CM – Results review for PGCIL, Lupine, Max Financial, Trent, Computer Age Management

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Power Grid Corporation of India Ltd (NS:

PGRD

): PGCIL’s asset capitalization increased 377% year-over-year to INR 56.4 billion in the first quarter of fiscal 22, while Capex declined 42% year-over-year to INR 11.1 billion. Revenue increased 9% year over year, led by strong growth in the broadcast and advisory segment. EBITDA also reflected sales growth of 9% in Q1FY22, while the margin remained unchanged. The company posted a one-time gain related to the gain on the sale of five TBCB projects to its InvIT platform, which resulted in strong growth in reported PAT, double the year-over-year to INR 60.9 billion. Adjusted for the same, PAT came to INR 33 billion (7% YoY). While PGCIL is well positioned to take advantage of the broadcast investment opportunity (given its robust operating cash flow of ~ 310 billion. The emerging sector opportunity over the next 2-3 years is only ~ INR 400-500 billion, and we now expect a lower capitalization of INR 152bn / 159bn for FY22 / 23. Therefore we are downgrading our TP slightly to INR196 (from previously INR 203) and lowering our rating to ADD.

Lupine Ltd ( NS:

LUPN

): Lupine’s EBITDA in the first quarter was ~ 25% below our estimate, mainly due to subdued US sales (-12% QoQ) and the resulting weak margins, which resulted in a sharp decline in the EBITDA margin to 14.2% ( -450bps QoQ). While the company has seen margins improve over the past few quarters, a significant drop in prices in the US impacted margins for the current quarter, and the structural cost savings that management mentioned remain elusive. Lupine has lowered its margin forecast for the full year from 19-20% to 16% / 17% in FY22. It expects US growth of 2HFY22 to pick up due to the ramp-ups at Albuterol and Brovana AG. We recognize that its pipeline offers significant opportunities such as gSpiriva and gRevlimid that could fuel healthy growth in FY23; Despite this consideration, however, we see limited upside potential. We are therefore reducing our estimates for fiscal 22 / 23e by 17% / 15% to account for lower sales and margins in the US. Our revised TP is INR 1,040. Downgrade to REDUCE.

Max Financial Services Ltd (NS:

MAXI

): While MAXL printed a better than expected APE (5% compared to estimates; two-year CAGR: 13%), the DSO margin at 19.7% (260 basis points year-on-year) missed the estimate due to the lower share of the hedging transaction and higher Fixed cost absorption. COVID-19 claims were 1.9 times higher than in FY21; However, these were within the expected loss reserves established in Q4FY21. Given the company’s focus on increasing its share of the protection business coupled with better fixed cost absorption for the remainder of FY22, we expect it to achieve a DSO margin of ~ 25% in FY22. We expect APE / DSO CAGRs of 14.4 / 15.1% over FY21-23E and operational RoEVs of ~ 20-21% for FY22 / 23E. We keep our ADD rating with a TP of INR 1,180 (Mar-22E EV 22.6x GJ23E VNB minus corporate costs).

Trent Ltd (NS:

TREN

): Trent’s Q1 performance surprised positively. Standalone sales rebounded 43% of pre-COVID19 sales (HSIE: 34% recovery). The composition of the shop openings in terms of format suggests that the beat was omnipresent. The bigger surprise was GM’s recovery. GM reached pre-COVID19 levels (53.6% vs. HSIE: 50%). We suspect that GM’s recovery was led by (1) lower inventory reserves year over year and (2) better GMs in Zudio. EBITDAM losses are reduced significantly to INR 218 million (versus INR 1.2 billion in Q1FY21). We are revising our EBITDA estimates for fiscal 23/24 up (6-7%) to reflect the higher GM. With 40x June-23 EV / EBITDA, however, there is no investment case. Keep our SELL recommendation with a revised SOTP-based TP of INR 690 / sh (which means 31x EV / EBITDA from June 23rd to June 23rd). Computer Age Management Services: Revenue / PAT missed estimates by 5% each, reaching INR 2 billion / INR 0.63 billion as returns continued to decline and paper-based transactions were subdued in April / May-21. With leadership in the duopoly RTA market (71.2% stake in MF MAAUM including FT AMC), CAMS is a proxy for India’s growing wealth management industry. Significant entry barriers paired with customer loyalty put the company in a uniquely advantageous position. We expect revenue and operating profit (OP) CAGRs of 15/20% for FY 21-23E, anticipated from buoyant capital flows and increasing contributions from emerging businesses, i. H. Payments, AIF and insurance. We rate CAMS with 36x FY23E EV / NOPLAT on March 22nd in cash and investments and keep our REDUCE rating with a target price of 2,030 INR due to the high valuations. The stock is currently trading at FY22E / 23E EV / NOPLAT of 62.9 / 55.6x and a PER of 61.0 / 53.4x.

