First Call 26Jul21

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Jindal Steel & Power - Company Update - JPL divestment: Step-up in

governance

We are upgrading Jindal Steel & Power (JSPL) to ‘BUY/SO’ in the wake of the revised

contours of its JPL divestment. Key points: i) A simplified structure. ii) Removes

uncertainty regarding future cash flows. iii) A competitive bidding process could

unlock JPL’s fair value. Besides, the company is making reasonable endeavours to

address minority shareholders’ concerns, which signify a step-up in governance.

Vodafone Idea - Edel Flash - AGR dues plea: A missed call

The Supreme Court (SC) has dismissed telcos’ plea for a re-computation of AGR dues

to rectify ‘calculation errors’. Accordingly, the AGR dues for Bharti Airtel (Bharti) and

Vodafone Idea (VI) will stay at INR440bn and INR583bn, respectively. The telcos’

own calculations were INR130bn and INR215bn, respectively.

V-Mart Retail - Company Update - Marching down south

V-Mart Retail (VMart) announced the acquisition of 74 stores of ‘Unlimited’ from

Arvind Fashion (AFL) for INR1.5bn (~INR20mn/store). The company plans to rebrand

the acquired stores and drive up their productivity, mainly via sharper pricing.

Pharmaceuticals - Sector Update - Jun-21 Rx – Recovery afoot

Analysis of the June quarter TRx and price data show: i) Biosimilar penetration rates

are stable but Amgen has slashed prices sharply in 3 biosimilars. ii) Big Pharma is

faring better. iii) Oral solids under volume pressure in the March quarter return to

growth in the June quarter.

Reliance Inds. - Result Update - Stepping on the gas Reliance Industries (RIL) posted Q1FY22 EBITDA of INR257bn (up 38% YoY, flat QoQ)

broadly in line with our estimate, and PAT of INR147bn (up 46% YoY, down 1.1%

QoQ). While O2C beat our expectations, Retail is a big miss. Jio Platforms’

performance is modest while ahead-of-schedule ramp-up in KG-D6 gas production

is a big accelerator.

India Equity Research July 26, 2021

FIRST CALL DAILY REPORT

Edelweiss Research +91 22 4009 4400 [email protected]

Sectoral Movements %Change Ticker 25-Jul-21 1 D 1 M 3 M 1 Y

Nifty 15,824 1.2 0.9 10.3 41.1

Banking 39,362 0.7 0.6 9.3 50.3

IT 29,780 1.8 5.4 16.3 74.7

Pharmaceuticals 26,314 1.0 5.8 12.8 53.3

Oil 15,716 1.5 -7.4 8.3 14.2

Power

2,698 2.0 -5.1 10.2 72.5

Auto 22,876 0.1 -3.4 5.9 38.4

Metals 19,328 3.0 7.0 19.6 150.0

Real Estate

3,143 1.6 13.4 31.1 97.1

FMCG 13,557 -0.2 0.4 8.3 17.9

Capital Goods 24,049 2.8 6.0 20.5 86.4

MARKETS Change in % 25-Jul-21 1D 1M 1Y

Nifty 50 15,824 1.2 0.9 41.1 Nifty 200 8,410 1.3 1.3 45.7 Nifty 500 13,670 1.3 1.8 50.0

INDIA STOCK PERFORMANCE

GLOBAL 25-Jul-21 1D 1M 1Y

Dow 34,823 0.1 2.8 30.7

China 3,561 -0.4 -0.1 7.1

EM Index 1,326 1.1 -2.5 23.1

UPCOMING EVENTS CALENDER

MACRO Change in %

25-Jul-21 1D 1M 1Y

Fx (INR/USD)

74.5 0.2 -0.1 0.4

!0-yr G-sec 6.2 0.2 2.9 6.7 Oil (USD) 73.7 -0.1 -2.0 70.1

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Sales Traders Says Currency Conversations

Bond Vectors Valuation Vista

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EventDate

Maruti Suzuki India results28-07-21

27-07-21

27-07-21

IndusInd Bank results

Tech Mahindra results29-07-21

Dr. Reddy's Laboratories results

United Breweries results30-07-21

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ICICI Bank - Result Update - Still appears best placed ICICI Bank (ICICI) surpassed expectation posting Q1FY22 PAT of INR46bn led by core

operating performance (>17%/>20% YoY growth in NII/core PPoP) and controlled

credit cost. And it did so despite the anticipated covid impact on asset quality – 4%

slippage, with >90% coming from retail (including agri). The bank drew down part of

covid provision pool (now 90bps of loans) while tightening specific provisioning

(INR11bn impact). Hereon, recovery traction is key; we expect still high residual

provision buffers to contain the fallout.

ITC - Result Update - Cigarettes impacted; FMCG resilient ITC’s Q1FY22 net revenue (up 37.1% YoY) came in line, but EBITDA (up 50.8% YoY)

and PAT (up 28.6% YoY) undershot our estimates. Cigarette volumes rose 32% YoY

on a soft base of -40% YoY. The FMCG segment’s revenue grew 10.4% YoY driven by

hygiene, fragrance, spices, snacks, agarbattis and dairy products. High base effect in

staples and convenience foods led to moderation in YoY growth. The Hygiene

segment performed well, delivering sequential growth after normalising in H2FY21

at elevated levels.

JSW Steel - Result Update - Sound performance; steep valuations

JSW Steel’s (JSTL) Q1FY22 performance surpassed consensus. Key points: i)

Standalone EBITDA/t at INR26,291 (up 33% QoQ) due to higher realisation. ii)

Overseas subsidiaries (except Piombino) sprung to profit. iii) Net debt increased QoQ

owing to working capital build-up. iv) Cumulative investment of INR12bn in JSW

Paints and renewable power SPV with JSW Energy.

Ambuja Cements - Result Update - On a roll

Ambuja Cement (ACEM) continues to be on a roll with its focus on volumes,

realisation and efficiencies. Sector tailwind is culminating these efforts into industry-

leading RoE of 25% (excluding investment in subsidiary ACC). Capex-completion led

volume gains plus benefits of improving clinker factor and WHR projects will help

sustain a high RoE. Announcement of 1.5mtpa expansion is encouraging.

Biocon - Result Update - Awaiting acceleration Biocon (BIOS) undershot revenue/EBITDA consensus forecast by 6%/15%, mainly

due to a 22% YoY decline in generics’ revenue and PBT margins sliding to 6% even as

biologics posted a modest recovery.

Persistent Systems - Result Update - Robust result; commentary upbeat

Persistent Systems (Persistent) delivered strong Q1FY22 numbers similar to its mid-

cap IT services peers: revenue shot up 9.2% QoQ to USD166.8mn, far ahead of our

and Street’s forecasts of USD164mn and USD158mn, respectively. EBIT margin

expanded 30bps QoQ to 13.5%, beating our 13% estimate but slightly below Street’s

13.7%.

IndiaMART - Result Update - Steady performance

IndiaMART InterMESH’s (IndiaMART) posted Q1FY22 numbers broadly in line with

expectations. The second wave however took a toll on its paying subscribers, down

6,000. Since 80–90% of these subscribers were monthly silver customers, ARPU

surged, resulting in sustained growth in revenue and collections. Other operating

metrics such as traffic and business enquiries were strong.








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Yes Bank - Result Update - Silver lining still not adequate for clarity Yes Bank reported Q1FY22 PAT of INR2bn, after huge loses in Q4FY21. However, the

situation is far from stable. Despite deposit traction, asset quality remains a problem

of unknown size. Highlights: i) Deposits were flat QoQ and advances contracted 2%

QoQ. ii) Though PCR is at 65%-plus, high stressed pool along with current

environment does not portend an easy resolution of incremental problems.

CRISIL - Result Update - Ratings muted; research healthy CRISIL's Q2CY21 sales grew 12% YoY to INR5.3bn (6% ahead of estimate) led by a

20% YoY uptick in research that offset a 5% YoY dip in ratings. EBITDA shot up 20%

YoY (7% higher than estimate).

Federal Bank - Result Update - Balancing well; asset quality stability key Federal Bank’s (FB) Q1FY22 PAT of INR3.7bn missed estimates on higher credit cost

even as treasury income cushioned the impact. Business momentum is along

expected lines—deposits rose 9% YoY and advances 7% YoY led by retail. Asset

quality volatility persisted, with higher slippages and higher stress pool on the retail

segment. Coverage of 65% and stable/improving SMA pool lend comfort.

Indian Energy Exchange - Result Update - New opportunities on the horizon IEX’s Q1FY22 results manifest a deepening spot power market driving a structural

growth cycle and associated OPLEV benefits. Discoms are incrementally moving to

Real Time Market; hence the opportunity size could be much bigger than earlier

envisaged (18bn units/year). On the policy front, Capacity market, Integrated DAM

market and Ancillary services in DSM market are a few new initiatives that could

enhance IEX’s overall PAT by 15–20%.






KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 398 12 month price target (INR) 460 Market cap (INR bn/USD bn) 406/5.4 Free float/Foreign ownership (%) 13.5/14.0

What’s Changed Target Price

Rating/Risk Rating

INVESTMENT METRICS

JPL divestment: Step-up in governance

We are upgrading Jindal Steel & Power (JSPL) to ‘BUY/SO’ in the wake of the revised contours of its JPL divestment. Key points: i) A simplified structure. ii) Removes uncertainty regarding future cash flows. iii) A competitive bidding process could unlock JPL’s fair value. Besides, the company is making reasonable endeavours to address minority shareholders’ concerns, which signify a step-up in governance.

Though the revised consideration of INR74bn is still short of our fair value of INR95bn, we estimate an INR10/share addition to our TP factoring in the revised terms of the deal. Our revised TP thus works out to INR460 (INR445 earlier) at an unchanged 5.3x EBITDA as we roll over to Q2FY23E earnings. Upgrade to ‘BUY/SO’ (from ‘HOLD/SN’).

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 3,89,886 4,29,110 4,10,106 4,00,243

EBITDA 1,44,443 1,56,137 1,12,880 96,152

Adjusted profit 57,577 68,602 42,379 31,040

Diluted EPS (INR) 56.4 67.3 41.5 30.4

EPS growth (%) nm 19.1 (38.2) (26.8)

RoAE (%) 15.3 19.5 10.4 7.0

P/E (x) 7.0 5.9 9.6 13.1

EV/EBITDA (x) 4.0 3.3 4.4 5.0

Dividend yield (%) 0 0 0 0

PRICE PERFORMANCE

Revised deal terms seek to proactively allay Street’s concerns

In our view, JPL’s revised divestment contours seek to address minority

shareholders’ key concerns. Key points: i) The simplified deal structure removes the

overhang of future cash flows of JPL. ii) Inter-corporate debt of INR43.5bn from JPL

to JSPL has been assumed by the acquiring entity (Worldone). iii) Competitive

bidding would provide equal opportunity to all the external interested parties while

setting the floor price of the deal. Moving beyond numbers, we see the entire

engagement process with minority shareholders and the company making all

reasonable endeavours to allay their concerns as a good instance of governance.

Stock’s relative underperformance might reverse

The JSPL stock underperformed its peers since the deal was announced three

months ago. In contrast to the Metal index and major ferrous stocks’ returns of 18%

and 22%, respectively, JSPL slid 9%. We attribute the stock’s underperformance

partially to the complex and less value-accretive deal contours. In our view, the

stock’s underperformance relative to peers might reverse owing to: i) a better deal

structure; and ii) further debt reduction on the balance sheet.

Explore:

Outlook and valuation: Better days ahead; upgrade to ‘BUY’

In our view, the revised deal contours of JPL divestment are encouraging and

demonstrate the company’s sharpening focus on governance. In fact, lately,

companies in the sector have been increasingly conferring with stakeholders on

policy making and strategy. Few instances: i) Rio Tinto, BHP, Anglo American and

Glencore are gradually reducing exposure to thermal coal mining/trading; and ii)

increased focus on green steel/aluminium by the companies such as ArcelorMittal,

Alcoa and Rusal to reduce the carbon footprint for their customers.

Taking cognizance of revised deal terms and earnings rollover to Q2FY23E, our

revised TP works out to INR460 (earlier INR445) at an unchanged 5.3x implied

EBITDA. All in all, we are upgrading the stock to ‘BUY/SO’ as we believe the revised

deal contours will remove the overhang on stock.

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India Equity Research Metals & Mining July 25, 2021

JINDAL STEEL & POWER COMPANY UPDATE

Amit Dixit Meera Midha +91 (22) 6620 3160 +91 (22) 4088 5804 [email protected] [email protected]

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KEY DATA

Rating REDUCE Sector relative Underperformer Price (INR) 9 12 month price target (INR) 6 Market cap (INR bn/USD bn) 266/3.6 Free float/Foreign ownership (%) 0.0/0.0

INVESTMENT METRICS

AGR dues plea: A missed call

The Supreme Court (SC) has dismissed telcos’ plea for a re-computation of AGR dues to rectify ‘calculation errors’. Accordingly, the AGR dues for Bharti Airtel (Bharti) and Vodafone Idea (VI) will stay at INR440bn and INR583bn, respectively. The telcos’ own calculations were INR130bn and INR215bn, respectively.

Any relief in AGR dues would have abated VI’s debt woes and facilitated a much-needed fund-raising. In absence of VI’s capital-raising and tariff hike, we see the market moving towards a duopoly. High operating and financial leverage throw up a range of outcomes on target price. Overall, we stay cautious until capital-raising and tariff hikes materialise. Retain ‘REDUCE’ with a TP of INR6.

FINANCIALS (INR mn)


Revenue 449,575 419,522 406,084 469,060

EBITDA 147,977 169,457 173,555 215,608

Adjusted profit (200,012) (242,650) (218,081) (191,415)

Diluted EPS (INR) (7.0) (8.4) (7.6) (6.7)

EPS growth (%) (60.7) 21.3 (10.1) (12.2)

RoAE (%) (225.2) 274.3 44.4 27.5

P/E (x) nm nm nm nm

EV/EBITDA (x) 11.2 13.1 14.0 11.5


PRICE PERFORMANCE

Looking for a white knight

With INR1.8tn in net debt, VI’s balance sheet is precarious. VI has sought

government approval to raise INR150bn in capital, but in absence of any

announcement, we see it as an ‘enabling approval’ to avoid delays once investors

come on board. The company has also asked the government to extend the

moratorium for spectrum dues in light of the challenges. Current tariff makes VI’s

sustainability impossible in our view, and an investors are likely to emerge only if

tariff hikes look probable. According to our estimates, VI must jack up ARPU by 87%

to meet its debt obligations. Considering the competitive environment, government

intervention – such as a floor price – would be required for enforcing the tariff hike.

A telco duopoly on the cards?

VI’s balance sheet is precarious, but rival telecom operators Bharti and Reliance Jio

(RJio) are adequately funded. This gives them an opportunity to grab market shares.

Considering 60–70% incremental EBITDA margins in this business, incremental

revenues would significantly boost their bottom lines, thereby shoring up their

ability to invest in the network. Hence, we believe that Bharti and RJio will be ‘net

beneficiaries’ of the challenges VI is staring at. On the other hand, Indus Towers

(Indus) will be negatively impacted as ~40% of its revenue comes from VI.

Explore:

Outlook: Further consolidation to aid Bharti and RJio

While a favourable judgment would have saved up to INR56 per share for Bharti, we

believe its balance sheet is anyway strong enough to bear the AGR burden. With

strong 2G and 4G networks, it is a clear beneficiary of potential market share gains

as VI loses out. RJio has also aggressively expanded its spectrum footprint to boost

the capacity for incremental subscribers coming on the network. Considering high

operating leverage nature of the business, we expect them to benefit from the same.

VI trades at 11.5x FY23E EV/EBITDA. We maintain ‘REDUCE’ on VI with a TP of INR6.

Meanwhile, we maintain ‘BUY’ on Bharti with a TP of INR705. We also have a ‘BUY’

on Indus with a TP of INR290. And although we expect RJio to be a net beneficiary of

market share gains (from VI), the market is overestimating its digital capabilities in

our view.

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India Equity Research Telecom July 23, 2021

VODAFONE IDEA Edel Flash

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KEY DATA

Rating BUY Sector relative Neutral Price (INR) 3,355 12 month price target (INR) 3,910 Market cap (INR bn/USD bn) 66/0.9 Free float/Foreign ownership (%) 847.7/1,757.3


Rating/Risk Rating ⚊

INVESTMENT METRICS

Marching down south

V-Mart Retail (VMart) announced the acquisition of 74 stores of ‘Unlimited’ from Arvind Fashion (AFL) for INR1.5bn (~INR20mn/store). The company plans to rebrand the acquired stores and drive up their productivity, mainly via sharper pricing.

Overall, the deal’s attractive valuation and immediate footprint

expansion (South region) are the key positives. Store profitability of ‘Unlimited’ is a concern, but VMart can turn it around by dint of its execution. The transaction also improves VMart’s growth profile and should see the company’s valuation gap reduce vis-à-vis pan-India players. We are raising the target to 30x H1FY23E EBITDA (from 25x), which yields a revised TP of INR3,910 (INR3,238 earlier). Retain ‘BUY’.

