Post Conference Notes

ELARA
INDIA
DIALOGUE 4-6 SEP 2023

2023 Trident BKC

Foreword
The Ninth Edition Ashwamedh, Elara India Dialogue 2023 showcased new insights, churned novel
thought processes and blossomed diverse ideas for the India-focused investment community. Apart
from the inputs from senior management of more than 140 corporate houses that participated, the
event also stirred macro thoughts on the impact of recent changes in China’s economy on the global
markets, the outlook on India’s consumer demand, the anticipated changes in the global
semiconductor supply chain, and the potential changes to look forward to, as Artificial Intelligence
seeps into everyday lives and businesses.

Dr Nicholas Lardy, Senior Fellow at the Peterson Institute, who flew in from the US and Alfredo
Montufar-Helu, Head of China Center for Economics and Business, who flew in from Beijing, were of
the opinion that China would not see any large stimulus and will grow at a sub-potential rate of 3.3%
over the next 15 years. However, they ruled out a “Lehman moment” as the liquidity situation of large
banks is quite comfortable. Josh Foulger, Managing Director of Bharat FIH (a Foxconn Group
company), spoke about the great manufacturing potential that India has and can capitalize on. Dr
Yuqing Xing, Professor of Economics at the National Graduate Institute For Policy Studies at Tokyo, and
Dr Douglas Fuller, Associate Professor of the Department of International Economics, Government and
Business at the Copenhagen Business School, compared India’s policies to promote local electronic
manufacturing to those of China’s in the early days of its rise as a manufacturing superpower. Pankaj
Mohindroo, Chair of India Cellular & Electronics Association, was more vocal about India’s pro-
manufacturing policies.
The panel on India’s politics was broadly in consensus that the NDA will be back in power post the
2024 General Elections, although there could be contraction in its majority. They highlighted the NDA
vote share today is in the high 30s, which is much higher than that under PM Atal Bihari Vajpayee;
hence, it is not right to draw a parallel to the 2004 General Elections, which the NDA lost. The panel
on India’s consumption habits highlighted the large growing opportunity that exists for the right
brands. They were of the view that the average Indian consumer remains value conscious at every
price point. Nissan Joseph, Chief Executive Officer of Metro Brands, pointed out the strong wave of
premiumization that is driven by increasing affordability.

The 140-plus corporate houses that participated included a mix of large-, mid- and small-cap companies
across sectors. Investor interest was across size but tilted more in favor of mid & small caps and was
broadly sector-agnostic. Across three days, we organized more than 3,600 interactions for the 140-
plus corporate houses, during more than 420 meetings involving more than 700 investment managers
and analysts.

In this compendium, we present our key learnings…

Dr Bino Pathiparampil
Head of Research

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Table of content
Dialogue
Global Economics

Curious Case of China's Economic Implosion 7

China+1

China+1: From Decoupling to Derisking to Dethroning 10

The Consumption Story

Changing Consumption Habits: An Indian Odyssey 13

Politics

India Beyond Modi: Between the Lines 17

Artificial intelligence

Minds & Machines: How to Make AI Work for India 19

Speakers
Indian Footwear: Every Step Matters

Nissan Joseph, Chief Executive Officer, Metro Brands 21

Aspiring India - Expanding the Middle Class: A Force To Recon With

Dr Rajesh Shukla, Managing Director & CEO, People Research On India's Consumer Economy (PRICE) 23

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Participating Companies
Alcobev & QSR Financials
Barbeque-Nation Hospitality 26 360 One Wam (IIFL Wealth) 83
Globus Spirits 27 Aditya Birla Sun Life AMC 84
Som Distilleries & Breweries 29 Anand Rathi Wealth 86
Tilaknagar Industries 31 Andromeda Sales & Distribution 88
United Spirits 33 AU Small Finance Bank 90
Westlife Development 35 Bank of Baroda 93
Auto & Auto Ancillaries Can Fin Homes 95
Apollo Tyres 38 City Union Bank 97
CIE Automotive India 40 CreditAccess Grameen 100
Escorts Kubota 42 DCB Bank 102
Gabriel India 44 Federal Bank 105
Greaves Cotton 45 ICICI Bank 108
Hero MotoCorp 47 IDFC First Bank 112
Mahindra & Mahindra 49 IIFL Finance 115
Minda Corporation 51 Jammu & Kashmir Bank 116
Subros 53 M&M Financial Services 119
Suprajit Engineering 55 MAS Financial Services 120
Varroc Engineering 57 Motilal Oswal Financial Services 122
Building Material Nippon Life India Asset Management 124
Ambuja Cements 59 Piramal Enterprises 126
Cera Sanitaryware 60 Satin Creditcare Network 128
Nuvoco Vistas Corporation 62 Shriram Transport Finance Company 130
Prince Pipes and Fittings 63 State Bank of India 132
Chemicals, Agro Chemicals & Sugar Sundaram Finance 135
Balrampur Chini Mills 66 Suryoday Small Finance Bank 137
Bayer CropScience 67 FMCG
Gujarat Fluorochemicals 68 Prataap Snacks 140
Rallis India 69 Tata Consumer Products 142
Sumitomo Chemical 70 Healthcare
UPL 71 Apollo Hospitals 145
Yasho Industries 72 Aster DM Healthcare 146
Consumer Durable Eris Lifesciences 147
Kaynes Technology India 74 Fortis Healthcare 148
Polycab India 76 Gland Pharma 149
StoveKraft 77 Indoco Remedies 151
V-Guard Industries 79 J.B. Chemicals and Pharmaceuticals 152
Voltas 81 Marksans Pharma 153
Shalby 154
Sun Pharmaceutical 155
Thyrocare Technologies 156

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Hotels & Real Estate Media
Chalet Hotels 158 Cineline India 197
Macrotech Developers 159 D B Corp 199
Mahindra Lifespace Developers 160 Sun TV Network 201
The Phoenix Mills 161 Tips Industries 202
Infrastructure & Logistics Metals & Mining
Adani Ports and Special Economic Zone 163 Hindalco Industries 205
Ashoka Buildcon 164 Jindal Saw 206
GATI 165 Jindal Stainless 207
Great Eastern Shipping 166 Jindal Steel & Power 208
Hindustan Construction Company 167 JSW Steel 209
Larsen & Toubro 168 Maharashtra Seamless 210
Patel Engineering 169 Welspun Corp 211
PSP Projects 170 Oil & Gas
RHI Magnesita India 171 Deep Industries 213
Transport Corporation of India 172 GAIL India 214
VRL Logistics 173 Indraprastha Gas 215
IT Services, Internet, Staffing & Telecom Mahanagar Gas 216
Affle India 175 Oil India 217
Coforge 177 Power, Capital Goods & Railways
Eclerx Services 179 Inox Wind 219
Himachal Futuristic Communication 180 KEI Industries 220
Intellect Design Arena 182 NHPC 222
KPIT Technologies 183 Rites 223
Newgen Software Technologies 185 Tata Power 224
NIIT Learning Systems 187 Voltamp Transformers 225
Persistent Systems 189 Retail & Textile
Quess Corp 190 Arvind 228
Tata Communications 191 Dollar Industries 229
Tata Consultancy Services 192 Grasim Industries 231
Teamlease Services 193 Indo Count Industries 233
Tech Mahindra 194 Kalyan Jewellers India 234
Zensar Technologies 195 Siyaram Silk Mills 235
S.P. Apparels 237
Welspun India 239

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Global Economics

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 ELARA INDIA DIALOGUE 2023
Dialogue #1 : Curious Case of China's Economic
Implosion
▪ Present macroeconomic conditions in China: Recovery remains patchy post COVID in China
and confidence, especially among consumers, is weak. Policy shifts are affecting the outlook
of multinationals. Ongoing property downturn is a main drag on China’s economy and it
remains an important aspect of its economy:30% of GDP and 70% of household assets are
invested in property. Global growth slowdown is adding a downward pressure on China’s
economy amid the geopolitics. Producer prices are contracting since October 2022. China’s
Alfredo government has been stepping up the release of stimulus and new policies but the impact
Montufar-Helu on demand has been poor as confidence remains weak. The geopolitical environment
Head of China Center
for Economics and
remains challenging. And China’s government is convinced the US-led restrictions on high
Business, The tech exports and forging of local alliances will not see a pullback any time soon as China
Conference Board
remains assertive as well
▪ Potential growth: China will be growing at a sub-potential of 3.3% over the next 15 years’
base case. The upside reforms scenario would lead to one-fifth higher than the base case.
The retirement age in China, if raised from 54 years, would offset the shrinkage of the labor
force. Accelerate growth of human capital is set to reach levels of Advanced Economies
and improve productivity of State firms to the level of private companies
Dr Nicholas
Lardy ▪ Recent green shoots in China: Value add of electrical equipment, specialized machinery
Non-Resident Senior and automotive has been increasing even in the first seven months and output for major
Fellow
Peterson Institute
manufacturers in China remains above pre-COVID levels. Current market demand is
gradually improving, and opportunity will expand or sustain for the next five years. The
government is trying to revive the private sector, the rectification campaign of platform
companies is over and profit of these companies has begun to rise; income growth,
including wages, interest rates and property sector earnings have been higher than
nominal growth, exports in volume terms are growing although in value terms falling, and
pressure on offshore listings has been eased
▪ Role of the private sector is critical: Private sector investment during 1980-2011 with private
investment at 2.6x vs government investment. But during 2020-23, private investment has
slowed and growing at a mere 0.5x of the private sector. Private sector’s contribution has
risen significantly in China at 0.2% of the urban labor force in 1978. Around 95% of the
urban labor force growth came from the private sector. China’s period of rapid growth was
all led by the private sector. Private sector growth has eased off lately: access to finance fell
during the pandemic, the crackdown of platform companies worsened their revenue
outlook, offshore market tightened, property sector investment sank, and ideological
changes have become unpleasant for the private sector; hence, it is important for the
private sector to revive. To date, the first half private investment has shrunk 0.2%
▪ China remains critical market for MNC; do not see them exiting: China continues to provide
huge potential for global demand and has 890mn economically active people. Hence, MNC
remain more patient, although they are not investing incrementally. A few markets provide
a viable alternative; hence, the shift in supply chains is costly and not as easy as we had
assumed

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ELARA INDIA DIALOGUE 2023
▪ Bolstering consumption, a long-drawn process and difficult in the near term: China’s
consumption share remains 37-38% of GDP vs global average of 60%. The oil development
model has put pressure on China’s consumption demand. Unequal wealth distribution and
lack of social security net make the transition to consumption difficult. Precautionary
savings remain critical amid weak confidence and slackening contribution of the wealth
effect through the property market
▪ Improving technology-led productivity growth remains weak: The tech war with China and
restrictions on tech transfer & exports to China by the US are likely to lead to gaps,
especially in advanced scale semiconductors. The shrinking labor force adds pressure to
accelerated productivity through technology. China is facing a development paradigm:
transition into high value-add economy at the same time increase resilience in a volatile
world environment
▪ Xi’s thought is guiding principle for the CCP and government policies: Xi Jinping is stronger
than ever; hence, the following three aspects will drive the policy of China: dual circulation
& common prosperity, technological independence, and focus on national security & self-
reliance. This is disrupting China’s business landscape. MNC need to be agile and build
resilience against a disruptive environment present in China. Growth and profitability
assumptions will need a rethink for all MNC which have operated in China
▪ Why would China not see any large stimulus? Managing debt is its No 1 priority. During
CY16-17, it reached debt at 300% of GDP; since then, growth of debt has hit a plateau. The
stimulus program at this time would put it at risk of more financial bubble, especially led by
the property sector’s unsustainable leverage. Demand-side reforms take time to work and
that means short-term spurt would not be advisable
▪ When will China’s consumption share rise? It will rise gradually because households have
huge debt and repayment of these loans takes up ~20% of disposable income, which goes
into paying off mortgage debt
▪ Can China achieve tech independence? Semiconductor is a difficult industry and it has
choke points as the US has put restrictions on advanced chip manufacturing machinery
too, which is concentrated in a handful of countries. It may dominate however in other
aspects of high tech, for eg, automation, robotics, supercomputing and AI
▪ Can China have a Lehman moment in the property sector? This is not likely to happen.
Conditions of a Lehman movement were different. China’s banking system does not have
liquidity challenges like the US banks did. In China, households have significant equity and
all mortgage loans in China are recourse loans; hence lenders can confiscate other assets.
Investment in property today is at the same pace, which was in CY19, although housing
starts have collapsed. Pre-sold projects are being completed

