Research and broking firm JM Financial has retained ‘buy’ on Maruti, IndusInd Bank and UltraTech Cement among others after March quarter earnings with upside potential of up to 32 percent
Maruti Suzuki | Near-term headwind; order book remains strong | Rating: Buy | Target: Rs 9,050 | Upside: 18%. In Q4 FY22, Maruti’s EBITDA margin came in at 9.1 percent (+80bps YoY,+240bps QoQ),120bps ahead of estimates. Sequential improvement in margin was driven by operating leverage, gross margin expansion and lower sales promotion expenses. The company lost 2,70,000 units of production due to chip shortage in FY22. Management highlighted that the issue of chip shortage might continue to impact production during FY23. Order inflows remain strong with over 3,20,000 units of pending bookings. Recently launched Baleno has been received well with bookings at 80,000 units. The management highlighted a strong product pipeline for the coming months. Raw material cost inflation, however, will continue to impact margins in H1 FY23, given the steep rise in commodity costs. Maruti reiterated its plan to launch first EV by 2025. We estimate revenue / EPS CAGR of 17 percent / 70 percent over FY22-24.
UltraTech Cement | Beats expectations; set to outgrow peers on new capacities | Rating: Buy | Target: Rs 8,000 | Upside: 20%. UltraTech’s Q4FY22 EBITDA beat estimates on better realisations and control over fixed costs. The quarter witnessed a sharp pick-up in demand momentum. Overall, the volumes reported a flattish trend YoY, but registered a sequential growth of 21 percent. Reported EBITDA witnessed a sharp bounce-back of 33 percent QoQ (-16 percent YoY; +10 percent against estimates), primarily led by strong volumes. Blended EBITDA per tonne at Rs 1,108 per tonne grew by 10 percent QoQ (-16 percent YoY) led by realisation uptick and operating leverage benefits. Ultratech is expected to continue to outgrow industry with nearly 20MTPA expansion commissioning in FY23. In addition, its initiatives to increase the share of green power to 34 percent (20 percent now) by FY24 and focus on margin accretive/asset light/value added business segments will be key drivers of improvement in its return ratio profile.
SBI Life Insurance | Product mix driven margin expansion to continue | Rating: Buy | Target: Rs 1,430 | Upside: 32%. In Q4 FY22, SBI Life recorded APE (IRDA) growth of 4 percent YoY versus 13 percent for the industry owing to high base. In terms of product, non-PAR APE nearly doubled YoY (off a low base) in Q4, benefitting from product launches and re-pricings, this was followed by 50 percent YoY growth in group protect APE on the back of improving attachment rates. For the FY22, the insurer reported APE growth of 25 percent YoY outperforming the 16 percent growth for the industry. Margins improved 550bps YoY to 25.9 percent for FY22 on the back of better volumes, improved mix, steady retail persistency and cost leadership. The insurer reported 19 percent YoY growth in EV to Rs 396.3 billion mainly driven by NBV and healthy unwind. Operating RoEVs improved to 20.7 percent for FY22 from 19.5 percent last year. Going forward, SBI Life is better placed to maintain sector leadership – largest private insurer with APE market share of 12.9 percent as of FY22, up 95bps YoY, given significant brand equity, an expansive multi-channel, pan-India distribution network, cost leadership and access to parent’s huge client base.
IndusInd Bank | Q4 FY22 a steady quarter | Rating: Buy | Target: Rs 1,325 | Upside: 30%. IndusInd Bank reported a steady set of Q4 FY22 results with improving growth momentum (loans + 12 percent YoY, deposits +15 percent YoY), in-line operating performance (core PPOP +9 percent YoY) and continued improvement in asset quality (GNPL/NNPL/restructuring at 2.3 percent / 0.6 percent / 2.6 percent; -21bps/-7bps/-70bps QoQ). While slippages were a tad high (4 percent annualised slippage) driven by higher slippages in MFI segment, management indicated that this should be the last leg of slippages and asset quality should see a marked improvement going ahead. We expect credit costs to moderate from FY23E onwards (1.6 percent/1.4 percent for FY23/24) and see RoA/RoE to gradually improve to 1.9 percent/16.5 percent by FY24. IIB stock trades at 1.2x FY24 BVPS and going ahead.
Shriram Transport Finance | Strong quarter; asset quality improved: Rating: Buy | Target: Rs 1,630 | Upside: 32%. In Q4 FY22, Shriram Transport Finance generated PAT of Rs 10.9 billion (+44 percent YoY/ +60 percent QoQ), driven by robust operational performance with PPoP at Rs 21.1 billion (+27 percent YoY/ +11 percent QoQ). Disbursement was healthy (+13 percent YoY/ +5 percent QoQ), partially helped higher vehicle prices, AUM (at Rs 1.27 trillion) expanded +8 percent YoY/ +2 percent QoQ, driven by new CV, NIM jumped to 7 percent (+30bps YoY/ +15bps QoQ), aided by improvement in yield, interest income write back and declining CoF albeit on-BS liquidity remained higher than normal, collection efficiency (CE) further enhanced to 104.3 percent, asset quality materially improved as GS3 ratio fell to 7.1 percent (-130bps QoQ), partially helped by write-off; while GS2 ratio stood at 10.6 percent (-100bps QoQ), hence GS2+GS3 dropped to 17.7 percent (-60bps QoQ), total restructured book shrunk 10bps QoQ to 0.7 percent of AUM.
Sandip Das
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