FINANCIALS (INR mn)


Revenue 16,620 10,755 16,298 22,147

EBITDA 2,138 1,312 2,282 3,012

Adjusted profit 493 (62) 432 880

Diluted EPS (INR) 27.2 (3.1) 21.9 44.7

EPS growth (%) (20.0) nm nm 103.5

RoAE (%) 11.4 (1.0) 5.1 9.7

P/E (x) 124.7 nm 154.4 75.9

EV/EBITDA (x) 21.2 32.0 18.6 13.9

Dividend yield (%) 0 0 0 0.1

PRICE PERFORMANCE

Limited store overlap; expands footprint to south region

V-Mart signed a definitive agreement to acquire 74 ‘Unlimited’ stores from Arvind

Fashion. ‘Unlimited’ is AFL’s value retail format, which primarily sells AFL’s own

private labels. AFL had launched the business as Megamart in 1994, after which it

was rebranded as Unlimited recently. As part of the transaction, AFL will sell assets

of the retail stores, warehouses, inventory and the ‘Unlimited’ brand for INR1.5bn.

VMart, with presence primarily in north India, gets an immediate toehold in South

India via this acquisition. There is very little overlap in the store footprint of the two.

Acquired stores to be rebrand; turnaround likely to be gradual

VMart will look to rebrand all Unlimited stores and will focus on reducing the average

pricing of Unlimited’s collection from the current INR500 to closer to VMart’s pricing

of INR310-plus. VMart’s focus will be on improving volumes in these new stores and

increasing sales per sq ft, and this is where it will make a big difference. On customer

profile, VMart will focus on capturing a younger audience through its value offerings

and drive customer loyalty. The business will continue as usual till the end of this

festive season, after which initiatives will start. VMart is giving itself at least a year

to turn Unlimited around, with improvement likely to be visible only from January

2022.

Explore:

Outlook and valuation: Expanding growth avenues; retain ‘BUY’

Key positives of the deal are: i) complementary territory profile, which does

accelerate store expansion by a couple of years; and ii) valuation, which at

INR20mn/store (including supply chain) looks attractive. However, concerns do

remain on the current profitability of the network of stores despite its relatively

mature age profile. Given V-Mart’s success in scaling up in its core territories, we

expect it to improve the performance of these stores gradually.

The transaction also improves VMart’s growth profile (South region) and should see

the company’s valuation gap reduce versus pan-India players. We are raising the

multiple to 30x H1FY23 EBITDA (from 25x), yielding a revised TP of INR3,910

(INR3,238 earlier). Maintain ‘BUY’. The stock is trading at 23x FY23E EV/EBITDA.

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India Equity Research Retail July 24, 2021

V-MART RETAIL COMPANY UPDATE

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Jun-21 Rx – Recovery afoot

Analysis of the June quarter TRx and price data show: i) Biosimilar penetration rates are stable but Amgen has slashed prices sharply in 3 biosimilars. ii) Big Pharma is faring better. iii) Oral solids under volume pressure in the March quarter return to growth in the June quarter.

Among companies: i) Sun’s specialty Rx growth gained further

momentum. IL-23s outpaced IL-17s, and Cequa is the fastest growing molecule. ii) Sun’s Absorica lost 35% volume in May and June. iii) Albuterol: Cipla has 14.8% share while Lupin’s share touched 9% in the first week of July. iv) Cipla is ramping up in gTecfidera followed by Dr. Reddy’s. v) Cadila’s mesalamine franchise is stable. vi) Lupin’s gaining share in gVimovo and gApriso, but losing in famotidine.

Volume pressures easing in US Gx

In Exhibit 1, we have tabulated the growth of top-20 dispensed generic products in

the US that show volume pressures seen in the March quarter have eased in the

June quarter. We believe the Gx industry could see ~6% volume decline in Q1FY22.

Sun’s Ilumya is the fastest growing biologic in plaque psoriasis. Cequa continues

to grow faster than Xiidra and Restasis. Absorica lost 35% volume in two months.

Albuterol: Cipla’s market share is 14.8% for Jun-21 vs. 13.5% in Mar-21 while

Lupin’s market share is 7% for June; weekly data show Lupin’s share touched 9%

in July. Albuterol market grew 2% YoY in Q1FY22.

Cadila’s share in Lialda dropped 400bps YoY and Sun’s by ~300bps as innovator

gained ~600bps. Asacol HD share stable at 92%. 11% share in gDoxil.

Cipla and Dr. Reddy’s have started to ramp up in gTecfidera. Cipla’s share at 11%

in June vs. Dr.Reddy at 6%; both gained at the expense of Teva and Amneal.

Lupin has ramped up well in Apriso (15% share); however, it lost a 10% share in

famotidine, and prices have also corrected ~25%.

Sub Head

FP Table Body

Biosimilars: Big players extend lead; price erosion steepening

Big Pharma (Pfizer and Amgen) continue to gain biosimilars market share faster

than others. In bRituxan and bHerceptin, Pfizer has overtaken several peers.

Biocon’s ramp-up continues to be gradual–bNeulasta market share is 8.3%, +20bps

QoQ and lower than the Jun-19 peak of 9.2%. In bHerceptin, market share is 8.7%

(+60bps QoQ); Amgen has maintained its leadership but Pfizer now has second

highest market share at 9%. Biocon’s share in bLantus stands at ~2.6%; glargine

market slid ~5% YoY in the June quarter—lower than 11% dip in the March quarter.

Amgen has become aggressive in pricing; it offers the cheapest product pegfilgastim

despite being the innovator (Exhibit 5), while in trastuzumab and bevacizumab its

price cuts have intensified (Exhibit 6).

India Equity Research Pharmaceuticals July 23, 2021

Prescription Check SECTOR UPDATE

Kunal Randeria Aashita Jain +91 (22) 6620 3040 +91 (22) 6623 3463 [email protected] [email protected]


KEY DATA

Rating HOLD Sector relative Neutral Price (INR) 2,106 12 month price target (INR) 2,175 Market cap (INR bn/USD bn) 13,794/185.2 Free float/Foreign ownership (%) 50.9/24.2



QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

Stepping on the gas

Reliance Industries (RIL) posted Q1FY22 EBITDA of INR257bn (up 38% YoY, flat QoQ) broadly in line with our estimate, and PAT of INR147bn (up 46% YoY, down 1.1% QoQ). While O2C beat our expectations, Retail is a big miss. Jio Platforms’ performance is modest while ahead-of-schedule ramp-up in KG-D6 gas production is a big accelerator.

We reckon the upstream business is poised to drive INR100bn growth in EBITDA by FY23E while refining margins are likely to recover. RIL’s latest INR750bn path-breaking “New Energy” investment plan towards green hydrogen and fuel cells should enable O2C to become carbon-neutral by 2035. Maintain ‘HOLD’ as a rollover to Q2FY23E edges up TP by 3% to INR2,175 at 9.7x EV/EBITDA .

FINANCIALS (INR mn)


Revenue 59,67430 46,69240 66,98817 79,72388

EBITDA 8,82,170 8,07,370 11,14389 13,82304

Adjusted profit 3,93,540 4,91,280 5,28,842 6,79,723

Diluted EPS (INR) 62.1 76.2 78.2 100.5

EPS growth (%) (7.1) 22.8 2.6 28.5

RoAE (%) 10.4 8.5 8.8 9.2

P/E (x) 33.9 27.6 26.9 20.9

EV/EBITDA (x) 17.8 19.7 14.9 9.7

Dividend yield (%) 0.3 0.3 0.4 0.7

PRICE PERFORMANCE

Polymers drive O2C beat; KG-D6 gas ramp-up ahead of schedule

O2C EBITDA surged 48% YoY, and improved 7.2% QoQ. As PP, PE and PVC prices

remain strong, downstream margins stood high with product deltas near or above

five-year averages. Polymer domestic demand grew 28% YoY with sustained demand

from essential sectors, e.g. food and FMCG packaging, and e-commerce packaging.

Refining throughput remains flat YoY/QoQ led by utilisation of 106.5% on channel

restocking. KG-D6 satellite cluster gas production commenced in Apr-21, two

months ahead of plan. Combined production from the R-cluster and Satellite cluster

is ~18mmscmd. MJ fields will start from Q3FY23.

Retail a big miss; subscribers additions offset muted RJio ARPU

While Retail’s EBITDA rose 80% YoY (-46% QoQ), adjusted for the INR5.5bn

investment income, it grew 29% YoY (-55% QoQ). Only 61% of stores are operational

(94% in Q4FY21, 50% in 1QFY21) and footfalls plunged to 46% (88% in Q4FY21, 43%

in 1QFY21). Electronics & lifestyle clocked strong traction. JioMart has been

extended to 218 cities with ~415 total integrated stores. While RJio’s digital services

EBITDA rose 32% YoY (+3.6% QoQ), its ARPU slid 1.4% to INR138 (flat QoQ). Net

subscriber additions stood at 15mn (total 440mn). Meanwhile, RJio is adequately

prepared to roll out the 5G network as spectrum becomes available.