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China+1

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 ELARA INDIA DIALOGUE 2023
Dialogue #2: China+1 From Decoupling to Derisking
to Dethroning
Global manufacturing hub. What defines China’s success in electronics?
▪ China’s exports spike was largely led by its inclusion in the global value chains (GVC). The
government established the processing trade regime in 1980 as a unilateral trade policy,
allowing duty-free imports for exports, allowing processing exports growth to accelerate.
Processing exports accounted ~5% of China’s total exports in 1980, which grew to 50% in
CY10
Dr Yuqing Xing
Professor Of Economics ▪ Brands, such as Xiaomi, Oppo and Vivo, led to robust growth in China’s mobile
National Graduate
Institute For Policy manufacturing industry as it allowed brand development and product design ownership,
Studies (Grips), Tokyo
thereby higher value addition. Starting small value addition also makes sense as it allows
huge exports value cumulatively
▪ The India story: India has huge potential to become a global manufacturing hub due
favorable demographics (average age of the population at 28), a low wage rate, and
geopolitics, which is favoring diversification of supply chains
China is not a big player in wafer fabrication equipment sector
Dr Douglas Fuller
Associate Professor ▪ Led by higher government subsidies from the EU, the US, Taiwan & Japan and tech export
Department of
International Economics, restrictions, China’s incremental share is expected to be lower in this space and mostly in
Government and
Business non-critical & semi-critical equipment. China is the weakest in the lithography segment
Copenhagen Business
School ▪ China’s acceptability is limited as semiconductors require stability, precision and reliability is
under question. The US tech export sanctions on China are likely to limit its progress as
under the US Chips Act, no US company can set up manufacturing in a third country and
export to China unless 95% of sales are consumed in China, blunting China’s ability to use it
as a geopolitical tool
▪ India’s semiconductor value chain will take 8-10 years to develop and India should act
Pankaj Mohindroo patiently as subsidies in the West are likely to be one-off. Design and fabrication are two
Chairman
India Cellular &
high value-add segments in the WEF value chain, and India is likely to take lead in design
Electronics Association
India’s EMS industry to see robust growth in the coming years
▪ India’s electronic manufacturing services (EMS) industry grew 300% in the past six years,
and it could grow by another 300% in the next six years
▪ The current value addition in mobile phone manufacturing segment in India has reached
18-20% vs China’s 40%
Konark Bhandari ▪ The domestic EMS industry is trying to achieve growth across all electronic categories:
Research Fellow & Leader
Technology & Society mobile phones, IT hardware, and consumer durables. IT hardware PLI is one of the best PLI
Program Carnegie India schemes, as it encourages sub-assembly module-level production as well
▪ Ideally, the Africa Union and the Middle East would be the best target markets for India,
given near-shoring

AK Bhattacharya
Editorial Director
Business Standard

10
ELARA INDIA DIALOGUE 2023
Despite a long journey, India starts to move toward the semiconductor direction
▪ In June 2023, US-based Micron Technology has announced investments worth USD 825mn
toward setting up semiconductor assembly and testing facility in India. Along with GoI’s
additional financial support, total investment outlay would to USD 2.8bn
▪ Micron's capex commitment toward domestic semiconductor value chain is a testament for
India's favorable location in terms of resources and policy direction
▪ Currently, India is only engaged in chip designing services. Ideally, given the expertise, India
should begin to migrate from being design services companies

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11
The Consumption Story

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 ELARA INDIA DIALOGUE 2023
Dialogue #3 : Changing Consumption Habits - An
Indian Odyssey
Ravi Kapoor – Partner and Leader, Retail & Consumer, PwC India
▪ Demand drivers: Factors influencing demand include per capita income, formalization,
female participation in the workforce, asset penetration across India, urbanization, and the
nuclearization of families.
▪ India's consumer income pyramid is anticipated to become top-heavy as the demand
Rama Bijapurkar drivers mentioned above shape up. The number of households, which constitute as rich
Author & Thought
(income >INR 3mn) population, may increase from 56mn in 2020-21 to 169mn in 2030-31
Leader On Indian and 437mn in 2046-47. And the middle-class (income between INR 0.5mn to INR 3mn) may
Consumer Behaviour
expand significantly from 432mn in 2020-21 to 715mn in 2030-31 and 1,015mn in 2046-
47, resulting in a wealthier country.
▪ Demand demographics: Population growth in northern and central cities is experiencing
double-digit growth, while GDP per capita has been on the rise in South and West India.
Uttar Pradesh (UP) contributes 17% of the population but holds only 9% of industrial jobs.
Six states, including five Southern states and Gujarat, collectively hold just 28% of the
Harish Bhat country's population, yet host >50% of all factory jobs in India.
Brand Custodian - Tata
Sons Chairman - Tata
Coffee
▪ India's consumption break-down: In 2022, private consumption accounted for 60% of GDP,
equivalent to USD 1,900bn. Non-retail spending amounted to USD 1,000bn, while the
remaining USD 900bn is attributed to food and grocery (USD 600bn) and non-food retail
(USD 300bn). Retail consumption is set to rise to USD 1,224bn in 2027, attributed to food
and grocery (USD 801bn) and non-food retail (USD 423bn) in 2027.
▪ Increasing disposable income trend: Consumption in the economy is growing on the back
of increasing disposable incomes, rising working population and urbanization. The per
Rajesh Jejurikar
capita income has increased from USD 1,753 in FY19 to USD 2,450 in FY23, indicating an
Executive Director & CEO
(AUTO & FARM), increase in disposable incomes. There is a noticeable increase in the participation of women
Mahindra & Mahindra
in the formal work environment, particularly in the retail industry, making a substantial
contribution to employment. Moreover, the rural-urban split is expected to become 50:50
by 2027.
▪ Consumer durables penetration in middle-class households: In middle-class households
(income within INR 0.5-3mn), the penetration rates for various consumer durables are as
follows: Ceiling fans have a remarkable penetration rate of 97%, color televisions have 93%,
Ravi Kapoor refrigerators 71%, two-wheelers 70%, cars 30%, and air conditioners 7%.
Partner and Leader, Retail
& Consumer, PWC India ▪ Taxation: Tax, as a percentage of GDP, is 7% in India, significantly lower than that in other
developed nations, where it typically constitutes one-third of the GDP. The number of
income tax filers have risen from 40mn in FY15 to 63mn in FY21, still constituting only 1%
of the total population.
▪ Infrastructure: Investments in road reconstruction and increased electricity consumption
have contributed to economic development.
Sanjeev Srivastav
F&B consultant, (Former
Sales Director, Bel)

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ELARA INDIA DIALOGUE 2023
▪ Performance concentration: The consumer FMCG sector, representing 52% of the turnover,
is significantly reliant on the performance of just seven out of 49 companies. Similarly, the
food processing sector, comprising 47% of the turnover, is driven by the performance of
three out of 28 companies. In the consumer durable sector, which constitutes 72% of the
turnover, six out of 31 companies play a major role in driving the industry's performance.
▪ Consumer behavior: Current consumer trends include trading down, exploring various
shopping avenues, seeking familiarity, being brand-conscious, demanding sustainability,
and affordability. Additionally, 63% consumers have changed their non-essential spending
based on the current economic climate, while 20% of the consumers have curtailed
unnecessary expenditures.
Rajesh Jejurikar – Executive Director and CEO (Auto and Farm), Mahindra & Mahindra
▪ SUVs: The consumption of SUVs has been driven by aspiration and desire to be out and
about, a trend that was triggered during COVID-19. SUVs contribute significantly,
accounting for 55% of the total passenger vehicle (PV) market. The SUV700 model,
equipped with numerous tech features, has gained popularity, especially among
consumers with a budget beyond INR 27lakhs. This is indicative of strong demand from
consumers seeking maximum value for their investment and being willing to spend
accordingly.
▪ Price point dynamics: Vehicles priced below INR 10lakhs tend to be more volatile in terms
of demand, influenced by economic conditions, income levels, and other factors. In
contrast, cars priced at INR 15lakhs and above are less susceptible to market fluctuations, as
consumers in this segment seek value for money.
▪ Tractors: In rural India, where tractor consumption is high, it is important to note that
tractors are acquired by rural households for various income sources, of which agriculture is
just a component. Tractors have a broad market appeal, and their sale is not limited to the
affluent demographic.
▪ Electric vehicles (EVs): There has been significant penetration in the electric vehicle market,
with 7-8% of sales attributed to women drivers, particularly in the three-wheeler EV
segment.
▪ Consumer behavior: Middle-income categories and salaried class individuals are more likely
to postpone vehicle purchases, showing sensitivity to economic conditions and personal
finances.
▪ EV adoption trends: Two noteworthy trends in the EV market include the expectation that
shared mobility solutions may drive EV penetration. In personal use, the adoption of mid-
level EVs priced within INR 15-20lakhs may take more time to gain traction. Additionally,
the younger generation's upper 20% segment is more sustainability-oriented but still
depends on charging infrastructure development.
▪ Consumer buying proposition: Indian consumers seek the best value at the best price and
are generally averse to overpaying, making a strong case for providing competitive and
cost-effective offerings in the market.

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ELARA INDIA DIALOGUE 2023
Harish Bhat, Brand Custodian, Tata Sons
▪ Consumption trends: Across various sectors, significant movement of households into the
middle-class and affluent categories is driving consumption. Consumers are increasingly
willing to pay for experiences, reflecting a growing appetite for unique and enriching
experiences.
▪ Shift to organized retail: The shift from unorganized to organized retail is a prominent
trend, and it has been catalyzed by various factors, including demonetization, the
implementation of the Goods and Services Tax (GST), and the impact of the pandemic.
▪ Retail sector recovery: Demand has rebounded across all retail categories and has
stabilized, indicating a recovery in consumer spending.
▪ Preference for healthier products: Consumers are showing a preference for healthier
products, with items such as Bajra and Ragi gaining popularity episodically. This trend is
also reflected in the allocation of shelf space in stores.
▪ Tier II towns: In tier II towns, supermarkets are dedicating sections to organic food products,
reflecting a growing interest in healthier and more sustainable food choices. For instance,
Makhana is emerging as an alternative to traditional potato chips.
▪ Younger generation and sustainability: The younger generation places a high priority on
sustainability in their purchasing decisions, emphasizing the importance of environmentally
friendly and socially responsible products.
▪ Consumption versus supply: Consumption is outpacing supply in the market, indicating a
strong demand for products and services.
▪ Brand evolution: Brands must be built around ideas and should be adaptable and evolving
to remain relevant in a dynamic market. The ability to continually revolve around consumer
preferences and changing trends is essential for long-term brand success.
Sanjeev Srivastava – F&B Consultant
▪ F&B supply challenges: The Food and Beverage (F&B) industry faces notable challenges on
the supply side. Meeting demand in a timely manner has become a significant concern.
▪ Focus on health and wellness: There has been a noticeable increase in awareness
regarding health and wellness, which has become a primary motivator for consumers in
their food and beverage choices.
▪ Product development timeframe: Developing new F&B products now requires more time
and attention to understand consumer needs, leading to a longer product development
cycle.
▪ Direct-to-consumer (D2C) market: The direct-to-consumer (D2C) market is not expected to
become excessively large, and is projected to represent ~4-5% of the total market.
▪ Consumption versus supply: Consumption levels are currently outpacing supply, and
inflationary pressures are being driven by supply constraints within the economy.
▪ Bottom of the pyramid (BOP) impact: The lower-income segments, often referred to as the
Bottom of the pyramid (BOP), are experiencing challenges in consumption. Economic stress
has led to the postponement of many discretionary purchases and replacement cycles, as
evident in segments such as the two-wheeler industry.
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15
Politics

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 ELARA INDIA DIALOGUE 2023
Dialogue #4: India Beyond Modi – Between the Lines

▪ Does Modi face no contest and is it the TINA factor? The BJP seems well poised in states
such as Assam, Uttar Pradesh and Gujarat – These three states may yield Modi the edge.
But to believe that there is no alternative (TINA) or contest is simplistic. Earlier, in 2015-16,
the BJP witnessed a complete dominance, posting successive state election wins. The
scenario, however, has changed after 2017-2018. For most state elections held after 2019,
a change has been visible – earlier, BJP-ruled states accounted for 72% of the population,
Aditi Phadnis which has now pared to 44%. The voting preference has changed, especially at the state
Political Editor, Business level. In 2014, the BJP amassed 31% of the vote share versus 37.6% in 2019. YTDCY23, the
Standard
BJP is seemingly holding on to its vote share of 36-38%.
▪ 2024 outcome: The BJP may not be able to reach its ambitious target of 405 seats
(Congress’ peak point) and retaining 303 seats also seems difficult. Many believe that the
BJP would reach 260-270 level, which seems the base case – 350 seats have been the last-
known seat projection by the BJP. Pre-2004, the Congress saw a much larger support base.
Congress had a 28% vote share, which has pared to only 19% today. Prior, the Congress in
Dr Manisha Priyam coalition was a ruling party in 16-17 states versus 10-11 states, at present. Modi’s popularity
Professor, Education
Policy, NIEPA is intact and his popularity rating is 44-45%. Vajpayee’s popularity, at its peak, was 36%.
Modi’s ability to garner votes for the BJP is much higher than Vajpayee’s. Modi contributes
33 of every 100 votes BJP gets.
▪ Opposition more cemented? The opposition continues to be divided even under I.N.D.I.A.
But intense discussions have started in all the states. The people of India have started
discussing grass-root issues. Modi is one of the vast bouquet of Chief Ministers that can
emerge capable to lead India.
Sanjay Kumar
Professor & Co-Director, ▪ Freebie culture: India is of the view that promises do not matter, rather delivery does. But
LOKNITI, a Research
Programme at CSDS regional parties do not derive their strength from the Revadi (freebie) culture. Rather, the
strength, at its core, draws from local and regional aspirations. Regional parties have a
strong support in OBCs. And national parties have proportionately lesser OBC support.
Also, despite BJP criticizing the freebie culture, the central government did offer INR
200/cylinder subsidy.
▪ Is India really shining? There can be no denying the fact that on ground, India in some
Smita Sharma
parts is indeed disenchanted with the BJP.
Independent Journalist
and Visiting Faculty,
▪ Rural voice: The BJP’s support base has expanded significantly in rural India. Rural voters do
Kautilya School of Public not switch loyalty easily as against urban voters who swing significantly. The BJP, hence,
Policy
may remain a dominant party in many years to come, in rural India. Last-mile delivery of
services has been an advantage for BJP. Schemes continue to be delivered but it is difficult
to say whether these schemes may be the reason for gleaning votes for the BJP.
▪ Polarization, important in elections: Clear distinction based on religion has been aptly visible
during the Modi regime. it will continue to play a critical role in upcoming national elections

