and INR150b in Tier-2.
The bank has ploughed INR1.14t of capital in the last three years through
profits, and this strategy has proven effective.
Investment guidelines
With the implementation of new investment guidelines, the net benefit is
INR36.73b on reserves and 10bp on CET-1.
The revision of investment guidelines has resulted in a decline in other income.
In 1Q, there were lower gains, and provisions increased.
Yes Bank and others have not contributed to CET-1 additions.
Miscellaneous
Regarding LCR guidelines, the bank has its own observations and will be
reaching out to the IBA and the Government of India.
SBIN is monitoring developments related to Yes Bank.
Subsidiaries have created value for the group.
Prudence is essential in managing risk. Price risk in long-term projects is always
considered and factored in.
The RBI, as a regulator, wants all entities to be well-positioned in the LDR.
The standalone LCR is 129%.
Guidance
Credit growth guidance is 15%, with broad-based growth across all segments.
The CD ratio is expected to be 70%, potentially rising to 72%.
Credit cost guidance is 0.5%.
SBI Cards & Payment Services
Current Price INR 709
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Opening remarks
Real GDP is projected to grow at 7.2%, and India has surpassed 100m credit
cards. Monthly card spending for the industry reached INR1.58t as of Jun’24.
SBIC’s CIF was 19.2m, with an 11% YoY growth. SBIC remained the second-
largest player with an 18.5% market share.
Banca experienced a seasonal effect in the first quarter.
SBICARD has been selective in acquiring new customers.
It has launched the instant card journey on the SBI platform via Yono and SBI
digital banking and plan to leverage this further.
The company’s focus is on digital journeys to help
acquire new customers.
Card spending reached INR771.3 b with a 4% YoY growth, despite a 66% decline
in corporate spending. Retail spending stood at INR708.9 b, with a strong 23%
YoY growth. Market share of spending was 15.9%.
Jewelry spending saw an 11% YoY growth, and consumer durables experienced
an 85% growth. Online spending accounted for 57% of total retail spending, with
50% of customers making new purchases every month.
Corporate spending reached INR52.49b, showing a MoM increase, with June
contributing 55% share.
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August 2024