Explore:

Outlook: Diluted Retail, RJio PAT attributable to RIL; retain ‘HOLD’

Following a 33% stake sale, RJio’s PAT attributable to RIL rose 24% YoY for RJio versus

standalone RJio growth of 39% YoY. Similarly, a 10% stake sale in Retail diluted

standalone growth of 123% YoY to 100% YoY attributable to RIL. RJio and Retail

contributed 26% to RIL’s PAT. Reiterate ‘HOLD/SN’ with a 3% TP hike to INR2,175.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 15,44,390 8,82,530 75.0 14,95,750 3.3

EBITDA 2,57,940 1,86,830 38.1 2,57,830 0

Adjusted Profit 1,46,990 1,00,750 45.9 1,48,620 (1.1)

Diluted EPS (INR) 22.4 15.6 43.6 23.1 (2.7)

36,000

39,600

43,200

46,800

50,400

54,000

1,825

1,925

2,025

2,125

2,225

2,325


RIL IN Equity Sensex

India Equity Research Oil & Gas July 24, 2021

RELIANCE INDS. RESULT UPDATE

Jal Irani Shubham Mittal Iqbal Khan +91 (22) 6620 3087 +91 (22) 4063 5459 [email protected] [email protected] [email protected]

Corporate access


Video






KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 677 12 month price target (INR) 780 Market cap (INR bn/USD bn) 4,686/62.9 Free float/Foreign ownership (%) 100.0/37.2



QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

Still appears best placed

ICICI Bank (ICICI) surpassed expectation posting Q1FY22 PAT of INR46bn led by core operating performance (>17%/>20% YoY growth in NII/core PPoP) and controlled credit cost. And it did so despite the anticipated covid impact on asset quality – 4% slippage, with >90% coming from retail (including agri). The bank drew down part of covid provision pool (now 90bps of loans) while tightening specific

provisioning (INR11bn impact). Hereon, recovery traction is key; we expect still high residual provision buffers to contain the fallout.

Despite lingering uncertainty, equity sanctity remains high for ICICI (among best in coverage). Retain ‘BUY’ with a TP of INR780 (up from INR700; rollover by a quarter and subsidiary value adjustments).

FINANCIALS (INR mn)

Year to March FY20A FY21A FY22E FY23E

Revenue 497157 579580 614087 696390

PPoP 281013 363971 374278 425688

Adjusted profit 79308 161927 190762 218402

Diluted EPS (INR) 12.3 23.4 27.6 31.6

EPS growth (%) 134.8 91.1 17.8 14.5

RoAE (%) 7.2 12.6 12.6 13.2

P/E (x) 55.2 28.9 24.5 21.4

P/ABV (x) 4.6 3.5 3.2 2.9

Dividend yield (%) 0 0.3 1.0 1.0

PRICE PERFORMANCE

Asset quality impacted by covid, provisioning buffer lends cushion

The bank reported slippages of INR72bn (4%), largely from retail & business banking

contributing >90% of slippages. Within retail, agriculture (INR9.6bn, seasonal) and

jeweller loans (INR11bn) were key contributors. On the one hand, the bank

tightened provisioning policy and, on the other hand, utilised part of covid buffer

(now at 90bps of loans), thereby keeping credit cost in check. Additionally, total

fund-based outstanding to all borrowers under resolution at a mere 65bps lends

much comfort. In light of: i) collection efficiency steadily improving; ii) overdues

portfolio dipping; and iii) lower-than-expected restructuring (albeit some rise

expected in Q2FY22), provisioning appears to be ample for hiccups on asset quality.

Business momentum on track

Deposits posted yet another quarter of strong growth of >15% YoY: with SA growth of >25% YoY. Overall, advances grew by 17% YoY, with sustained momentum in retail (>20% YoY growth, mostly secured). Rationalisation of overseas business continued with a 15% YoY dip. Core momentum should be incrementally driven by loan growth and a small NIM tailwind. The bank’s progress on digital channels and efforts at reinventing its operating model, especially in retail segments, deserve a special mention.

Explore:

Outlook and valuation: Top pick; maintain ‘BUY’

While a focused approach and structural changes underpin the bank’s sustainable re-rating, at current combination of safety-cheapness-recovery gearing, ICICI appears to be the lowest hanging fruit. A leg-up from robust subsidiaries reinforces our positive view. Retain ‘BUY/SO’; we continue to earmark ICICI as our top pick.


Net Revenue 1,49,316 1,54,224 -3.2 1,45,425 2.7

Pre-provisioning Profits 88,944 107,765 -17.5 85,398 4.2

Reported Profits 46,160 25,992 77.6 44,026 4.8

EPS 6.5 4.0 64.3 6.3 4.6

36,000

39,600

43,200

46,800

50,400

54,000

325

400

475

550

625

700


ICICIBC IN Equity Sensex

India Equity Research Banks July 24, 2021

ICICI BANK RESULT UPDATE

Santanu Chakrabarti Prakhar Agarwal Parth Sanghvi +91 (22) 4342 8680 +91 (22) 6620 3076 [email protected] [email protected] [email protected]

Corporate access


Video

https://www.edelweissresearch.com/Research/Download/9814






KEY DATA

Rating HOLD Sector relative Neutral Price (INR) 212 12 month price target (INR) 241 Market cap (INR bn/USD bn) 2,615/35.1 Free float/Foreign ownership (%) 100.0/14.6

What’s Changed

Target Price ⚊


QUICK TAKE

Cigarettes impacted; FMCG resilient

ITC’s Q1FY22 net revenue (up 37.1% YoY) came in line, but EBITDA (up 50.8% YoY) and PAT (up 28.6% YoY) undershot our estimates. Cigarette volumes rose 32% YoY on a soft base of -40% YoY. The FMCG segment’s revenue grew 10.4% YoY driven by hygiene, fragrance, spices, snacks, agarbattis and dairy products. High base effect in staples and convenience foods led to moderation in YoY growth. The

Hygiene segment performed well, delivering sequential growth after normalising in H2FY21 at elevated levels.

Overall ESG-led investing is assuming significance and ITC is consciously striving to climb up the ESG ladder. Retain ‘HOLD’ with an SoTP-based TP of INR241.

FINANCIALS (INR mn)


Revenue 4,92,728 5,46,815 5,95,810 6,38,697

EBITDA 1,70,027 2,04,088 2,28,183 2,50,920

Adjusted profit 1,33,829 1,59,326 1,77,759 1,95,310

Diluted EPS (INR) 10.9 13.0 14.4 15.9

EPS growth (%) (15.5) 19.1 11.6 9.9

RoAE (%) 21.3 25.7 27.2 28.3

P/E (x) 19.5 16.4 14.7 13.4

EV/EBITDA (x) 14.2 11.7 10.4 9.3

Dividend yield (%) 5.1 4.9 5.4 6.0

PRICE PERFORMANCE

Cigarettes suffer wave 2 impact, FMCG business robust

Cigarettes volumes were impacted by the second wave (down ~21% on two-year

basis); however, week‐on‐week improvement is underway since mid-June with most

markets returning to normalcy and witnessing faster recovery compared with the

first wave. Cigarettes’ net revenue grew 33% compared with 7% in Q4FY21. The

FMCG business showed robust performance with 10.4% growth in revenue.

Education & Stationery Products’ business remains impacted due to continued

closure of educational institutions. The Discretionary segment clocked good YoY

growth on a favourable base; however sequential performance was hit due to the

second covid wave. FMCG e-commerce sales more than doubled to 8% of segmental

revenue. FMCG EBITDA margin expanded for the 13th consecutive quarter, by 40bps

YoY. Cigarettes margin expanded 210bps YoY.

Other business

The hotel business was impacted due to a fresh round of mobility restrictions

triggered by the second covid wave. The hotel business is rebounding with the easing

of restrictions. Agri business (up 9.2% YoY) saw strong exports, led by wheat, rice

and leaf tobacco. There was no disruption in supplies to key customers of agri

business. The paper business shot up 54.2% YoY led by value added and décor paper.

Explore:

Outlook and valuation: Triggers awaited; maintain ‘HOLD’

While the cigarette opportunity in India remains attractive given per capita

consumption, investing modalities have changed with ESG assuming a significant

role. We maintain ‘HOLD/SN’ with a TP of INR241. The stock is trading at 14.7x FY23E

EPS.