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17
Artificial Intelligence

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 ELARA INDIA DIALOGUE 2023
Dialogue #5 : Minds & Machines – How to Make AI
Work for India
AI – Benefits and uniqueness
Artificial Intelligence’s (AI's) journey predates the emergence of generative AI in December
2022. AI offers 5x effectiveness and efficiency benefits. Combining RPA (Robotic Process
Automation) and AI creates new opportunities for industries. And AI causes compute costs to
decrease, making data and connectivity more accessible. Generative AI's impact on business
includes productivity gains, pricing pressure, SaaS substitution, and workflow insourcing. Within
Sangeeta Gupta the IT services universe, generative AI increases code generation speed by 35-45% and code
Senior VP & Chief documentation by 40-45%. AI is unique from other technologies in the way that it is accessible
Strategy Officer, Nasscom to the end user, and not just to tech experts and enterprises, thus democratizing technology.
IT services – Net impact positive; abundant new opportunities
Concerns abound on AI having an overall negative impact on the IT industry. Similar concerns
were raised when RPA was introduced, but those did not materialize. Though there will be
some deflationary impact in the short term, long-term, net impact on IT services may be positive.
AI may help increase the share of IT in client revenues, especially for banks. GenAI may
Hasit Trivedi enhance productivity in high-end work, such as Life Sciences and Healthcare.
Global Head – AI Tech
Mahindra AI impact – 20-30-40-80 proposition
AI has a multi-faceted impact on revenue and cost across industries, summarized by the 20-30-
40-80 rule. AI may augment the below-stated parameters in following proportions: 1) 20% fillip
to industry growth, 2) 30% improvement in delivery productivity, 3) 40% improvement in SG&A
productivity and 4) 80% improvement in customer satisfaction. Overall, generative AI may lead
to a 7% (USD 7tn) rise in global GDP and a 1.5% productivity growth over a decade.

Akhilesh Ayer Generative AI (gAI) may disrupt creator economy

EVP & Global BU Head,
WNS Triange (Data, A major use case of generative AI is in the creator economy. AI is aiding creation of codes,
Analytics, AI & Research
Unit) WNS Global causing disruption for IT services. And creation of content is disrupting the media industry, with
creation of response disrupting customer feedback.
India’s AI landscape
▪ India currently has 120 AI start-ups though they are much smaller in size and not
comparable with the scale of OpenAI.
▪ Government bodies such as NASSCOM are shaping AI policies.
genAI – Drawbacks
▪ Generative AI has inherent problems, including reliance on past data, large carbon
footprint, high cost of servers, cloud and ASIC chips, fairness, hallucinations, and bias based
on data sets used for training large language models (LLMs). A solution for the high cost of
LLMs could be creating industry-specific LLMs that are more cost-effective and require
smaller training datasets

Click here for the video link

19
Speakers

20
 ELARA INDIA DIALOGUE 2023
SPEAKER#1 : Indian Footwear – Every Step Matters

Consumer purchasing trend continues to shift to premiumization

▪ Shifting demographics: Increasing number of middle-class consumers with higher
disposable incomes is driving demand for premium products.
▪ Increased awareness: Consumers are more aware than ever and are willing to pay for
quality.
Nissan Joseph ▪ Brand loyalty: Consumers are likely to stick to the brand they trust even when buying
Chief Executive Officer premium products.
Metro Brands
▪ Other factors driving growth of premium products include aspiration for luxury lifestyle,
willingness to pay for health-wellness and artisanal products.
▪ Challenges faced in the premiumization journey in the Indian context are mainly price
sensitivity, competition, logistics and consumer awareness.
▪ Premiumization drive is likely to aid industry by providing opportunity in the form of
growth, innovation and brand differentiation.
Recent hot trends corroborate premiumization drive
▪ Last year, Indians consumed 65.7mn liters of premium imported scotch, which is 2x
growth from 2020 levels. Japanese whiskey consumption was up 5x, whereas
American whiskey consumption rose 3x.
▪ In the first five months of the current year, TV sales are already up 13% YoY, of which
65 inch TV sales were up 37%. Big screens are today 12% of the total market (only 5%
pre-Covid).
▪ Moore’s law is playing out in India, with prices correcting with improving technology.
▪ A growing number of Indian car buyers are opting for bigger, feature-packed vehicles,
marking a shift in what was predominantly a cost-conscious market. For most mass-
market car makers, >50% of sales are now in the price range above INR 1 mn.
▪ Average household income is expected to increase 1.4x in 2019-2030, indicating
consumer affluence.
▪ Tier II/III cities continue to remain hot beds for Indian retailers to expand their reach.
Footwear industry dynamics
▪ Organized footwear penetration is expected to reach 38% in FY25.
▪ Mass segment contribution is expected to reduce to 51% from 62% in FY15, indicating
increase in the share of economy to premium segment.
▪ Unlike other markets where women consume more footwear, the Indian market
continues to be dominated by men, with 60% share in FY15. Women’s market is
expected to grow at a rapid pace going forward with higher working women,
increased purchases related to occasions, nuclearization and higher household
disposable incomes.

21
ELARA INDIA DIALOGUE 2023
Metro Brands – Journey
▪ Story so far…

▪ Metro Brands is India’s largest, most-admired, and respected footwear retailer, since
1947.

▪ The IPO was listed in Dec-2021. The market cap is ~USD 3bn.

▪ Metro Brands operates 566 multi-brand, and 225 mono-brand stores for Crocs, Fila, and
FitFlop in 182 cities.

▪ Metro Brands has a completely integrated omnichannel presence with fulfilment

enabled from 170+ stores and strong online penetration, including six of India’s major
marketplaces.

▪ Metro Brands is present in India’s best malls, high streets, and leading airports. It is the
exclusive distributors of Fila, Vans and FitFlop in India.
▪ Triggers ahead

▪ Metro Brands is increasing its presence in tier II/III cities – 41% of current 766 stores is in
tier II/III cities. This number was ~33% in FY20. It targets to open 200 stores in the next
two years, inclining more towards lower tier cities.

▪ Metro Brands is pivoting from traditional offline to an omni channel player. It manages
its own seven brand websites and is available on all leading e-commerce marketplaces.
It aims to leverage existing capabilities to expand e-commerce operations and become
a digitally relevant brand.

▪ Metro Brands is seeing growth in allied accessories, shoe care and foot care.

▪ Metro Brands will seek inorganic opportunities based on targeted returns, scale of
operations and diversification.

Click here for the video link

22
 ELARA INDIA DIALOGUE 2023
Speaker #2 : Aspiring India – Expanding the Middle
Class: A Force To Reckon With
Indian consumer economy – Emerging trends and transformations by 2047
▪ Rapid growth in the middle-class: India is poised to witness a substantial increase in its middle-
class segment, with expectations of surpassing a billion individuals by 2047, up from 432mn
in 2021. This burgeoning middle class is expanding at a remarkable rate of 6.3% per year,
constituting 31% of the population in 2021, and projected to reach 47% by 2031, and further
grow to 61% by 2047.
Dr Rajesh
Shukla ▪ Changing income dynamics: The number of middle-class households has surged from 30mn
Managing Director & in 2005 to 91mn in 2020. This upward trend is anticipated to continue, with an expected
CEO expansion to 165mn by 2031. Concurrently, the rich class (income >INR 3mn) is set to
People Research On increase from 11mn households in 2020 to 35mn in 2031. This growth will result in a
India's Consumer
Economy (PRICE) significant reduction in the aspirer (income between INR 0.125–0.5mn) and destitute
(income <INR 0.125mn) classes.
▪ Economic transformation: The addition of 100mn households to the middle class (75mn) and
rich segments (25mn) is forecasted. Furthermore, the middle class is expected to drive 55%
of incremental consumption between FY21 and FY31.
Regional and income disparities
▪ Income disparity among states: States such as Gujarat and the five Southern states boast
higher income levels, with middle-class and rich populations accounting for 38% and 6%,
respectively. In contrast, the national average stands at 30% for the middle class and 3% for
the rich. Low-income states, primarily in the central and Hindi belt regions, are characterized
by aspirers forming 56% of the population, with 21% being middle class and ~1% being rich.
These disparities highlight significant variations in income distribution among high, middle,
and low-income states.
▪ Urbanization Impact: The level of urbanization plays a pivotal role in a state's income level.
Low-income states have ~78% of households in rural areas, while middle-income and high-
income states have 56% and 47%, respectively. High-income states have a significantly higher
proportion of the population residing in metropolitan areas, accounting for 20% of the total
households.
Spending patterns and consumption
▪ Household spending differences: Average annual household spending for aspirers is INR
2,58,000, while for the middle class is INR 6,86,000. Middle-class households tend to spend
2.2x more on food and 3.5x more on non-food items compared with aspirers. Certain
categories exhibit even more substantial differences, such as apparel, footwear, and
accessories (4.5x), consumer durables (4.3x), and entertainment and recreation (4.3x).
▪ Middle-class and rich contributions: Middle-class and rich households have steadily increased
their contributions to India's disposable income and consumption. By 2031, it is anticipated
that ~84% of the income may be contributed by middle-class and rich households, while
~78% of consumption expenditure may be driven by these segments.
▪ Societal shift: India is undergoing a significant societal shift, transitioning from aspirer
households towards a predominantly middle-class household society. This transition is
expected to have a profound impact on consumption spending across various categories.
Click here for the video link

23
Company Section

24
Alcobev & QSR

25
Represented by:
Rahul Agarwal, CEO Barbeque Nation (Not Rated)
Bijay Sharma
IR & Business Expansion Bloomberg Code: BARBEQUE IN, Market Cap: INR 278bn, CMP: INR 712 (as on 8 September 2023)

Executive digest: Founded in 2006, Barbeque Nation (BARBEQUE IN) pioneered the concept of “over-the-table
barbeque” live grills embedded in dining tables, allowing guests to grill their own barbecue’s right at
their tables. The company currently owns and operates 212 outlets with 190 in India and seven
internationally coupled with 15 Toscano outlets, its Italian restaurant offering.

Investor insight: ▪ EBITDA margin of 14.7% in Q1FY24 has been the lowest in recent quarters, but there are signs
that margin is bottoming now and will expand hereafter

▪ The company targets an EBITDA margin of 14-16% in FY24

▪ The international business delivers an EBITDA margin of ~20%

▪ BARBEQUE has kept further expansion plans on hold for a few quarters as current restaurants are
not operating at full capacity, owing to demand slowdown

▪ Dearth of new restaurants is not the challenge with the ongoing sluggish performance being
attributed to weakness in demand

▪ In Q1FY24, it reported an average daily sales (ADS) of INR 65mn, down 7% YoY
▪ Pricing is a challenging lever to utilize. But if it has to decrease prices across the menu, it will be
more feasible to cut prices in a large city like Mumbai vs a smaller city since sales will rise to a greater
degree in the former vs the latter

▪ Whenever price cuts are undertaken, the dine in-to-delivery ratio expands. Furthermore, sales
growth of 10% results in a 5% rise in EBITDA (pre-IndAS)
▪ On average, the bill in a Tier 1 and metro city comes to ~INR 4,000 for a family of four whereas, in
a Tier 2 & 3 cities, the same order would come to ~INR 2,800

▪ Cash payments in restaurants have come off to 16% of all payments vs 35% a few years ago.
Currently, 45-50% of all transactions are completed via credit card

▪ In the Toscano business, a different team manages the division from the BARBEQUE one

▪ Prospects of growing Toscano are favorable as Italian cuisine is easier to prepare and there exists
huge headroom for growth in the country. The company is focused on growing this division in a
steady manner.
Analyst annotations: BARBEQUE revenue grew 3% YoY to INR 3,239mn in Q1FY24, led by 1.3% YoY increase in dine-in
business, while SSSG declined 7.7% YoY, primarily due to prevailing subdued demand scenario. Overall
EBITDA (pre-IndAS) stood at INR 188mn whereas EBITDA margin was at 5.8%, down 880bp YoY.
BARBEQUE reported a loss of INR 40.5mn in Q1FY24, down 125% YoY, led by a decline in operating
profit, down 74% YoY, with lower Other income, down 70% YoY, and higher depreciation expenses
and higher finance cost of 7% YoY each. The company added four new restaurants and closed eight,
taking the total owned restaurant network to 212 as on June 2023.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 8,470 14.6 1,642 19.4 (324) (15.6) (11.8) (47.1) 5.0 (60.5) 16.7
FY21 5,071 (40.1) 464 9.1 (905) 179.3 (31.0) (72.4) (4.3) (23.0) 59.3
FY22 8,606 69.7 1,337 15.5 (256) (71.7) (6.7) (8.1) 2.3 (106.4) 40.9
FY23 12,338 43.4 2,306 18.7 170 (166.5) 4.3 4.3 6.9 144.9 13.5

Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

26
Represented by:
Nilanjan Sarkar, CFO Globus Spirits (Not Rated)
Bloomberg Code: GBSL IN, Market Cap: INR 265.8bn, CMP: INR 901.5 (as on 8 September 2023)

Executive digest: Globus Spirits (GBSL IN) is engaged in the business of manufacturing, marketing, and the sale of
branded Indian Made Foreign Liquor (IMFL), Indian Made India Liquor (IMIL), and bulk alcohol
comprising rectified spirit and extra neural alcohol (ENA). It also engages in franchisee bottling to cater
to renowned brand owners. GBSL operates five modern and fully integrated grain-based distilleries at
Behror in Rajasthan, Samalkha in Haryana, Panagarh in West Bengal, Vaishali in Bihar, and Baharagora
in Jharkhand, with combined capacity of 268mn liters pa.