Prestige Estates Projects Ltd (NS:

PREG

): Prestige Estates (PEPL) presale value / volume declined sequentially by 64/65% in the quarter due to the lockdown after the second wave. Collections also fell 42% year-on-year to INR 8.3 billion. Nonetheless, management is confident of reaching its pre-sale target of INR 65 billion in FY22 due to the launches (15-20% contribution) in Mumbai, Noida and Bengaluru. While net D / E rose 0.29x due to land acquisitions, PEPL aims to keep it below 0.5x. The company has embarked on a new asset investment cycle in Bengaluru, Mumbai, and it could see some saturation in the residential segment with rivalry on the move. We are maintaining ADD with an increased SOTP TP of 387 INR / h (to allow for new Mumbai projects); we are increasing our EPS estimates for FY 22/23 due to lower interest costs due to the deleveraging.

Galaxy Surfactants Limited (NS:

GALX

): Our BUY recommendation for GALSURF with a target price of INR 3,650 is based on (1) the stability of the business, as 55% of the sales mix comes from MNCs, (2) a stable EBITDA margin of> 12% due to fluctuations in raw material costs (RMC) easily passed on to customers and (3) strong return ratios (RoE / RoIC of 25/24% in FY23E). Q1 EBITDA / APAT was 10/5% below estimates due to unexpectedly high raw material costs, unexpectedly high tax expenses, offset by lower than expected operating costs, lower than expected depreciation and higher than expected other income.

CESC Ltd (NS:

CESC

): CESC’s consolidated PAT in Q1GY22 increased 34% year-over-year, led by the reduction in losses in the Distribution Franchisee (DF) segment (loss of INR 90 million versus INR 640 million year-over-year) and better results in the Noida- Business. Haldia and Dhariwal continued to show strong performances. The independent PAT growth remained subdued due to the delayed WBERC tariff order. Stand-alone generation grew 16% year-over-year on a low basis and strong demand, while T&D’s losses remained unchanged at 8.7%. CESC is the highest bidder for a 100 percent stake in Chandigarh-Discom (concurrent with its strategy to improve its sales presence). We are maintaining our SoTP TP of INR 1,011 and estimates; We have not yet considered the Chandigarh discom, as we are waiting for clarity regarding the offer and the award letter (LoA). We’re maintaining our BUY rating.

CreditAccess Grameen Ltd (BO:

CRDE

): The earnings of CreditAccess Grameen (CREDAG) were well below our estimates due to increased provisions and subdued returns. As expected, the portfolio was disproportionately influenced by the second wave with GNPAs at 7.6% (310 basis points sequentially), combined with a sharp increase in premature defaults (PAR-0/30 for an independent company at 30.6% / 13, 8% vs. 5.2% / 4.1% in Q4FY21). However, early payment defaults for MMFL (~ 16% of aggregated AUM) remained nearly unchanged due to a freeze on overdue days on May 21. Management said most of the early stress is likely to reverse when the economy resumes, as reflected in a 10 percentage point drop in PAR-0 levels over July 21. In addition, the proportion of the total portfolio that made no payments decreased to ~ 6.5% of AUM on July 21 (12.9% on June 21). We are maintaining BUY with a target price of INR 813 (2.8x March 23 ABVPS). We believe our assigned multiple reflects CREDAG’s high RoE potential across cycles and a relatively conservative approach to an inherently risky business.