Net Revenue 1,22,171 89,113 37.1 1,32,947 (8.1)

EBITDA 39,922 26,466 50.8 44,730 (10.8)

Adjusted Profit 30,135 23,428 28.6 37,484 (19.6)

Diluted EPS (INR) 2.4 1.9 28.6 3.0 (19.6)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

150

170

190

210

230

250


ITC IN Equity Sensex

India Equity Research Consumer Staples July 24, 2021

ITC RESULT UPDATE

Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]

Corporate access


Video






KEY DATA

Rating REDUCE Sector relative Underperformer Price (INR) 718 12 month price target (INR) 650 Market cap (INR bn/USD bn) 1,734/23.3 Free float/Foreign ownership (%) 57.6/17.9



QUICK TAKE

Sound performance; steep valuations

JSW Steel’s (JSTL) Q1FY22 performance surpassed consensus. Key points: i) Standalone EBITDA/t at INR26,291 (up 33% QoQ) due to higher realisation. ii) Overseas subsidiaries (except Piombino) sprung to profit. iii) Net debt increased QoQ owing to working capital build-up. iv) Cumulative investment of INR12bn in JSW Paints and renewable power SPV with JSW Energy.

Going ahead, we expect JSTL to benefit from the ramp-up of downstream capacity and commissioning of the Dolvi-II plant. However, valuation at 6.1x FY23E EBITDA looks expensive. Maintain ‘REDUCE’ with a revised TP of INR650 (earlier INR635), implying 5.7x EBITDA as we roll over to Q3FY22E earnings.

FINANCIALS (INR bn)


Revenue 798.4 1,311.6 1,333.2 1,244.1

EBITDA 201.4 424.8 381.4 353.2

Adjusted profit 79.1 240.8 204.0 180.9

Diluted EPS (INR) 32.7 99.5 84.3 74.8

EPS growth (%) 96.2 204.4 (15.3) (11.3)

RoAE (%) 19.0 42.5 27.2 19.9

P/E (x) 21.9 7.2 8.5 9.6

EV/EBITDA (x) 11.2 5.2 5.7 5.8

Dividend yield (%) 0.9 2.1 1.8 1.6

PRICE PERFORMANCE

A record quarter

JSTL’s Q1FY22 EBITDA of INR112.7bn (up 34% QoQ) surpassed consensus. Key points:

i) Standalone sales volume slid 11% QoQ to 3.6mt with the share of exports rising to

35% due to subdued domestic demand. ii) Standalone EBITDA/t at INR26,291 (up

33% QoQ) due to higher realisation. iii) Highest-ever share of value-added products

(VAP) at 61% (Q4FY21: 59%). iv) Overseas subsidiaries reported a much-improved

performance with cumulative EBITDA of INR2.6bn compared with a loss of INR2.5bn

in Q4FY21. Going ahead, we expect JSTL to benefit from additional volumes from

Dolvi-II and ramp-up of downstream capacity despite lower spreads.

Investment in related parties, spike in gross debt come as a surprise

JSTL’s board has approved investment of: i) INR7.5bn in JSW Paints for 6.88% stake;

and ii) INR4.45bn in 958MW renewable power SPV with JSW Energy. According to

management, the investments are going to benefit the downstream coated products

business and aid in reducing GHG emissions, respectively. While the investment

might benefit in the long-run, it comes as a surprise. Furthermore, gross debt shot

up INR18bn, largely due to working capital build-up of INR62bn ahead of

commissioning of Dolvi-II expansion. We do not expect a material reduction in debt

in FY22 (unlike peers) owing to residual capex of INR156bn in 9MFY22.

Explore:

Outlook and valuation: Higher price susceptibility; retain ‘REDUCE’

Despite the record Q1FY22 performance, JSTL’s high capex intensity renders it more

susceptible to potential moderation in steel prices in our view. Besides at 6.1x FY23

EBITDA, the stock is expensive relative to peers. Maintain ‘REDUCE/SU’ at a revised

TP of INR650 (earlier INR635) on 5.7x EBITDA as we roll over to Q3FY22E.


Net Revenue 2,89,020 1,17,820 145.3 2,69,340 7.3

EBITDA 1,12,740 13,410 740.7 84,400 33.6

Adjusted Profit 68,270 ( 5,610) (1,316.9) 42,538 60.5

Diluted EPS (INR) 28.2 ( 2.3) (1,316.9) 17.6 60.5

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

200

315

430

545

660

775


JSTL IN Equity Sensex

India Equity Research Metals & Mining July 23, 2021

JSW STEEL RESULT UPDATE

Amit Dixit Meera Midha +91 (22) 6620 3160 +91 (22) 4088 5804 [email protected] [email protected]

Corporate access


Video


https://www.edelweissresearch.com/Podcasts?Search=jsw+steel&FromDate=&ToDate=




KEY DATA



Rating/Risk Rating

QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

On a roll

Ambuja Cement (ACEM) continues to be on a roll with its focus on volumes, realisation and efficiencies. Sector tailwind is culminating these efforts into industry-leading RoE of 25% (excluding investment in subsidiary ACC). Capex-completion led volume gains plus benefits of improving clinker factor and WHR projects will help sustain a high RoE. Announcement of 1.5mtpa expansion is encouraging.

It is another strong showing—marked by outperformance in revenue and cost. Factoring in EBITDA beat of 19% and firm underlying cement prices, we are raising CY21E/CY22E EBITDA by 13%/15%. And in light of improving sector outlook and ACEM’s superior RoE, we are raising target EV/EBITDA to 17x and upgrading it to ‘BUY’ with a TP of INR462.

FINANCIALS (INR mn)

Year to December CY19A CY20E CY21E CY22E

Revenue 1,16,679 1,13,719 1,40,948 1,59,427

EBITDA 21,488 26,466 36,124 38,803

Adjusted profit 15,285 17,901 24,828 27,037

Diluted EPS (INR) 7.7 9.0 12.5 13.6

EPS growth (%) (5.5) 17.1 38.7 8.9

RoAE (%) 14.1 17.3 24.7 22.6

P/E (x) 37.9 32.3 23.3 21.4

EV/EBITDA (x) 24.8 20.9 14.9 13.4

Dividend yield (%) 0.4 4.5 1.0 1.0

PRICE PERFORMANCE

EBITDA/t at all-time high

ACEM’s volumes at 6.42mn tonnes dipped 11% QoQ, well contained vis-a-vis dips of

14% reported by ACC and 22% by industry major UltraTech Cement. Volumes are 4%

ahead of estimates. Realisation surged ~5% QoQ—broadly in line. Variable cost/t

stood flat versus our estimate of a ~5% rise. All in all, a beat across parameters drove

EBITDA/ to all-time high of INR1,495. Factoring in robust H1CY21 and firm pricing

environment, we are raising CY21E/CY22E EBITDA by 13%/15%. Revised EBITDA/t is

INR1,328 for CY21 and INR1,285 for CY22 versus INR1,167 in CY20.

Sector tailwind complements ACEM’s efforts

The robust Q1FY22 displayed by the industry convinces us of the sector’s ability to

protect earnings in tough times—be it through firm cement prices or tight cost

control. With a massive drop in covid-19 cases, demand outlook has turned bright,

yet again. Recent decline in global crude oil prices hints at a potential peak, for the

time being at least. These sector tailwinds complement ACEM’s efforts of efficiency

enhancement by improving clinker factor from 64.5% in CY20 to <63% in Q1CY21.

Volumes gain from 3.1mtpa clinker expansion scheduled for completion in Q3CY21

and gains from 54MW WHR power plants in H2CY22 will also support earnings

growth. We estimate ACEM’s RoE would rise to 25% in CY21 and 23% in CY22.

Explore:

Outlook and valuation: Walking the talk; upgrade to ‘BUY’

ACEM is delivering on its promise of: i) stepped-up efficiency focus (improved clinker

factor, working on WHR power projects and increased synergies with ACC); and ii)

consistent volume growth (via capacity expansion). We are raising target EV/EBITDA

to 17x (from 15x); upgrade to ‘BUY/SO’ with a TP of INR462 (from INR336).

Financials Year to March Q2CY21 Q2CY20 % Change Q1CY21 % Change

Net Revenue 33,712 21,768 54.9 36,214 (6.9)

EBITDA 9,597 5,952 61.2 9,768 (1.8)

Adjusted Profit 7,231 4,534 59.5 6,646 8.8

Diluted EPS (INR) 3.6 2.3 59.5 3.3 8.8

36,000

39,600

43,200

46,800

50,400

54,000

175

225

275

325

375

425


ACEM IN Equity Sensex

India Equity Research Cement July 23, 2021

AMBUJA CEMENTS RESULT UPDATE

Navin Rameshwar Sahadeo Shubham Mittal +91 (22) 4088 6242 +91 (22) 4063 5459 [email protected] [email protected]

Corporate access


Video






KEY DATA

Rating REDUCE Sector relative Underperformer Price (INR) 403 12 month price target (INR) 370 Market cap (INR bn/USD bn) 484/6.5 Free float/Foreign ownership (%) 39.3/16.7



QUICK TAKE

Awaiting acceleration

Biocon (BIOS) undershot revenue/EBITDA consensus forecast by 6%/15%, mainly due to a 22% YoY decline in generics’ revenue and PBT margins sliding to 6% even as biologics posted a modest recovery.