Investor insight: ▪ Food Corporation of India (FCI) has temporarily restricted the supply of rice for manufacturing
ethanol, owing to which GBSL faced a disruption in its West Bengal and Jharkhand plants. As a
result, rice grain prices have shot up from INR 21 to INR 26

▪ Margin has been hit temporarily but the company believes it is in a favourable position to
withstand the drop as it is a seasonal fluctuation in margin

▪ Margin is expected to rise again once the crop season resumes at end-Q2. Margin improvement is
expected to materialize from Q3FY24

▪ A price hike in ethanol has been undertaken in two tranches, from INR 55/liter to INR 64/liter

▪ The company has begun procuring maize for its ethanol production, thereby having a mix of rice
and maize in the production process

▪ ENA price realization has increased, and GBSL is not going to sell ENA at a price lower than ethanol
at INR 63/liter
▪ In the consumer division, the value segment continues to deliver strong performance with 950,000
cases being sold
▪ IMFL sales is expected to double for GBSL in FY24

▪ Greenfield capex in the Bengal and Jharkhand plants, which will take ethanol production to 60
KLPD each is nearly complete. Production at the Jharkhand plant will resume by mid-September.
An investment of INR 750-800mn was made in the new plants

▪ For any new capex, the company undertakes capacity utilization stands at 90-95%

▪ GBSL’s manufacturing facilities are fungible in nature, thereby implying that at any given point in
time, production can be switched between ENA and ethanol manufacturing. No additional capex
goes into converting its plants into a fungible one

▪ All manufacturing plants are running at an average of 85% capacity utilization

▪ Realization of Prestige and the Premium IMFL segments is much higher than the Country Liquor
and Value Plus segments, respectively

▪ On a long-term basis, GBSL targets an EBITDA margin of 14-16%

▪ A ROCE of 20%+ on a sustained basis is a key objective

▪ In the next 4-5 years, the company aims to sell >1.0mn cases of IMFL with penetration its IMFL
brands growing steadily

▪ The launch of any new IMFL brand takes on an average 2-3 years to break-even on a State-wise
basis. The realization target of INR 1,500-1,600 per case is achievable, says management

▪ Power cost forms ~20-25% of GBSL’s COGS and is expected to remain stable

27
 ▪ The company has a cash and carry mode of transaction for ENA, without giving any credit to
customers except to 1 or 2 IMFL clients that are given 10-15 days credit. For ethanol, a credit system
of 20-25 days is followed. Overall, working capital management is not a challenge for GBSL as
receivable days do not exceed 20-25 for both ENA and ethanol combined
Analyst annotations: GBSL reported a 15.1% rise in revenue at INR 5,701mn in Q1FY24 vs INR 4,954mn in Q1FY23. Expenses
stood at INR 4,978mn vs INR 4,269mn in the previous fiscal. EBITDA registered a 5.5% jump to INR
742mn vs INR 703mn in Q1FY23. EBITDA margin was at 13.0% vs 14.1% a year ago. Net profit rose
4% to INR 388mn. PAT margin stood at 6.8% vs 7.5% in Q1FY23.

Key financials: YE
March
Revenue
(INR mn)
YoY
(%)
EBITDA
(INR mn)
EBITDA
Margin (%)
Adj PAT
(INR mn)
YoY
(%)
Fully DEPS
(INR)
ROE
(%)
ROCE
(%)
P/E
(x)
EV/EBITDA
(x)
FY20 11,688 18.6 1,247 10.7 499 110.4 17.3 11.8 10.6 4.9 3.2
FY21 12,308 5.3 2,547 20.7 1,408 182.2 48.9 27.3 21.9 6.5 4.1
FY22 15,792 28.3 3,352 21.2 1,873 33.0 65.0 24.2 34.0 13.9 8.7
FY23 21,091 33.6 2,456 11.6 1,222 (34.7) 42.4 13.8 19.0 18.3 10.2
Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

28
Represented by:
Nakul Sethi
Head of Finance and
Som Distilleries (Not Rated)
Strategy Bloomberg Code: SDB IN, Market Cap: INR 25bn, CMP: INR 339 (as on 8 September 2023)

Executive digest: Som Distilleries and Breweries (SDB IN) is an India-based company which manufactures and sells
beverage alcohol (beer and Indian-made foreign liquor [IMFL]). The company's beer is sold under the
brands, Hunter, Woodpecker, Black Fort, Power, and Legend.

Investor insight: ▪ Around 90% of SDB revenue arises from the sale of beer with the rest coming from IMFL sales
▪ Q1 is the period of most sales for the company as it is the Summer season

▪ Around 45% of sales comes in Q1, 15% each in Q2 & Q3, and the rest in Q4

▪ Around 85-90% of beer consumed in India is strong beer falling in the Regular segment

▪ Hunter retails for INR 160, Black Fort at INR 150, and Power Cool at INR 120 in Karnataka
▪ For UBBL, Kingfisher Premium sells at INR 170 and Bullet retails at INR 120

▪ Annual price hikes undertaken by various State governments start to reflect from the first week of
April each year

▪ The taste and packaging of SDB beer brands is its key USP. Price is not what the company competes
on as all other strong beer brands in the market sell at roughly comparable price range

▪ The company attained a 20% market share in Karnataka and 46% share in Madhya Pradesh over
the past three years

▪ Karnataka is considered the beer capital of India

▪ There is room to grow market share even further in Karnataka with capacity constraints in Q1FY24
holding the company from selling more as capacity at its Karnartaka plant has been fully utilized
▪ Capacity expansion plans are in place for the Karnataka plant, which will take its total capacity to
15mn units just like the Madhya Pradesh plant

▪ The MP plant will service Uttar Pradesh and Delhi markets while Jharkhand and other eastern
states will be supplied from the Odisha plant

▪ SDB beers have an alcohol volume of 6-8% on average while having less bitterness
▪ The company only advertises its brands at the point of sales

▪ The scope for unbranded firms to exist in the beer market is limited, owing to the heavy investment
required to sell the product. For instance, in Karnataka, if a beer has an ex-distillery price of INR
100, the excise duty on the product to be paid by the manufacturer will come to INR 250, taking
the total investment to INR 350 per bottle

▪ There exists huge scope to grow further in SDB’s core markets of Karnataka, Odisha, and Madhya
Pradesh as UBBL still holds a lion’s share of the market, particularly in Karnataka and MP

▪ The company aims to grow its market share in MP to 55% and 30% in Karnataka

▪ While canned beers are cheaper to manufacture than bottled beer, they are tougher to recycle as
the cans are not returned to the company

▪ For SDB, glass bottles are recycled at least 5-6 times. The market in Delhi is the most recycling
friendly with 65-70% of bottles coming back to the company whereas MP is the most challenging
with only 50% of bottles being returned. In Karnataka too, more than 60% of bottles make their
way back to the company

▪ It costs SDB ~INR 10 per bottle to manufacture beer using recycled bottles (including refurbishing
and repacking cost) vs INR 19/bottle for using new bottles

29
 ▪ Barley is sourced primarily from Haryana and Rajasthan on an annual basis. Hops are imported
from Germany.

▪ Ukraine is the largest exporter of Barley and procuring it during the Russia-Ukraine war was a
challenge. Russia has allowed the export of Barley from Ukraine currently

▪ The selling price of each brand is determined by first going to the excise department and informing
them what the MRP of each brand is going to be

▪ It is difficult to receive price hikes from the Andhra Pradesh government but MP, Odisha, and
Karnataka are favorable when it comes to price hikes
▪ The past two years saw consecutive price hikes due to the inflationary environment persisting for
raw materials.

▪ The company plans to undertake price hikes of 2.5-3.0% each year with 8-9% volume growth
expected on an annual basis

▪ Capital raising will continue for the next 2-3 years at least to scale up

▪ On an average, in a plant operating at full capacity, ROCE of 18-20% is achievable for the plant

▪ SDB pushed sales aggressively in Karnataka as it is the most profitable alcohol industry in the
country with the State releasing payment dues faster and charging lower excise duty

▪ In UP, United Breweries and Carlsberg are the top-selling beer manufacturers
▪ Before fresh capex is initiated in a State, there needs to be 500,000 cases a month that must be
sold

▪ Incremental capex incurs lower investment than fresh capex as modular plants are cheaper to set
up

Analyst annotations: SDB revenue grew 71% YoY and 49% QoQ to INR 3,850mn in Q1FY24. Overall EBITDA stood at INR
485mn whereas EBITDA margin was at 12.6%, down 80bp YoY, owing to persistent inflationary
pressures in raw materials, particularly in glass bottles. SDB reported a PAT of INR 337mn, up 31% YoY
and 112% QoQ. SDB’s millionaire brands, Hunter, Black Fort, and Power Cool, continue to deliver
strong sales performance in Q1FY24, growing by 7% YoY, 94% YoY, and 51% YoY, respectively.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 4,599 16.9 443 9.6 150 (23.9) 2.3 4.8 5.3 13.1 8.5
FY21 2,876 (37.5) (96) (3.3) (381) (353.5) (5.8) (12.7) (5.1) (58.8) (39.1)
FY22 6,538 127.4 169 2.6 (98) (74.2) (1.4) (3.4) 0.2 (243.9) 35.8
FY23 14,981 129.1 1,021 6.8 603 (712.8) 8.4 18.1 13.6 18.2 13.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

30
Represented by:
Ameya Deshpande
President of Corporate
Tilaknagar Industries (Not Rated)
Development & Strategy Bloomberg Code: TLNGR IN, Market Cap: INR 41bn, CMP: INR 214 (as on 8 September 2023)
Abhinav Gupta, CFO

Executive digest: Tilaknagar Industries (TLNGR IN) is among India’s top alco-bev companies with a wide collection of
brands across Indian Made Foreign Liquor (IMFL) spectrum with a sharp focus on the Brandy category
with a predominant presence in South India and canteen stores department (CSD) stores. Tilaknagar
Distilleries & Industries was promoted as a 100% subsidiary of The Maharashtra Sugar Mills and
Tilaknagar Distilleries & Industries were merged to form TLNGR on August 6, 1993.

Investor insight: ▪ TLNGR primarily operates in the Brandy segment, which is the second-largest category within
IMFL. Brandy has a 20-22% volume share of IMFL. Total 85mn cases of Brandy is sold in India. The
company has a volume market share of 5% of IMFL at the national level

▪ It has two staple brands: Mansion House Brandy or MHB with 7.8mn cases sold in FY23 and the
Courrier Napolean Brandy or CNB which sold 1.0mn cases. Brandy contributes more than 90% of
the company’s volume
▪ TLNGR has a significant South India-based business with contribution of 85% of volume. CSD
contribution is high in the single digits, which is included in the rest of 15%. Within the IMFL space,
South India contributes to 55% of IMFL consumption. Other than South India, the company is
present in East & Northeast India and has a small presence in West India, especially in Goa

▪ It is a predominantly a Prestige & Above (P&A) category firm with more than 80% of volume P&A
driven from 55%, 10 years ago

▪ The overall IMFL industry grew at a CAGR of 4% over the past three years of which P&A grew at a
CAGR of 8%. Within Brandy, the P&A category has grown at a CAGR of 13%. P&A whiskey grew
at a CAGR of 8% whereas P&A vodka grew 10%. However, when it comes within specific
categories, whiskey has more than 55% volume contributed by P&A, 60% volume of Vodka is
contributed by P&A whereas 33% of Brandy volume contributed by P&A. From a strategy
perspective, the company sees a great amount of premiumization headroom available in Brandy
▪ TLNGR operates in the segment of Royal Stag and Imperial Blue. CNB is mostly sold in Kerala,
Puducherry and CSD. It is still not a big brand on a pan-India level

▪ Premiumization in Brandy has just started and there is a long way to go. There is adequate
headroom existing in the P&A segment. Popular and below cases in Brandy have been declining.
The company does not expect people to move from Brandy to Whiskey as premiumization and
disposable income increases
▪ The international business contributes 0.5% of overall volume. Key international markets are the
Middle East and Southeast Asia (it does not do much business there)

▪ Kerala is a predominantly Brandy market but at the same time Andhra Pradesh is a 11-12mn cases
Brandy market and Tamil Nadu at 40mn cases. The company has a small market share in Brandy
in Tamil Nadu. Excluding Tamil Nadu, the market share is 20% within Brandy in India

▪ Age profile of consumers drinking Brandy is in the range of 30-45 years old. Mansion House drinker
age range varies

▪ Telangana, Andhra Pradesh, Kerala, and Karnataka are the Top 4 States contributing to the
business. Telangana and AP contribute around 45-50% of business. Kerala contributes in the high
teens and Karnataka is in the low double digits, followed by Puducherry and CSD in the high single
digits. The company has a 20% volume market share in Brandy in Andhra Pradesh whereas in
Telangana, it has a 25% volume market share
▪ Kerala is a high local firm market. The State is the most expensive from a consumer perspective and
the least profitable from a brand owner perspective. The company runs on a royalty-based model
in Tamil Nadu