V Mart Retail Ltd (NS:

VMAR

): V-MART rebounded to ~ 39% of Q1FY20 sales level (compared to HSIE: 35%). The number of effective visitor numbers / shops doubled compared to the previous year (27% of sales in the first quarter of fiscal year 20). An extended marriage season certainly helped. GM remained stable at 31% year-over-year despite RM inflation as the company (1) passed the increase on to consumers and (2) improved its full-price sales mix year-over-year. Adjusted EBITDA loss decreased to INR 265 million year over year (versus INR 296 million). The integration of Unlimited’s activities is planned for the end of August. Working capital (WC) continues to be managed intelligently and the company remains positive (INR 2.6 billion). We are revising our EBITDA estimates for fiscal 23/24 by 5/16% as we integrate Unlimited’s business into financials. As a result, our DCF-based TP is revised at 3,250 INR / sh (which means 27x EV / EBITDA from June 23rd to June 23rd). We’re downgrading the stock to REDUCE (from previously SELL).

IRB Infrastructure Developers Ltd (NS:

IRBI

): IRB Infra (IRB) sales in the first quarter / EBITDA / APAT amounted to INR 16.3 / 7.0 / 0.7 billion, exceeding our estimates by 4/5/28%. Due to COVID-related restrictions, total toll collection was affected by 20-25% compared to the previous quarter. The average daily toll collection was INR 63 million, 53% year-on-year. The toll collection has improved from the second week of June 21st. The order book (OB) is at INR 133 billion, with the IRB targeting INR 70-80 billion of incoming orders from HAM / BOT projects in FY22. Consolidated net debt rose to INR 142 billion, with a net D / E of 2.03x. Given the attractive valuation of the share and the comfortable liquidity position of the IRB, we are sticking to BUY; we are continuing the rating to June 23, raising our SOTP TP to 175 / sh (higher BOT rating due to better than expected toll growth and the EPC rollover on June 23).

J Kumar Infraprojects Ltd (NS:

JKIP

): JKIL had a strong first quarter performance with a revenue / EBITDA / APAT blow of 14/21/125% despite the 50% reduction in headcount during the quarter. Since Q2 is typically a sub-optimal quarter for the company, we expect revenue to increase starting in the third quarter. Incoming orders of INR 13 billion from the MMRDA increased the order book (OB) to INR 116 billion. 99% of this is covered by price escalation clauses. JKIL appears to be expanding its scope as a bid has been submitted for the Chennai subway and the company expresses a desire to work on water-infrared projects. We are maintaining BUY with a target price of 247 INR / sh (7x June-23E EPS rollover) and are revising the EPS estimates for the FY22E and FY23E by -4.9% and 12.2%, respectively, given the sales mix and the lagging effects of COVID. expect a lower EBITDA margin.

Capacite Infraprojects Ltd (NS:

CAPE

): Capacite Infraprojects Ltd. (CIL) reported INR 2.8 billion in-line execution for the quarter. However, lower than expected depreciation and financing costs led to a 53% increase in earnings. The execution has increased since June 21, with the workforce at a historically high level. Management expects sales of INR 15 billion and an EBITDA margin of 17.5% for the remainder of FY22. Incoming orders totaled INR 3.8 billion, bringing the order book (OB) to INR 89 billion. While management is aiming for INR 20 billion orders in FY22, it will only focus on higher margin orders given the robust OB. CIL has passed an authorization resolution to raise INR 3 billion through a QIP. With execution and the proportion of government contracts increasing, the company is well positioned for re-evaluation. We’ve lowered our estimates for Fiscal Year 22E / 23E by 11/7% to account for the impact of the second wave. We’re repeating BUY and rolling forward through June 23 for a target price of INR / sh 295 (up from INR 300 previously).

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