We model in a 33% FY21–24E EPS CAGR that hinges on successful execution of the biosimilars portfolio, which has seen a limited uptick.

While market share is inching up and we build in a rapid uptick in glargine in FY23, heavy competition in MAbs and Amgen aggressively competing on price are likely to put pressure on earnings. We are cutting FY22/23E EPS by 13%/2% due to subdued Generics and Bicara losses in the near term. Our SoTP-based TP is INR370 (INR350 earlier) based on rollover to Dec-22E and Syngene’s run-up. Retain ‘REDUCE’.

FINANCIALS (INR mn)


Revenue 71,163 85,034 1,03,070 1,16,096

EBITDA 16,631 23,964 30,144 35,577

Adjusted profit 7,357 9,621 13,996 17,240

Diluted EPS (INR) 6.1 8.0 11.7 14.4

EPS growth (%) 5.5 30.8 45.5 23.2

RoAE (%) 10.5 11.9 15.3 16.3

P/E (x) 65.7 50.3 34.6 28.1

EV/EBITDA (x) 29.8 20.7 16.2 13.3


PRICE PERFORMANCE

Q1FY22 round-up: Generics disappoint; biologics recovery modest

Despite robust Syngene sales (+41% YoY), revenue missed estimates on account of

an extremely weak generics business (-22% YoY), which suffered from API supply

chain issues during covid, a ‘high’ Q1FY21 base and pricing pressure in US

formulations. Branded formulations shot up 50% YoY, implying base biologics have

been flat QoQ despite market share gain. Generics’ PBT stood at 6%, lowest in

several years, while biosimilars’ PBT is 13.3%, up 300bps QoQ but lower YoY. Gross

margin was hit by higher remdesivir contribution and weak seasonality in Syngene.

Biosimilars yet to accelerate

BIOS’s head-start in biosimilars may provide only a limited advantage, especially in

MAbs since competition has intensified and pricing pressure is unlikely to abate, in

our view. Although the potential approval of interchangeability designation for its

insulin products is welcome, we believe our 20% market share captures upside

potential as the innovator will remain a strong competitor. Bevacizumab is likely to

be a difficult market as two existing biosimilars have captured two–thirds of the

market. No other major launches are lined up for the next three years except

adalimumab (wherein BIOS has economic interest) in Jan-23. With investments and

R&D set to continue, we see limited scope for revenue and profit outperformance.

Explore:

Outlook and valuation: Risk-reward unfavourable; retain ‘REDUCE’

Biocon trades at ~33.7x FY23E EPS, which factors in benefit from potential upsides,

but not the risks involved. We value the stock on SoTP—biosimilars yields a DCF-

based value of INR167/share. Maintain ‘REDUCE/SU’ with a TP of INR370 (from

INR350) as we roll over the valuation to Dec-22E and factor in Syngene’s re-rating.


Net Revenue 17,606 16,938 3.9 18,421 (4.4)

EBITDA 3,893 4,133 (5.8) 4,357 (10.6)

Adjusted Profit 844 1,494 (43.5) 2,402 (64.9)

Diluted EPS (INR) 0.7 1.2 (43.5) 2.0 (64.9)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

350

380

410

440

470

500


BIOS IN Equity Sensex

India Equity Research Pharmaceuticals July 23, 2021

BIOCON RESULT UPDATE

Kunal Randeria Aashita Jain +91 (22) 6620 3040 +91 (22) 6623 3463 [email protected] [email protected]

Corporate access


Video


https://www.edelweissresearch.com/Podcasts?Search=biocon&FromDate=&ToDate=




KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 3,039 12 month price target (INR) 3,650 Market cap (INR bn/USD bn) 232/3.1 Free float/Foreign ownership (%) 68.7/19.3



QUICK TAKE

Robust result; commentary upbeat

Persistent Systems (Persistent) delivered strong Q1FY22 numbers similar to its mid-cap IT services peers: revenue shot up 9.2% QoQ to USD166.8mn, far ahead of our and Street’s forecasts of USD164mn and USD158mn, respectively. EBIT margin expanded 30bps QoQ to 13.5%, beating our 13% estimate but slightly below Street’s 13.7%.

All in all, robust growth momentum continues with Persistent posting highest-ever sequential and YoY growth despite covid-related challenges. It won several large digital engineering and enterprise modernization deals. Maintain ‘BUY’ with a revised TP of INR3,650 (from INR2,166) as we raise the target to 35x (from 30x) while rolling over to Q3FY23E.

FINANCIALS (INR mn)


Revenue 35,658 41,879 52,933 60,850

EBITDA 4,929 6,830 8,704 11,294

Adjusted profit 3,403 4,507 6,084 7,966

Diluted EPS (INR) 44.5 59.0 79.6 104.2

EPS growth (%) 1.3 32.4 35.0 30.9

RoAE (%) 14.4 17.7 21.1 23.8

P/E (x) 63.5 48.0 35.5 27.1

EV/EBITDA (x) 44.0 30.9 24.7 18.5

Dividend yield (%) 0.4 0.7 0.4 0.4

PRICE PERFORMANCE

Broad-based growth across industry segments

In terms of business segments, Healthcare & life sciences grew strongest (15.5%

QoQ), followed by BFSI (11.8% QoQ) and Software, Hi -Tech & Emerging Industries

(5.2% QoQ). In terms of business offerings, while Services business jumped 11.5%

QoQ, the IP-led business slid 4% QoQ. Offshore linear revenue grew 10.7%, on

account of volume growth of 8.6% while billings grew 2%. Onsite linear revenue grew

12.9% on the back of volume growth of 10.2% and billing growth of 2.4%.

Strong deal momentum to sustain

Persistent won total contract value (TCV) of USD244.8mn, whereas new business

TCV grew 7.2% QoQ to USD147.7mn. Total annual contract value (ACV) for the

quarter was USD188.8mn, which is ~1.3x Q1FY22 revenue. Management highlighted

that they would continue to increase the headcount to fill supply gaps as demand

environment is robust. The company acquired Sureline Systems to bolster its cloud

capabilities and continues to scout for potential M&A; it is evaluating 3–4 companies

for an acquisition. Persistent continued to strengthen its leadership by appointing

Mr. Suresh Prabhu as Chief Delivery Officer. And Persistent made a few key hirings

last quarter as well, whose impact is beginning to show up in its strong performance.

Explore:

Outlook and valuation: Robust prospects, maintain ‘BUY’

Persistent continued to deliver strong revenue growth driven by a robust demand

environment. The stock is trading at 27.1x FY23E. We maintain ‘BUY/SO’ with a

revised TP of INR3,650 (from INR2,166) on robust demand outlook and raising the

target from 30x to 35x factoring in higher growth and the rollover to Q3FY23E.


Net Revenue 12,299 9,914 24.1 11,134 10.5

EBITDA 2,015 1,464 37.6 1,883 7.0

Adjusted Profit 1,512 900 68.0 1,378 9.8

Diluted EPS (INR) 19.8 11.8 68.0 18.0 9.8

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

725

1,190

1,655

2,120

2,585

3,050


PSYS IN Equity Sensex

India Equity Research IT July 23, 2021

PERSISTENT SYSTEMS RESULT UPDATE

Sandip Agarwal Pranav Kshatriya Ayur Bohra Nikhil Choudhary +91 (22) 6623 3474 +91 (22) 4040 7495 [email protected] [email protected] [email protected] [email protected]

Corporate access


Video


https://www.edelweissresearch.com/Podcasts?Search=persistent&FromDate=&ToDate=




KEY DATA


What’s Changed

Target Price ⚊


QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

Steady performance

IndiaMART InterMESH’s (IndiaMART) posted Q1FY22 numbers broadly in line with expectations. The second wave however took a toll on its paying subscribers, down 6,000. Since 80–90% of these subscribers were monthly silver customers, ARPU surged, resulting in sustained growth in revenue and collections. Other operating metrics such as traffic and business enquiries were strong.

While IndiaMART benefits from digitalisation of SMEs, its inability to add customers lately has affected growth. In our view, the quality of execution on new subscriber growth and effective capital allocation would be the key valuation triggers. Retain ‘BUY’ on execution track record and long-term growth potential with a TP of INR9,400.