31
 ▪ Average working capital cycle of the company is the range of 45-50 days of gross revenue.
Recently, it launched a premium version of Mansion House in TN on a royalty basis. In the next 18-
24 months, Brandy is the company’s key focus, and it aims to penetrate the industry

▪ NPA and debt have been sorted out through restructuring and one-time settlement with lenders

▪ The grain distillery plant is currently nonoperational and to recommission it, capex of INR 400mn
is needed. Currently, it has not done any capex and it is considering doing it later

▪ The company runs four bottling units: one each in Maharashtra, Andhra Pradesh, Karnataka, and
Punjab

Analyst annotations: TLNGR reported a 33% rise in revenue at INR 3,040mn in Q1FY24 vs INR 2,300mn in Q1FY23. Expenses
stood at INR 2,657mn vs INR 2,079mn in the previous fiscal. EBITDA registered a 49% jump to INR
380mn vs INR 220mn in Q1FY23. EBITDA margin was at 13% vs 9% a year ago. Net profit rose 2,386%
to INR 257mn. PAT margin stood at 8.4% vs 0.4% in Q1FY23.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 6,528 (1.0) (519) (8.0) 2,697 (269.1) 125.5 (1,552.6) 75.7 0.7 (13.3)
FY21 14,184 117.3 542 3.8 (384) (114.2) 125.2 68.9 1.9 1.7 18.9
FY22 17,921 26.3 1,118 6.2 452 (217.7) 146.7 33.8 13.0 21.2 14.0
FY23 24,693 37.8 1,372 5.6 1,499 231.7 167.9 31.0 24.5 12.6 16.6

Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

32
Represented by:
Shweta Arora
Sr GM of IR
United Spirits
Bloomberg Code: UNSP IN, Market Cap: INR 768bn, CMP: INR 1,056 (as on 8 September 2023)

Executive digest: United Spirits (UNSP IN) is an India-based alcoholic beverages company, and the world's second-largest
spirits in terms of volume. A subsidiary of global leader, Diageo, UNSP’s portfolio includes premium
brands, such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Singelton,
Royal Challenge, McDowell’s No 1, Smirnoff, Ketel One, Tanqueray and Captain Morgan. The company
has 50 manufacturing facilities across states and union territories in India, a strong distribution
network, and a state-of-the-art technical center.

Investor insight: ▪ Demand for the Premium segment remains stable and doing well. The Popular segment
constitutes 10-15% and lower pricing segment is also popular but has taken a hit because of
inflation

▪ In the next 2-3 years, value and volume delta would be at 7-8% on a sustainable basis. Volume
growth will not exceed 5%. Around 15% growth can be expected on an EBITDA level

▪ The company pays a royalty, as in the case of Smirnoff where the product and brand does not
belong to the parent
▪ Saliency of the premium brands of the Diageo portfolio is 25-26% which would lower margin.
McDowell’s No 1 contributes 30-40% to the top line as on FY23
▪ UNSP is grain indexed until September 2023, which gives its comfort from inflation against extra neural
alcohol (ENA)
▪ Subsidy issues are rising. Glass will not be an inflationary RM. Margin would improve in the
upcoming quarter because of the festival season

▪ Karnataka duty hike would have hurt the company had it not been for cleaning the slate for the
company

▪ UNSP has a dividend policy under process and would make it public in the short term

▪ The company does not want to cling to the cricket team with respect to losses and does not want
to monetize a part out of it (equity dilution)

▪ Godavan is a good brand with localized variants. There are plans to scale it up and make multiple
variants

▪ There is no hurry to launch new products, it depends on demand

▪ UK FTA would be positive for the company if the duty is reduced by the Centre and the State does
not increase taxes
▪ If the FTA were to lead to reduction of duty by 50%, there would be a decrease in price by 5-7%,
which could lead to increase in volume

Analyst annotations: Competition remains high in the Mid and Upper Prestige segments. Peers, such as Pernod., Allied
Blenders & Distillers (ABD) and Radico Khaitan (RDCK) are mulling aggressive investments and market
share gains. This, in turn, may limit volume growth outperformance and higher profitability prospects
for UNSP. Profitability tailwinds persist as ENA prices have stabilized and glass prices have cooled off
(gross margin at 43% vs pre-COVID level of 45%). But headwinds in the form of higher A&P spend
(margin capped in the luxury portfolio) in H2FY24 may cap core alco-bev EBITDA margin. We retain
FY24E margin at 15% for the core alco-bev segment, up 130bp YoY. We do not expect price hikes in
the near term as RM inflation cools off and the States move into the Election year.

33
 YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 1,06,116 9.3 14,169 13.4 11,272 38.9 15.5 18.8 14.4 68.2 53.7
FY24E 1,13,639 7.1 18,142 16.0 11,833 5.1 16.3 16.5 17.0 64.9 41.2
FY25E 1,25,847 10.7 20,425 16.2 13,841 17.0 19.0 16.2 16.4 55.5 35.9
FY26E 1,40,723 11.8 22,787 16.2 16,099 16.3 22.1 15.8 15.7 47.7 31.5

Source: Company, Elara Securities Estimate

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

34
Represented by:
Chintan Jajal Westlife Development
Head of IR
Bloomberg Code: WLDL IN, Market Cap: INR 152bn, CMP: INR 978 (as on 8 September 2023)

Executive digest: Westlife Development (WLDL IN) owns and runs a chain of restaurants in West and South India
through Hardcastle Restaurants, its fully owned subsidiary. Through this subsidiary, the company is an
expert franchisee of McDonald’s Corporation, US. Through its subsidiary, WLDL owns and operates
357 restaurants and 311 McCafé’s and 68 drive-throughs across South and West India.

Investor insight: ▪ WLDL aims to increase sales to ~INR 40,000mn from ~INR 20,000mn currently with 200-300 new
stores and 7-8% same store sales growth (SSSG) in the next 4-5 years. During the same period, it
targets to achieve an operating margin of 18-20%, a ROCE of 40%,and a ROE of 20%

▪ RM inflationary headwinds have largely subsided

▪ Following the launch of the Everyday Value meals, WLDL undertook a price hike in other parts of
the portfolio to offset any adverse impact on overall margin

▪ From a macro standpoint, the company stands to benefit from the push toward ordering from
hygienic restaurant chains, especially post COVID

▪ In South India, following extensive surveys conducted by the company wherein it was discovered
that customers preferred to have fried chicken in their meals, WLDL introduced fried chicken in
the region, which augmented its chicken portfolio. This bridged the gap between WLDL’s South
and West India market revenue to a significant extent and it is currently looking to attain leadership
position in the fried chicken category

▪ McDonald's stores in India are standardized to global norms

▪ It takes around three years for a new store to breakeven on average

▪ Stores with drive-through do not cannibalize sales of standalone stores as the former are largely
situated on highways, thereby providing a different experience to customers

▪ Before setting up a new store in a particular location, the company conducts extensive surveys to
determine the potential of the area
▪ All store operations are standardized, which keeps capex under check and the payback period is
reduced by 3-5 years

▪ Capex plans for new stores are outlined for the next three years at a time

▪ The burger category has reached 25% of India’s quick service restaurant (QSR) industry and it is
growing faster than other categories

▪ Burgers have increasingly become accepted as a meal and not only a snacking item

▪ WLDL has set a target to take McCafé to 15% of revenue by taking it to all stores. The coffee culture
has huge headroom for growth in the country

▪ It plans to introduce chicken wings to the fried chicken offerings

▪ While McDonald’s will primarily remain a burger brand, it aims to satisfy customer cravings for
other food items under one brand, be it ice cream, fried chicken and fries

▪ Currently, the royalty payment to McDonald’s US is 4.5% as a percentage of sales and will reach
5.5% until FY28. Royalty discussions are held in a manner that is favorable for both WLDL and the
parent with emphasis on growth of revenue
▪ Focus on omni-channel presence is the priority for WLDL to offer customers the choice to decide
how they want to consume the food based on their convenience

▪ Menu innovation and optimizing each line of the P/L remains strategic priorities as well
▪ Weekends attract 1.5-2.0x footfalls from weekdays depending on the location of a particular store

▪ WLDL aims to initiate a loyalty program for its customers in the near term

35
Analyst annotations: We do not see the burger category moving beyond 42-44% delivery revenue contribution in the
medium to long term. WLDL has reported resilient margin. Gross margin largely stands at historical
highs of 70.6% in Q1FY24, up 235bp YoY, led by higher throughput per store (menu premiumization),
price hikes, adoption of McCafé and increased delivery revenue. GM may sustain or improve slightly in
the near term on the back of RM inflationary pressure stabilizing for the industry. We expect an EBITDA
margin in the range of 17.2-17.5%, led by higher revenue per store and higher royalty at 4.5% in FY24E
and with GST at 5.2%.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 22,775 44.5 3,734 16.4 1,116 (6,800.7) 7.2 21.7 14.3 136.5 43.9
FY24E 26,780 17.6 4,595 17.2 1,444 29.5 9.3 23.6 16.2 105.4 35.2
FY25E 31,149 16.3 5,459 17.5 1,862 28.9 11.9 24.8 16.9 81.8 29.3
FY26E 36,008 15.6 6,271 17.4 2,340 25.7 15.0 24.4 17.1 65.1 25.1

Source: Company, Elara Securities Estimate

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

36
Auto & Auto Ancillaries

37
Represented by:
Himanshu Sharma,
Head-IR & Budgeting
Apollo Tyres
Bloomberg Code: APTY IN, Market Cap: INR 242bn, CMP: INR 382 (as on 8 September 2023)

Executive digest: Apollo Tyres (APTY IN) is engaged in manufacturing and the sale of automotive tires across vehicle
segments. The company's operational geographies include India and Europe among others. The
domestic segment includes manufacturing and sales operations via India. The Europe segment
includes manufacturing and sales operations via its Hungary and Netherlands-based plants. The others
segment includes the subsidiary in the UAE, South Africa, Thailand and other operating subsidiaries –
It manufactures tires, tubes and flaps. The company markets its products under two brands – Apollo
and Vredestein.

Investor insight: ▪ Outlook: APTY is hopeful of growth in H2FY24, especially in the TBR segment before the upcoming
Lok Sabha elections. Higher growth was seen in radial products in the past few years. Expect
replacement to grow in mid-to-high single digit in FY24. Starting this year, the management is
focusing on profitability, ROE and generating FCF.

▪ Margin outlook: APTY expects to maintain mid-teen margin, going ahead. It achieved margin of
17-18%, which is a life-time high while RM cost is significantly above life-time low RM cost.

▪ Market share: APTY lost marginal market share. MRF leads TBR segment by ~20-30bps, and APTY
(30-31%) is a close second. APTY does not want to maintain leadership at the cost of profitability.
It gained significant foothold in PCR, with +20% market share. In the PCR segment, Bridgestone is
the market leader followed by APTY and MRF.

▪ Pricing: PCR is less price elastic as brand matters. TBR is more price elastic. APTY was ahead of the
market with respect to price hikes for the longest time.
▪ RM costs pass through, typically with a lag of 1-2 quarters – This varies from product to product.
RM cost is expected to remain stable in Q2FY24.
▪ Gross margins: Historically, higher exposure to CV has led to lower gross margins for APTY.
▪ Premiumization is driven by radicalization in the CV segment and higher rim size tyres for the PCR
segment.

▪ Capex outlay: At the consolidated level for FY24, APTY has earmarked INR 3.5bn of project capex
and INR 6.5bn of maintenance capex.

▪ Capex plan: New capex normally gets triggered at 80-85% utilization. APTY is hitting 81%
utilization in PCR in the past few months, but is not triggering new capex due to financial prudence
and rationalization of capacities. De-bottlenecking capacities is driven by digitization/IOT. No
further capex is planned for now.

▪ Debt outlook: Expect de-leveraging of balance sheet to continue. Cost of debt is 8-8.5%.

▪ Inventory: RM inventory is one month. Europe channel inventory is largely stable.

▪ CV segment mix: TBR accounts for 60-65% of CV segment revenue. Out of overall revenue, TBB is
16%, while TBR is 37%. Overall CV radialization is 55-58%, with replacement at 50% and OEM at
70-75%.

▪ Europe markets: APTY started supplying to marquee European OEMs such as BMW for their home
markets.

▪ Global markets: APTY has benefited from China plus one policy. It shifted some Netherlands
capacity to India two years ago, from where tyres are exported to Europe as well. APTY’s products
surpass China on quality.

▪ Exports from India were 11% in Q1FY24. Normally exports from India are 15%.
▪ Tyre import from China: Import of TBR from China is not likely to come back as the government
wants to incentivize domestic production and tyre industry is a high employment generator.

38
Analyst annotations: In Europe, APTY is gaining market share and brand credibility in the UHP and UUHP PCR and TBR
segments in addition to market share earned due to supply stoppage from Russia.
Expect raw material-led tailwinds for the tyre segment to largely peak out. Q1FY24 margins were aided
by higher seasonal contribution from replacement segment, which may reverse in the coming
quarters. We are impressed by the pricing discipline maintained by the industry in the replacement
market till now. Europe underperformance is likely to be a drag near term for consolidated financials.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 245,681 17.3 33,136 13.5 10,818 73.0 17.0 9.0 10.4 22.7 8.8
FY24E 252,655 2.8 43,355 17.2 18,420 65.6 29.0 13.5 15.2 13.3 6.5
FY25E 271,896 7.6 46,070 16.9 20,363 11.3 32.1 13.6 15.6 12.0 5.9
FY26E 286,637 5.4 48,691 17.0 22,462 10.3 35.4 13.5 16.0 10.9 5.1

Source: Company, Elara Securities Estimate

Analyst: Jay Kale, CFA, [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan, CFA, [email protected], +91 22 4204 8667

39
Represented by:
Vikas Sinha
SVP, Strategy, M&A & IR
CIE Automotive India (Not Rated)
Swapnil Soudagar Bloomberg Code: CIEINDIA IN, Market Cap: INR 190bn, CMP: INR 503 (as on 8 September 2023)
DGM Strategy, M&A & IR

Executive digest: Mahindra CIE Automotive (CIEINDIA IN) is an auto components supplier with presence in several
technologies, including forgings, castings, stampings, aluminium products, magnetic products and
composites. The company is focused on the automotive market, comprising cars, utility vehicles,
commercial vehicles, two-wheelers and tractors. Its forgings business offers crankshafts, stub axles,
forged & machined parts, front axle beams and steel pistons & forged steel parts. The stampings
business deals in sheet metal stampings, components and assemblies. The castings business is involved
in turbocharger housings, axle and transmission parts. Further, the magnetic products business is
engaged in soft & hard magnets, and magnetic induction lighting. CIEINDIA’s composites business
offers compounds, components & products, and the gears business engine, timing & transmission
gears, transmission drive shafts and crown wheel pinion. CIEINDIA operates in India, Italy, Spain,
Lithuania and the UK. In the EU, it is focused on truck forgings, passenger cars forgings and high
precision gears & shafts.

Investor insight: ▪ Business overview: Overall CIE automotive revenue in CY22 was INR 82bn of which INR 52bn from
India operations and INR 30bn from the EU
▪ Germany divestment: It sold the German forging business due to low margin and threat of EV in
the EU. Transaction should be completed by end-September and pending approvals. CY23 is set
to see robust profit due to forex gains on sale. Cash on sale realized may be used to fund
acquisitions in India

▪ Margin: The car forging market is expected to deliver 18-19% margin. However, it was lower in
CY22 due to high power cost. H1CY23 margin was at 17.5% and is expected to sustain for H2CY23

▪ Core strategy: It plans to diversify by geography, segments and customers, operating efficiency
and capital allocation discipline. It aims to sustain margin at cost of wallet share. Market share is
not a relevant metric for forging industry

▪ Capital allocation

• Around 5-6% of revenue allocated toward capex backed by customer orders

• Ensure 70% machines invested in general purpose and thus, fungible in nature

• Aims for a pre-tax ROI of 20% for every upcoming project

▪ EU operations: The EU operations are divided in two parts: EUR 270mn is for the car forging
business (of which EUR 150mn is crankshafts. In CY22, there were 14mn units of crankshafts)
based out of Spain and Lithuania. Another EUR 80mn for Metal Castello, the metal casting
business, for gears for off-road market based out of Italy
▪ EV penetration outlook for the EU: The EU EV penetration rate is at 13.5%. EV penetration is
expected at 25-30% by CY27, 50-60% by CY30 and 100% by CY35. CIE’s value at risk due to
electrification is EU 40mn for car crankshafts and EU 20mn in Metal Castello in CY27. CIE assumes
it will lose the crankshaft business in line with EV penetration
▪ EU outlook: The EU car market growth is expected to remain muted in the long term on
electrification while the off-highway market is cyclical. CIE will sustain growth at 3-5%, driven by
two orders for aluminium and steel forgings, and two gear business orders from EV LCV in the EU
to offset the value at risk

▪ Aluminium forging: Aluminium is difficult to forge but easy to cast. It is expected to generate
comparable margin to steel forgings. Aluminium forging is needed for lightweighting in EV. It will
not need any significant capex

40
 ▪ India operations: India’s business accounts for INR 50bn and INR 2.5bn from Mexico operations
(Bill Forge). It caters to forgings, castings, aluminium casting, magnetics, composites, gears and
stampings. India segment mix is PV at 50%, 2W at 23%, tractors at 18%, trucks at 8% and others at
1%. The top 4 customers include M&M (auto & tractors), Maruti Suzuki, and Bajaj Auto, which is
50% of business
▪ Market positioning: In India, CIE is the No 1 firm for crankshafts, magnets, ductile iron casting and
among the Top 2 gear manufacturers. It is the second-largest after Tata Composites for composites.
Bill Forge is the market leader in driveline parts
▪ EV penetration outlook for India: Management expects India’s EV penetration at 7-10% for cars
and 25-30% for 2W by CY27. Out of INR 6bn cars business, two-thirds is crankshafts and out of INR
4bn 2W business, two-thirds is Bajaj crankshafts. Value at risk in India is INR 3bn in CY27

▪ India order wins: The company has secured export orders from Bill Forge for shafts, casting orders
for EV, stampings and gears from M&M and aluminium casting from Tata Motors. It has scope to
improve exports of casting, aluminium casting, gears and magnets

▪ Inorganic acquisitions: Management will consider acquisitions to fill product and segment gaps
only and CIE global is bullish on India. It targets investment of INR 2.5-10.0bn in medium-sized
acquisitions financed by cash only. Currently, gaps exist in the following space: aluminium 4W,
gears & machining, plastics, or increase in OEM exposure to Hyundai, KIA, MSIL, Honda, Toyota or
EV OEM

▪ Key risks: Slowdown in the car market in the EU, rising EV penetration and cyclicality for off-road
business, and overinvesting in EV

Analyst annotations: CIEINDIA targets increasing the share of business in crankshafts, driveline and aluminum forging
segments in the EU so as to hedge the anticipated business loss due to electrification over the next
three years. However, the economic slowdown in the EU is likely to pose a threat in the near term. The
company aims for pre-tax ROI of 20% from new projects and achieve 18% margin in the long term.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Dec (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
CY19 79,078 (1.5) 9,678 12.2 3,584 (35.5) 9.5 7.9 10.9 53.3 21.0
CY20 60,501 (23.5) 5,016 8.3 1,066 (69.9) 2.8 2.2 3.1 179.1 40.4
CY21 79,918 32.1 9,954 12.5 4,026 266.2 10.6 7.7 10.3 47.4 19.9
CY22 87,530 9.5 11,720 13.4 6,735 82.5 17.8 13.8 14.0 28.4 16.5
Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

41
Represented by:
Prateek Singhal, Investor
Relations and ESG
Escorts Kubota (Not Rated)
Bloomberg Code: ESC IN, Market Cap: INR 352bn, CMP: INR 3,192 (as on 8 September 2023)

Executive digest: Escorts Kubota (ESC IN, Not Rated) is India’s fourth largest tractor manufacturer, with a market share
of ~10.3%. The company’s manufacturing plant at Faridabad has capacity to make 120,000 units per
annum. ESC makes tractors under the brands Powertrac and Farmtrac. ESC also exports tractors to
regions such as Africa and South East Asia. Apart from tractors, it is engaged in construction equipment
business (makes cranes, backhoe loaders, excavators) and railways (suspension and braking systems).
Tractors is the largest segment, contributing ~75-80% to revenues. Construction equipment and
railways contribute ~11-17% and 4-8% to revenues respectively.

Investor insight: ▪ Growth outlook: ESC has guided for low single-digit growth for the tractor industry in FY24. Less
rainfall caused set-backs last month. ESC continues to increase its distribution and is venturing into
the Agro-Machinery business.

▪ Construction segment may post positive EBITDA margin – Major revenue is from pick and carry
cranes, while backhoe loader contributes 10% and Spares 5%. The market size for construction
equipment is ~100,000 units.

▪ Discounts and subsidies: In the tractor industry, subsidies account for ~3-4% of demand, spiking
to high single digit during election years. So far, election-related subsidies have not significantly
impacted the industry.

▪ Mergers and acquisitions: ESC is currently awaiting NCLT approval for Kubota and Escorts merger.

▪ Price hike: ESC hiked price in September and further price increases are expected following the
move by the industry leader.
▪ Inventory: ESC's current inventory level is within the normal range at 4-4.5 weeks.

▪ New norms: TREM norms for >50hp have been in effect since January 2023. As a result, the
contribution of these models decreased to 4%, down from the previous average of 7-8%.
▪ Exports (components): ESC exported INR 1-1.2bn worth of parts to Kubota in the last fiscal year.

▪ Railway segment: The highest demand comes from spares and metro lines. ESC supplies both
wagon and coach to manufacturers and directly to railways. Kubota intends to continue holding
the railway business.

▪ Electric tractors: ESC has developed electric tractors and has commenced exports, but the
necessary infrastructure for electric tractors in India is still pending. These products are designed
for tractors with less than 30HP.

▪ Tractor mechanization market: Tractor mechanization is on the rise in India, and globally, it is 2-3x
larger than the tractor industry itself.

▪ Replacement demand: Replacement demand has shortened to 6-8 years from the previous 8-10
years, with Punjab and Haryana having an even lower replacement cycle at 3-4 years.
Replacement buyers now account for 40% of total sales.

Analyst annotations: We expect the tractor industry to be flat in FY24 on a high base. Increase in tractor prices, uneven
monsoons and high base of the previous years are some factors which keeps us wary of high growth
in FY24. Pricing action in the past few years hit market share as some unlisted players have not hiked
prices. Market share loss is due to product mix and regional mix difference for ESC, which is expected
to be recouped in the coming quarters.

42
Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 57,610 (7.0) 6,758 11.7 4,948 4.6 40.4 15.2 16.7 79.3 55.8
FY21 69,293 20.3 11,292 16.3 8,741 76.7 64.8 19.7 22.5 49.4 35.0
FY22 71,527 3.2 9,513 13.3 7,656 (12.4) 56.8 11.5 12.3 56.4 39.7
FY23 83,450 16.7 7,804 9.4 7,041 (20.7) 52.2 7.5 7.7 61.3 47.1
Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

43
Represented by:
Manoj Kolhatkar, MD Gabriel India (Not Rated)
Rishi Luharuka, CFO
Bloomberg Code: GABR IN, Market Cap: INR 49bn, CMP: INR 312 (as on 8 September 2023)

Executive digest: Established in 1961, Gabriel India (GABR IN) is the flagship company of New Delhi-based Anand
Group. It has more than six decades of manufacturing ride control products in India, which include
axle dampers, shock absorbers and others, such as forks, covering a range of suspension systems and
become the most trusted brand for such products. It has grown from a sole product company to
manufacturing more than 500 models across every automotive segment, ranging from 2W to railways.
GABR has seven manufacturing plants close to OEM, ensuring just-in-time supply as per demand.
▪ Current outlook: The company is among the country's top three automotive component groups.
Investor insight: It has gained market share in the 2W segment and commands a 25% share in PV and 85% in the
CV segment for suspension products

▪ Railways: Railways has a small part of revenue and is not seeing growth. Railway revenue share is
small, but margin is high. Earlier, the company was present only in LHB coaches but it also now
present in Vande Bharat

▪ Sunroof: The sunroof penetration in 2022 was 25%. In the SUV segment, it is >50% while in cars it
is less. TVS sunroof is present in cars while panoramic in more premium cars and SUV. Competition
is Webasto (no 1), Inalfa and CIE. The first SOP in Q4FY24 for Hyundai Creta, which used to import
from Inalfa. The Kia platform supplies are set to begin in January 2025. It is also in talks with M&M,
Tata Motors, and Maruti Suzuki. which is currently importing and procuring from Webasto. The
company is actively pursuing more parts categories in the post-sunroof venture

▪ For Hyundai: Kia and GABR are setting up one line for 200,000 sunroof units for INR 1.2bn
investment. The company can add three more lines in the same plant. Asset turnover would be
5x. The sunroof technology is complicated and hence the partner was necessary
▪ Sunroof ASP- ASP for Panoramic sunroof is 2x of TVS sunroof
▪ Management discussions: At the group level, there was discussion that GABR looked at more than
one product. In the current structure, there is provision of management fees
▪ Exports: Currently, the company has posted exports of INR 1bn and it would sustain in the near
term. The company has been nominated as a global supplier for PSA and VW. They started
supplying orders for DAF and Paccar.

New launches: The company is working on bicycle suspension (eBike). The value is high and the
market is expected to be 25mn units by CY30

Analyst annotations: The suspensions division is expected to post robust growth, especially led by the 2W segment, which
would see higher volume growth over FY23-26. GABRl is immune to EV adoption as suspension
products finds its application in EV as well. The company has a higher 70% share in EV-2W for
suspension. The entry into the high-growth sunroof product line is positive and would be a major value
driver. Further diversification to new product lines would sustain growth momentum.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 18,700 (9.9) 1,378 7.4 847 (10.8) 5.9 13.6 15.0 53.1 32.0
FY21 16,999 (9.1) 1,076 6.3 603 (28.8) 4.2 8.9 9.5 74.6 39.4
FY22 23,320 37.2 1,459 6.3 895 48.5 6.2 12.2 14.1 50.2 30.5
FY23 29,717 46.4 2,137 7.2 1,323 47.8 9.2 16.2 19.9 34.0 20.6
Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

44
Represented by:
Akhila Balachandar,
CFO
Greaves Cotton (Not Rated)
Sanjay Bhel, Chief Bloomberg Code: GRV IN, Market Cap: INR 34bn, CMP: INR 149 (as on 8 September 2023)
Executive Officer of
Elecritic Mobility
Executive digest: Greaves Cotton (GCL IN, Not Rated) is one of the largest manufacturers of single cylinder (diesel,
gasoline engines) and dual-cylinder engines primarily. These find application in 3W vehicles and 4W
small commercial vehicles (SCVs). GCL offers products/solutions across business units – Engines,
power, farm equipment, mobility and aftermarket. In FY19, GCL augmented its clean technology
portfolio, entering the last-mile affordable 2W personal mobility segment via Ampere Electric Vehicles
and e-rickshaws in last-mile people transportation segment.