FINANCIALS (INR mn)


Revenue 6,389 6,696 7,840 9,799

EBITDA 1,689 3,282 3,760 4,831

Adjusted profit 1,568 2,798 3,607 4,692

Diluted EPS (INR) 53.7 92.1 118.7 154.4

EPS growth (%) 81.3 71.6 28.8 30.1

RoAE (%) 68.2 29.7 20.1 21.3

P/E (x) 130.6 76.1 59.1 45.4

EV/EBITDA (x) 126.1 64.7 55.1 41.8


PRICE PERFORMANCE

Strong ARPU growth saves the day

Despite a 6k dip in paying subscribers, revenue grew by 1.1% QoQ, in line with

Street’s estimates, as ARPU jumped 5.7% QoQ. Margins further improved by 130bps

QoQ to 48.8%, well above Street’s estimate of 46.4%. Collections were reasonably

strong at INR1.7bn (in line with estimates), considering the challenges faced by

company in the lockdown. More importantly, the company has successfully

managed to upsell its packages to existing customers, reflected in higher ARPUs and

abating the fallout of subscriber decline on overall growth.

Paying subscriber addition: Key to sustaining growth

The fall in IndiaMART’s paying customers to below-pre-pandemic level (146k in

Q1FY22 versus 147k in Q4FY20) marks a contrast to the traffic trends (up 49% over

same period) as well as business enquiries (up 40%). We attribute this to SMEs’

deteriorating financial conditions during the pandemic that axed all expenditure

even remotely discretionary. Revenues and collections have relatively held up due

to higher revenue from existing customers, which have benefitted from higher

traffic. That said, future growth hinges on the company’s ability provide a clear value

proposition to new customers. Considering IndiaMART’s strong execution track

record, we remain confident of its sailing through the current tough times.

Explore:

Outlook and valuation: Long-term story; maintain ‘BUY’

We believe the shift to online platform is an irreversible trend, and IndiaMART’s long-term story remains intact. The company’s ability to capture opportunities in the SME SaaS space will be depend on its execution and investments. The stock is trading at 45.4x FY23E. We maintain ‘BUY/SO’ with a TP of INR9,400 (65x Q3FY23E EPS).


Net Revenue 1,816 1,531 18.6 1,797 1.1

EBITDA 886 733 20.9 854 3.7

Adjusted Profit 879 741 18.6 557 57.8

Diluted EPS (INR) 28.9 25.6 12.9 18.3 57.7

36,000

39,600

43,200

46,800

50,400

54,000

2,250

3,760

5,270

6,780

8,290

9,800


INMART IN Equity Sensex

India Equity Research Internet July 23, 2021

INDIAMART RESULT UPDATE

Pranav Kshatriya Sandip Agarwal Pulkit Chawla +91 (22) 4040 7495 +91 (22) 6623 3474 [email protected] [email protected] [email protected]

Corporate access


Video






KEY DATA

Rating UNDER REVIEW Sector relative NA Price (INR) 13 12 month price target (INR) NA Market cap (INR bn/USD bn) 327/4.4 Free float/Foreign ownership (%) 10,000.0/1,115.8

What’s Changed

Target Price ⚊


Click or tap here to enter text.

Silver lining still not adequate for clarity

Yes Bank reported Q1FY22 PAT of INR2bn, after huge loses in Q4FY21. However, the situation is far from stable. Despite deposit traction, asset quality remains a problem of unknown size. Highlights: i) Deposits were flat QoQ and advances contracted 2% QoQ. ii) Though PCR is at 65%-plus, high stressed pool along with current environment does not portend an easy resolution of incremental problems.

There are initial signs of recovery, but uncertainty around build-up in stress on corporate book, selling restrictions on private banks and an uncertain operating environment preclude any meaningful assessment of business direction and residual net worth valuation. Hence, we maintain the stock ‘UNDER REVIEW’.

FINANCIALS (INR mn)

Year to March FY18A FY19A FY20A FY21A

Revenue 129623 143992 102467 107693

PPoP 77495 81349 35175 49773

Adjusted profit 42260 17203 (227150) (34622)

Diluted EPS (INR) 18.4 7.4 (18.1) (1.4)

EPS growth (%) 25.8 (59.5) nm (92.4)

RoAE (%) 0.7 1.7 (0.7) (9.4)

P/E (x) 17.7 6.5 (93.4) (12.6)

P/ABV (x) 0.1 0.1 1.0 1.2

Dividend yield (%) 20.8 15.4 0 0

PRICE PERFORMANCE

Disclosed stress pool remains high

The bank’s identified pool of stressed advances of >INR45bn forms over 20% of its book. While slippages were lower QoQ (at INR22bn, still >5% run rate), the quarter saw a sharp rise in restructured book to INR50bn (INR12bn in previous quarter, we expect this to rise further) reflecting sustained asset quality pressure points. While the bank holds ~65% provisioning on these advances, there is no excess provisioning buffer for the impact of covid-19, contrary to almost all peer banks. While all these accounts will of course not slip, they are potentially stressed and the current challenging environment only adds to these problems. On the plus side of the ledger, cash recoveries were elevated during the quarter. Continuance of the same remains crucial to better end cycle outcomes.

Signs of improvement visible

Deposits showed definite signs of stabilisation being flattish QoQ, while loan book shrunk by 2% QoQ. Margins were impacted on the back of interest income reversals on slippages, leading to a weaker operating profile. Loan book continued to move towards retail lending, now forming 53% of the book (51% in previous quarter). While some green shoots are visible, meaningful recovery will require strenuous effort, consistency and some macro tailwind. It is still a long way to go.

Explore:

Outlook and valuation: Uncertainties galore; ‘UNDER REVIEW’

Though capital raising is past, deposit accretion and asset quality are key elements to monitor, not to mention stakeholder confidence. Evolution locus over the next two–three years is very much an open question; that, in our opinion, lies more in the realm of speculation than analysis. We maintain the stock ‘UNDER REVIEW’.


Net Revenue 14,022 19,081 (26.5) 9,867 42.1

Pre-provisioning Profits 9,203 11,469 (19.8) 1,849 397.7

Reported Profits 2,068 454 355.2 (37,877) N.m.

EPS 0.1 0.0 n.a.

36,000

39,600

43,200

46,800

50,400

54,000

10

14

18

22

26

30


YES IN Equity Sensex


YES BANK RESULT UPDATE

Santanu Chakrabarti Prakhar Agarwal Parth Sanghvi +91 (22) 4342 8680 +91 (22) 6620 3076 [email protected] [email protected] [email protected]

Corporate access


Video






KEY DATA




QUICK TAKE

Ratings muted; research healthy

CRISIL's Q2CY21 sales grew 12% YoY to INR5.3bn (6% ahead of estimate) led by a 20% YoY uptick in research that offset a 5% YoY dip in ratings. EBITDA shot up 20% YoY (7% higher than estimate).

Domestic ratings is witnessing a delayed recovery. However, CRISIL is capitalising on global recovery in the research segment (65% of

revenue). Furthermore, improving corporate capex should drive a structural improvement in ratings. Hence, we are jacking up the target to 50x Q4CY22E (close to higher end, from 37x), which yields a TP of INR3,520; retain ‘BUY’. Despite the strong turnaround in research since our upgrade in Jul-20 (stock up 77%), we expect a 20% EBITDA CAGR and 800bps RoCE expansion to 46% over CY20–22E.

FINANCIALS (INR mn)

Year to December CY20A CY21E CY22E CY23E

Revenue 19,818 22,235 24,778 27,073

EBITDA 5,106 6,226 7,359 8,122

Adjusted profit 3,547 4,129 5,064 5,710

Diluted EPS (INR) 48.9 56.9 69.7 78.7

EPS growth (%) 2.7 16.4 22.6 12.8

RoAE (%) 28.6 30.3 34.2 35.0

P/E (x) 62.5 53.7 43.8 38.8

EV/EBITDA (x) 41.5 33.8 28.3 25.3

Dividend yield (%) 1.1 1.1 1.3 1.5

PRICE PERFORMANCE

Ratings: Muted domestic markets offset growth in GAC

For Q2CY21, ratings revenue dipped by 5% YoY due to a weak credit environment in

the domestic market, with issuances plunging 61% YoY, while the number of issuers

dropped sharply by 48% YoY. The Global Analytical Centre (GAC) business is believed

to have stepped up, thereby mitigating the decline in the domestic ratings business.

Segmental EBIT margin fell 305bps YoY in Q2CY21 to 38% due to softer domestic

business. We reckon an 8% revenue CAGR is sustainable over CY20–22E. New

offerings such as ESG ratings post-SEBI approval should prop up revenues further.

Research: Healthy growth and profits

Research sales shot up 20% YoY led by growth across businesses. Highlights: i) Global

Research & Risk Solutions business grew across models, traded and non-financial

risk, with an uptick from buy-side research. ii) Coalition-Greenwich saw accelerated

business momentum with CIB normalising and further aided by non-CIB offerings.

iii) India Research saw increased demand for data, capital-market insights and new

products across markets. EBIT margin rose strongly for the first time post-Greenwich

acquisition, by 543bps YoY to 22.5%, aided by cost and operational synergies.