Investor insight: ▪ Non-auto business is driven by gensets and industrial engine business. Gensets form 50% of non-
auto business (~INR 2.5bn). Industrial business growth is pegged at 8-10%.
▪ New norms form of gensets: Orders received till 30 June may be serviced for one more year.
▪ Auto revenue contributes to 50% of revenues – GCL is seeing stability in the business.
▪ Exports are a higher-margin business compared with the domestic segment.
▪ Excel Controlinkage synergy benefits: Excel has a diversified product base. It has good sensor
portfolio, motor, and motor controller. It has ~30-40% export revenues, which provides better
customer base for GCL.
▪ Aftermarket: GCL has a mechanic network of 9,000+ mechanics for aftermarket services. It is on
the path to diversify into more products and brands.
▪ Distribution: GCL has electric vehicle distribution of 400 dealers and 750 overall touch points. It is
cautious of further adding distribution in tier I cities due to the overall lull in the market and higher
throughput needed in top tier cities.
▪ Product mix changes: High-speed scooters were at 60% of total E-2W sales before FAME and now
would be on the path to decline. Currently, the scenario has reversed with 35% high speed
scooters, 40% city speed and the rest low speed.
▪ Purchase through financing: Last year, 36-38% of vehicles were financed but now this has touched
~50%+ level.
▪ Capacity: For 2W, annual capacity is 250,000 units at Ranipet in a shift. GCL is currently producing
6000-7000 units per month and hence, capacity of 30%. L3-3W capacity is at 15,000 units and L5-
3W is at 10,000 units (capacity utilization is high for 3W).
▪ Diesel engine trajectory: Diesel engines sales are expected to come down gradually with more
adoption of alternate fuels.
▪ Fame subsidies and FY24 guidance: Subsidies have led E-2W premium of 20% to normal ICE
scooter versus 5% earlier as FAME subsidies were pared. The management expected the market
to touch 1.1-1.2mn units in FY24 (pre-subsidy revision) but this may now be a million units
(optimistic assumption), while assumption of 850,000-900,000 units seems realistic.
▪ EV 2W: The market has very high capacity, which should lead to higher discounts. There could be
a case of flat growth in case of no discounting.
▪ e-3W is the most thriving story in EV. L3 is the electric rickshaw market, which had a size of 358k
last year. It touched 116k in Q1 and is seeing an MoM growth. It is bound to cross 600k units this
year. This is a non-subsidized market.
▪ New launches: In 2W segment, launches are Zeal, Primus (high speed) and the upcoming NXG in
H2 (high speed vehicle with more connected features) in FY24. Expect electric cargo launch and
passenger 3W in the next quarter.
▪ Pricing: GCL passed on the entire reduction in subsidies to customers.

45
Analyst annotations: The restructuring exercise undertaken is bearing fruit with increase in the contribution of B2C business.
Investment in e-mobility may be utilized for new products, brand building, associated technologies to
enhance manufacturing capacity in E2W/E3W. GCL plans to consolidate manufacturing operations
into mega sites and is expected to reduce fixed costs and bring in higher operational efficiencies in the
long run. However, we see reduced subsidy as a hindrance to e-2W sales.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E
EV/EBITD
A
March (INR mn) (%) (INR mn) margin (%) (INR mn) (%) (INR) (%) (%) (x)
(x)
FY20 18,211 (8.4) 2,281 12.5 1,428 (23.7) 6.2 17.5 23.4 19.6 11.4
FY21 13,291 (27.0) 969 7.3 448 (68.6) 1.9 15.9 18.9 62.4 26.0
FY22 11,776 (11.4) 447 3.8 198 -55.9 0.9 1.2 5.4 141.7 53.2
FY23 15,500 31.6 1,517 9.8 1151 325 5.0 11.7 13.8 24.3 17.1
Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

46
Represented by:
Umang Khurana, Head-
IR
Hero MotoCorp
Bloomberg Code: HMCL IN, Market Cap: INR 602bn, CMP: INR 3,010 (as on 8 September 2023)

Executive digest: Hero MotoCorp (HMCL IN) is the market leader in the 2W industry, with a market share of 32% in FY23.
The company is present in both motorcycles and the scooter segments, with a market share of ~47%
and 7%, respectively. Motorcycles form a major chunk of revenues, contributing ~93% to volumes,
while scooters contribute 7% to volumes. HMCL is a domestically-focused company, deriving ~97% of
its volumes from India. Entry-level motorcycles (75cc to 110cc) form a major chunk of overall volumes.

Investor insight: ▪ Outlook: Lower rainfall hit rural demand, but overall sentiment remains positive. Guidance is for
double-digit growth in FY24. HMCL witnessed strong double-digit growth during the recent
Onam festival in Kerala, providing a positive indicator for festive demand.

▪ Dispatches and inventory levels: Dispatches are expected to improve MoM, and HMCL has been
lowering inventory to ideal levels in the recent months.

▪ Market share: In the premium segment, HMCL expects a notable market share boost. While any
new launch, in Q1 focuses on inventory and supply chain, the true success metric for the new
product may be seen in Q3 when retail sales rise and wholesale stabilizes. Passion+ has performed
admirably, leading to an enhanced market share. Demand for Classic Glamour remains strong.
▪ Premium products: In its premium product portfolio, HMCL is preparing to initiate X440 test drives
shortly. It also has plans to launch a sportier 125cc model and a new scooter. The premium
segment offers at least double the value in terms of ASP, which is expected to boost revenues,
although it may not significantly impact volume share.

▪ Scooter segment: HMCL is eyeing the launch of an affordable EV early next year, along with a new
ICE scooter. It is also expanding its dealership network to bolster scooter sales. This expansion plan
includes upgrading 500 existing dealerships by FY25 and adding 100 new dealers to the premium
dealer network in FY24.
▪ Dealer inventory : The dealer inventory stands at 6-6.5 weeks.

▪ Investments :The investment in Ather is strategic, with some HMCL management members serving
on Ather's board. HMCL is also collaborating with other industry players to standardize the
charging network for EVs.

▪ Harley and Karizma: Harley supplies are expected in October, and Karizma is set for the end of
September.

▪ Cannibalization: Glamour Xtec was a notably competitive product and succeeded in gaining
market share. However, it primarily acquired market share at the expense of the Classic Glamour,
resulting in some level of cannibalization.

▪ Vida: HMCL currently supplies in 100 cities, and the launch of a more affordable EV is planned for
the next year.

Bookings for Harley have been encouraging. We factor in ~100k volumes for Harley contributing
Analyst annotations:
~1.6% to volume but ~5% to revenue, in FY25E. We keenly monitor the impact of the upcoming
launches for HMCL and the impact on market share gains (sub-par in YTDFY24 at least). Revival of rural
demand in the upcoming festive season may be the key near-term trigger for the stock. HMCL's margin
performance has been impressive, with EBITDA per vehicle scaling new highs despite losses from EVs.
Expect a revenue CAGR of 10% in FY23-26E, with an EBITDA margin of 14.2% in FY26E.

47
Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 338,056 15.6 39,862 11.8 29,105 17.7 145.7 17.9 20.5 20.0 11.5
FY24E 370,881 9.7 51,552 13.9 38,712 33.0 193.8 22.1 25.5 15.0 8.5
FY25E 416,574 12.3 58,154 14.0 43,922 13.5 219.9 22.9 26.5 13.3 10.0
FY26E 446,150 7.1 63,397 14.2 48,067 9.4 240.7 22.6 26.2 12.1 9.1

Source: Company, Elara Securities Estimate

Analyst: Jay Kale, CFA, [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan, CFA, [email protected], +91 22 4204 8667

48
Represented by:
Sandesh Naik, GM -
Investor Relations
Mahindra & Mahindra
Bloomberg Code: MM IN, Market Cap: INR 1,948bn, CMP: INR 1,567 (as on 8 September 2023)

Executive digest: Mahindra and Mahindra (MM IN) is engaged in manufacturing passenger cars (ICE+ EV), commercial
vehicles and tractors. The company's operations are spread across segments: 1) automotive engaged
in the sale of automobiles, spare parts and related services, 2) farm equipment involved in the sale of
tractors, spare parts and related services, 3) IT services active in business consulting and related support
activities, 4) financial services in services relating to financing, leasing and hire purchase of automobiles
& tractors, 5) steel trading and processing in trading and processing of steel, 6) infrastructure includes
operations of commercial complexes, project management and development and 7) two-wheelers,
which comprises the sale of two-wheelers, spare parts and related services, and others (includes
logistics, after-market and investment).

Investor insight: ▪ Festive demand outlook: For higher-end SUVs, demand is good while cars that are sub INR 1mn
may be under pressure. Tractor growth is pegged at low single-digit. Demand from Onam has
picked up well and on-ground demand is good. MM is not filling dealer inventory more than last
year's inventory.

▪ Incremental demand: Demand is at ~48,000 bookings per month. Most of the bookings (~60-70%)
is for top variants. The key decider for buying top variants is HMI interaction, panel communication,
ADAS and sunroof.

▪ Capacity and supply chain: The SUV supply chain has come under control and MM has touched
38.5k capacity per month. Chip challenges are approximating normalcy right now. MM is planning
to take capacity to 49k by year-end (Q4FY24) and is largely dependent on supplier capability to
ramp up and invest. Going ahead, it would be critical to manage the electronics supply chain. Chip
and software requirement is higher in EVs. MM has stocked up chip inventory and has also found
alternate source. Almost 180 chips are required in XUV 700.
▪ EVs: MM plans 18,000 XUV 400 EV volumes a year. E-Thar looks that has been showcased would
be similar in production. All the born electric cars will also be off-roaders and may have a range of
400Kms. MM would invest ~INR 100bn in this in the next 3-4 years. China's dependence on EVs
would be present and largely cells are imported from China. There could be some margin pressure
as EV volumes ramp up.

▪ Battery sourcing: MM is open to multiple cell technology. MM is in talks with BYD and LG Chem for
battery sourcing.

▪ Charging infrastructure: MM would be pairing with other companies such as Reliance and Tata
Power to deploy charging infrastructure.
▪ EV pricing: This would be competitive and comparable with ICE counterparts for upcoming
models.

▪ New product spends: MM spends ~INR 12-14bn when coming out with a new product .

▪ New launches: In CY24, MM would largely leverage the existing product portfolio with few
upgrades .
▪ Tractor growth is pegged in single digit and export growth is muted in key geographies. The
competitive intensity is high in tractors as well. Players do not play pricing as a demand booster.
Brand loyalty is high for tractors.

▪ Capacity for tractors: MM keeps on building capacity at 7-8% CAGR. MM is building up a new plant
for Swaraj tractors while for the Mahindra brand, there is enough capacity. Tractor supply chain is
not an issue and may ramp up.

49
 ▪ New Oja tractor launch: MM finds no need to introduce products in 30-50HP due to the recent
Yuvo launch. Oja products are targeted more towards horticulture (lightweight products with
sharp turning radius and not for heavy lifting). Oja products may span 20-70HP tractors. It would
also help expand customer base in ASEAN and the US, where tractors may be used as a hobby.

▪ Life of tractors: Tractor replacement life is at 4-5 years currently versus 7-8 years earlier.
▪ EV tractors: Initial application could be in low HP tractors for horticulture/vegetables farming. It
would be difficult to have EV tractors in higher load pulling activities due to higher torque
requirement which could drain batteries faster.
▪ Electric 3Ws: It is a growing market and >70% 3Ws for MM is electric. MM has ~65% share in electric
3Ws. MM is present in both cargo and passenger 3Ws. The Treo product uses lithium ion battery .

▪ New accounting norms: These norms may focus more on the non-domestic segment. It may make
management more accountable for investments made and enhance capital allocation discipline.

Analyst annotations: We are surprised by MM’s RBL Bank investment and remain watchful of further large investments
outside the auto and farm segments, which may not yield returns, near-to-medium term. MM assures
of no further investments in RBL for the next 2-3 years and also states maintaining auto and farm
cashflow for the respective segments only, which is comforting. Hence, while further derating due to
this development is unlikely, upward rerating could pause for now, in our view. The core business
performance was encouraging with margin expansion on track. We expect margin to expand 170bps
in FY23-26E, with an improving mix in the PV segment and a stable RM outlook, offset by weaker farm
revenue contribution. We reiterate Accumulate with a TP of INR 1,634 on SoTP, valuing domestic ICE
PV at 13x and non-PV ICE at 18x, EV firm value at INR 168 (total automotive at ~20x P/E); the farm
segment at 16x September 2025E P/E and subsidiary value of INR 373.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key Financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 849,603 47.0 104,424 12.3 79,782 57.1 66.5 15.9 15.6 23.6 17.1
FY24E 957,000 12.6 128,716 13.5 91,996 15.3 76.7 19.7 18.5 20.4 13.7
FY25E 1,016,708 6.2 140,306 13.8 99,647 8.3 83.0 18.5 17.5 18.9 12.3
FY26E 1,075,852 5.8 150,619 14.0 105,919 6.3 88.3 17.2 16.3 17.7 10.8
Source: Company, Elara Securities Estimate

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

50
Represented by:
Anshul Saxena, Sr. VP &
Group Head - Strategy &
Minda Corporation
M&A Bloomberg Code: MDA IN, Market Cap: INR 83bn, CMP: INR 347 (as on 8 September 2023)
Pushpa Mani, Lead
Investor Relations

Executive digest: Minda Corporation (MDA IN) manufactures auto components and accessories in India. The company's
principal products and services include lock kits, spares, locks and ignition switches. It offers a diversified
product portfolio that encompasses safety, security & restraint systems, driver information & telematics
systems, and interior systems for auto original equipment manufacturers. Its products cater to two- and
three-wheelers, passenger vehicles, commercial vehicles and after-market. It has manufacturing
facilities in India, Southeast Asia, Europe and North America.