Management expects Greenwich to scale up further in H2CY21 and break even

towards the end of CY21.

Explore:

Outlook and valuation: Well-poised on global recovery; retain ‘BUY’

We remain positive on CRISIL’s global presence with research driving profitability,

leading to an EBITDA CAGR of 20% over CY20–22E and 800bps RoCE expansion to

46%. Hence, we are raising the target to 50x Q4CY22 (close to higher end). Maintain

‘BUY’ with a revised TP of INR3,520 (INR2,261 earlier).

Financials Year to March Q2CY21 Q2CY20 % Change Q1CY21 % Change

Net Revenue 5,285 4,718 12.0 4,952 6.7

EBITDA 1,393 1,162 19.8 1,275 9.3

Adjusted Profit 1,008 663 51.9 835 20.7

Diluted EPS (INR) 14.0 9.2 51.9 11.6 20.7

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

1,650

1,950

2,250

2,550

2,850

3,150


CRISIL IN Equity Sensex

India Equity Research Credit Rating July 23, 2021

CRISIL RESULT UPDATE

Shradha Sheth Meera Midha +91 (22) 6623 3308 +91 (22) 4088 5804 [email protected] [email protected]

Corporate access


Video


https://www.edelweissresearch.com/Podcasts?Search=crisil&FromDate=&ToDate=




KEY DATA




QUICK TAKE

Balancing well; asset quality stability key

Federal Bank’s (FB) Q1FY22 PAT of INR3.7bn missed estimates on higher credit cost even as treasury income cushioned the impact. Business momentum is along expected lines—deposits rose 9% YoY and advances 7% YoY led by retail. Asset quality volatility persisted, with higher slippages and higher stress pool on the retail segment. Coverage of 65% and stable/improving SMA pool lend comfort.

Due to the second wave, we see asset quality uncertainty lingering given FB’s exposure to SMEs and lack of a contingency buffer, keeping credit cost elevated. However, FB’s limited stress baggage and healthy tier-1 (13.9%) and a sub-1x FY22E P/BV are comforting. Retain ‘BUY’ with a revised TP of INR101 (up from INR98; rollover by a quarter).

FINANCIALS (INR mn)


Revenue 65803 74786 82557 93322

PPoP 32047 37869 41689 47710

Adjusted profit 15428 15903 15621 19143

Diluted EPS (INR) 7.7 8.0 7.4 9.1

EPS growth (%) 23.6 2.9 (6.7) 22.5

RoAE (%) 11.1 10.4 9.0 9.9

P/E (x) 11.0 10.7 11.5 9.4

P/ABV (x) 1.2 1.1 1.0 0.9


PRICE PERFORMANCE

Asset quality: Predictability still some time away

Asset quality variability has been the sore point for FB for long. Slippages remain

elevated at INR6.9bn (2% run-rate), coming from SMEs and agro segment. While

overall restructured book came in at 2%, a higher proportion of stress (NPLs +

restructuring) in retail (especially housing and LAP) needs monitoring. While exit

collection efficiency has improved, the performance of: i) SMA book at ~5%; ii) SME

book; iii) restructured book; and iv) lack of any contingency buffer whatsoever will

be crucial in shaping future trends. We stand by our conservative stance and are

building in elevated credit cost given lingering uncertainty.

Core on expected lines, higher treasury income cushions profitability

As anticipated, loan growth was at 7% YoY, supported by retail segment (up 15%

YoY). Deposit traction was steady at 9% YoY growth. Meanwhile, lower NIMs (down

8bps QoQ, higher interest income reversal) restricted NII growth to sub 10% level.

Higher trading income with curtailed opex helped cushion profitability impact. We

believe improving loan growth and NIMs are key variables to improving core

momentum. With uncertainty on top management settling down, the stability in

earnings delivery will drive the valuations hereon.

Explore:

Outlook and valuation: Valuation comfort; maintain ‘BUY’

FB is around the median in our coverage universe in terms of the gap between

reported net worth and ‘true residual equity’. With uncertainty on top management

resolved, consistent earnings delivery will be key. Valuation at 1x FY22E P/BV lends

some comfort, as do improving collections. We maintain ‘BUY/SO’.


Net Revenue 20,686 17,848 15.9 18,858 9.7

Pre-provisioning Profits 11,352 9,324 21.8 8,851 28.3

Reported Profits 3,673 4,008 (8.4) 4,778 (23.1)

EPS 1.8 2.0 (8.9) 2.4 (23.1)

36,000

39,600

43,200

46,800

50,400

54,000

40

52

64

76

88

100


FB IN Equity Sensex


FEDERAL BANK RESULT UPDATE

Prakhar Agarwal Santanu Chakrabarti Vinayak Agarwal Parth Sanghvi +91 (22) 6620 3076 +91 (22) 4342 8680 +91 (22) 6620 3020 [email protected] [email protected] [email protected] [email protected]

Corporate access


Video


https://www.edelweissresearch.com/Podcasts?Search=federal&FromDate=&ToDate=




KEY DATA




QUICK TAKE

New opportunities on the horizon

IEX’s Q1FY22 results manifest a deepening spot power market driving a structural growth cycle and associated OPLEV benefits. Discoms are incrementally moving to Real Time Market; hence the opportunity size could be much bigger than earlier envisaged (18bn units/year). On the policy front, Capacity market, Integrated DAM market and Ancillary services in DSM market are a few new initiatives that could enhance

IEX’s overall PAT by 15–20%.

IEX continues to top expectations owing to a swift ramp-up of new products. We are raising FY23E EPS (thrice in last six months) by 4%. We are also tweaking down beta by 10bps to 0.8x. Retain ‘BUY’ with a revised TP of INR500 (earlier: INR418) and as a preferred pick.

FINANCIALS (INR mn)


Revenue 2,571 3,179 3,855 4,644

EBITDA 2,022 2,506 3,174 3,829

Adjusted profit 1,757 2,054 2,572 3,093

Diluted EPS (INR) 5.9 6.9 8.6 10.4

EPS growth (%) 7.8 16.8 25.2 20.2

RoAE (%) 46.4 44.9 44.5 45.3

P/E (x) 75.5 64.7 51.6 43.0

EV/EBITDA (x) 64.1 50.2 39.4 32.3

Dividend yield (%) 0.6 0.9 1.2 1.5

PRICE PERFORMANCE

Volume growth unabated; margin benefits on OPLEV

IEX clocked 43% YoY volume growth (ex-REC) on the back of a 10x surge in new

products. Traditional products (DAM and TAM) logged 10% growth. IEX continues to

sustain its strong EBITDA margin of 82.2% (400bps expansion YoY adjusted for

donation) on operating leveraging benefits. This is likely to continue. PAT at

INR628mn is 8% higher than our estimate led by higher other income. On IGX, while

the volumes are yet to gain traction, things are moving in the right direction, and we

expect critical mass from FY23 and beyond. Overall, our FY22 volume growth

forecast of 22% is realistic and takes into consideration moderation in DAM volumes

(6% dip in 9MFY22) due to a high base (9MFY21 growth at 25%).

Broadening product canvass and favourable policy key growth drivers

IEX is witnessing solid traction in recently launched products such as RTM, Cross

Border and GTAM. Over the next 6–9 months, IEX is slated to launch LDC, GDAM and

derivatives products, which present an overall opportunity of more than 50BUs.

With this, IEX will broadly cater to more than 95% of the short-term market (versus

50% a year ago). Furthermore, there are discussion papers around integrated DAM

product, capacity market and ancillary services (read concall highlights), which can

further deepen IEX’s footprint.

Explore:

Outlook and valuation: Spot market on a roll; retain ‘BUY’

The thesis we set out in IEX’s initiation – vertical/ horizontal diversification – is playing out well, but much faster than we expected. We had outlined a 2–3% market share loss for IEX in DAM due to launch of a new exchange as the key risk. The stock is trading at 43x FY23E EPS. Maintain ‘BUY’.


Net Revenue 679 606 12.1 694 (2.2)

EBITDA 481 494 (2.6) 525 (8.3)

Adjusted Profit 421 396 6.3 456 (7.7)

Diluted EPS (INR) 1.4 1.3 6.3 1.5 (7.7)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

150

210

270

330

390

450


IEX IN EQUITY Sensex

India Equity Research Power July 24, 2021

INDIAN ENERGY EXCHANGE RESULT UPDATE

Swarnim Maheshwari Manoj Kumar K V Angad Saluja +91 (22) 4040 7418 [email protected] [email protected] [email protected]

Corporate access


Video





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Aditya Narain

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First Call 26Jul21