Investor insight: ▪ Smart key solutions: MDA’s smart key market share is at 65-70%. The other 30% is being imported.
MDA manufactures 8mn locksets per annum, wherein 2W industry size is 20mn per annum. Smart
keys account for 4-5% by volume of 2W but 15% by value of 2W lockset business. Industry keyless
penetration is 3% in domestic markets. MDA secured the first big order in ICE scooters segment –
expect an announcement in 2-3 weeks. MDA exports to European players as well. Traditional
locksets cost INR 500-600 per unit, while keyless costs INR 5,000-6,000 per unit. Key competition is
from Sandhar Tech for traditional locks.
▪ Die casting: MDA has 35% zinc die casting for in-house consumption for locks. The balance 65% is
aluminium die casting for outside customers of turbocharger housings for Borg Warner with a
global market share of 4-5%. Dies casting business has the lowest fixed asset turnover of 1:2
(lowest for MDA) but is the highest-margin segment.

▪ Instrument clusters: Premiumization story is primarily for 2Ws. MDA is supplying to Tata Motors
and Mahindra in the PV segment. MDA won a major order from Tata Motors for the latter’s top
four models – SOP from September 2023.
▪ Digital cluster market: Digital clusters are currently being dominated by global MNCs such as
Continental, Denso, Aptiv, Bosch and Visteon that import and assemble in India. Localization
opportunity exists for MDA. MDA is developing an 11-inch digital cluster prototype and started
working on a cockpit prototype (expected to be ready in 2024). The current digital/semi-digital
cluster penetration in India is 10-12% in 2Ws and 50-60% in PVs.
▪ Kit value: 2W analogue/mechanical cluster is priced at INR 800 and digital at INR 2,000. PV
mechanical cluster is priced at INR 3,000, semi-digital (7-inch TFT) at INR 6,000-7,000, digital (10–
11-inch cluster) at INR 14,000-15,000, and high-end cockpit (currently imported) at INR 20,000-
22,000.

▪ Wiring harness localization: For wiring harness, current 10-12% localization to rise to 25% in 2.5
years, which may boost wiring harness margin by 200-250bps from 7.5% currently. MDA is in talks
with EV connector providers globally to get a first-mover advantage.

▪ EV products: MDA is currently supplying DC-DC and 2W off-board chargers. It is supplying for EV
2Ws and small CV segment. The focus is on EV power electronics components and developing in-
house motor controllers, on board chargers, BMS etc.
▪ Pricol acquisition: MDA is awaiting CCI approval (under process). Investment rationale was based
on business synergies. There are multiple funding options under consideration by the board – No
intention of a hostile takeover. MDA has the board approval for INR 6bn of fund raise via QIP.
Further, MDA has a borrowing headroom of INR 8bn via debt with comfortable debt: equity of
0.75x.
▪ New connected products: MDA is working on Smart PEPS, flush door systems, power lift gate
system and cyber security.

51
Analyst annotations: MDA has the first-mover advantage in EV products, as it supplies to all the major EV 2W firms. EV orders
constituted 50% of the overall orderbook of INR 30bn. We are monitoring its orderbook execution in the
coming quarters given the moderate demand outlook. Increase in localization in the wiring harness segment
may be a key driver to deliver double-digit margin in the segment. We are impressed by MDA’s consistent
margin performance. MDA is investing in the right areas to capitalize on the LACE megatrend in the
auto industry. We are watchful of inorganic activity in the space. With most of the capex cycle behind,
expect INR 3.4bn FCF in FY24E-26E. Expect revenue CAGR of 15% in FY23-26E (ahead of 2W industry
volume CAGR of 11%) and an EBITDA CAGR of 22%.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 43,001 44.5 4,615 10.7 2,845 48.3 11.9 19.5 15.1 29.2 19.2
FY24E 50,677 17.8 5,777 11.4 2,996 5.3 12.5 17.4 17.4 27.7 15.5
FY25E 58,604 15.6 7,091 12.1 3,929 31.2 16.4 19.5 19.0 21.1 12.5
FY26E 66,736 13.9 8,342 12.5 4,696 19.5 19.6 19.7 20.1 17.7 10.6

Source: Company, Elara Securities Estimate

Analyst: Jay Kale, CFA, [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan, CFA, [email protected], +91 22 4204 8667

52
Represented by:
P K Duggal, CEO Subros (Not Rated)
Hemant Agarwal ,CFO &
VP Finance Bloomberg Code: SUBR IN, Market Cap: INR 27bn, CMP: INR 415 (as on 8 September 2023)

Executive digest: Subros (SUBR IN, Not Rated) is the leading manufacturer of thermal products for automotive
applications in India, in technical collaboration with Denso. SUBR manufactures compressors,
condensers, heat exchangers and all connecting elements required to complete AC loop and caters to
all segments viz., passenger vehicles, buses, trucks, refrigeration transport, off-roaders, residential air
conditioners and railways. SUBR has manufacturing plants at Noida, Manesar, Pune, Chennai,
Nalagarh and Karsanpura with an annual capacity of 1.5mn AC kits per annum besides a well-
equipped R&D center and tool room at Noida.

Investor insight: ▪ Outlook: SUBR’s long-term plan includes achieving 90% localization and design level in 2-3 years,
along with a commitment to achieve carbon neutrality by 2040. Additionally, the target for the
next five years is to attain localization levels of 48% in PV (thermal) and 50% in trucks (thermal).

▪ Key growth drivers: SUBR’s future growth drivers include shorter product life cycles, quicker
development, greater use of actuated electronic products and changes in technology and
regulations.

▪ EBITDA: SUBR’s EBITDA declined post-COVID-19 due to many factors. These include an 8x rise in
container prices, rising logistics costs, fluctuations in commodity prices, and increased raw material
expenses for key components such as Helium and Flux. SUBR’s current EBITDA is 7-8%. The
company aims to achieve a targeted EBITDA range of 9-10% in the next three years.

▪ Automation/digitization: SUBR plans to go paperless in the next two years, implement fully
automated processes, and develop new technologies.
▪ Truck segment: The Radiator and HVAC products have been well-received, particularly by
Mahindra as a procurer. This launch is expected to increase vehicle prices by INR 15,000 to INR
20,000 per unit and improve tractor utilization rates for afternoon use.
▪ Other segments: The growth of home AC products did not meet SUBR’s expectations. The bus
segment, particularly state-run buses, is doing well and has growth potential
▪ Railway orderbook: SUBR has INR 0.75-1bn worth of tenders in the pipeline for serving railway
coaches in the next 3-4 months.

▪ Diversification/de-risking: At present, Maruti contributes 82% to SUBR’s income, while the

remaining 18% is generated from other customers. SUBR’s target in the next few years is to shift
to 75% to 25% Maruti to non-Maruti customer ratio.

▪ Home Air conditioner sector: Profit margins were hit in this segment due to intense competition.
Notable customers include Voltas and Havells.

▪ Capital allocation: SUBR plans to invest INR 2-3bn in the next five years, allocating INR 400mn to
product development, INR 400mn towards capacity expansion, and INR 200mn for maintenance.

▪ Make in India opportunity: The Make in India opportunity is being pursued by SUBR, which has
already achieved 83% localization, with plans to attain the remaining percentage in the next 4-5
years.

Analyst annotations: SUBR will benefit from the mandatory AC fitments in trucks segment from January 2025 as it will create
a market opportunity of INR 4.5bn (current penetration of AC cabins in trucks is 10%). e-compressors for
electric PVs can significantly increase the content per vehicle by 2.5x, which is positive from long-term
perspective.

53
Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 19,928 (6.2) 1,890 9.5 433 (43.2) 6.6 11.8 11.0 67.9 15.6
FY21 17,957 (9.9) 1,538 8.6 467 7.9 7.2 6.0 7.3 62.9 18.5
FY22 22,386 24.7 1,487 6.6 326 (30.2) 5.0 4.0 5.6 90.1 19.1
FY23 28,063 25.4 1,675 6.0 490 50.3 7.5 5.8 6.6 59.9 17.0

Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale, CFA, [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan, CFA, [email protected], +91 22 4204 8667

54
Represented by:
Medappa Gowda, CFO Suprajit Engineering (Not Rated)
Bloomberg Code: SEL IN, Market Cap: INR 58bn, CMP: INR 423 (as on 8 September 2023)

Executive digest: Suprajit Engineering (SEL IN) is India’s largest automotive cable and halogen bulb maker with an
annual global capacity of 400mn cables and 110mn halogen bulbs. It is the third-largest light duty
control cable manufacturer in the world and the largest automotive halogen bulb manufacturer in
India. It has 20 plants in India across Haridwar, Pathnagar, Bhiwadi, Manesar, Noida, Vapi, Pune,
Bengaluru, Chennai) and a tech center in the UK. Wescon Controls in the US at Wichita, Kansas, and
Juarez in Mexico, are wholly owned subsidiaries, which focus on non-automotive cables. Trifa Lamps
Germany Gmbh & Luxlite Lamps SARL are wholly owned entities in Germany and Luxembourg,
respectively, and are the trading arms for halogen bulbs. Apart from cables, SEL has successfully made
an entry into instrument clusters, fuel sender units and a host of other products for the 2W markets.

Investor insight: ▪ Electrification: Controller cables cost is 2-3% higher for EV than ICE. Cable design varies for each
OEM as well

▪ Content cost: 2W cables content in 2W is ~INR 600. EV cables are priced slightly higher than ICE.
A 4W cable costs INR 3,000-5,000

▪ Cables business: In cables, it supplies 75% of 2W India requirement and 40% of PV for OEM. For
SEL, domestic cables revenue mix is 85-90% from 2W and the rest from PV & CV. A majority of
supplies are to OEM at 95%

▪ Key competitors: In the 2W segment, peers are Hilux India, Tata Ficosa, and Ramsons (supplying
to Hero MotoCorp & Maruti Suzuki) and SEL is the largest firm. In the PV segment, Hilux is largest
company in terms of market share

▪ Light duty cables (LDC) integration: It is a serious contender with specific teams created for the
LDC business. In this, the non-automotive business portion is 20%. It is present in China, Mexico
and Hungary

▪ 2W revenue mix: 2W sales is basically in India and forms 25% of revenue of overall sales
▪ Digital clusters: In 2W, digital cluster competition is from Minda Corp and Pricol. Realization is from
INR 700-7,500. SEL is one of the few firms involved in electronic, moulding, assembling and
mechanical portion of a digital cluster. The company is able to develop a new product really fast
(two months for one customer). It is also winning customers which are low volume but need better
services
▪ Replacement mix: It forms 10% of overall sales

▪ OEM tie-ups: For OEM, it takes six months to switch vendors. It is an elaborate process to get
approval and cannot change overnight. A cable supplier is involved with OEM customers from the
design stage

▪ Advantage in China: The China plant is a modern facility, which will help via better technology
and vendor base. It also helps SEL coordinate better with vendors and understand cost structure
in China

Analyst annotations: SEL is the market leader in automotive cables with a ~75% market share in 2W OEM and ~40% in 4W
OEM. It derives 53% of revenue from the global markets. The acquisition of LDC will further make it a
dominant global firm on the back of huge scale of operations (the second largest globally), close
proximity to customers, cost leadership (due to facilities in low-cost geographies) and complementary
customer & product portfolio. Over the past few years, due to the shift from unorganized to organized
firms, SEL has seen good traction in the aftermarket segment.

55
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 15,628 (1.7) 2,187 14.0 1,314 -22.3 9.4 12.8 13.9 45.2 27.1
FY21 16,409 5.0 2,367 14.4 1,427 37.3 10.2 15.5 14.8 41.7 24.7
FY22 18,405 12.2 2,599 14.1 1,614 21.3 11.5 16.7 15.2 36.8 22.4
FY23 27,524 49.5 3,006 10.9 1,521 -12.1 10.9 13.2 12.6 39.1 20.1
Source:, Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale (CFA), [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan (CFA), [email protected], +91 22 4204 8667

56
Represented by:
Mahendra K
Karumanchi, Group CFO
Varroc Engineering (Not Rated)
Bikash Dugar, Head IR Bloomberg Code: VARROC IN, Market Cap: INR 68bn, CMP: INR 445 (as on 8 September 2023)

Executive digest: Varroc Engineering (VARROC IN, Not Rated) is a global tier-1 automotive component company. It
designs, manufactures and supplies exterior lighting systems, plastic and polymer components,
electrical-electronics components, and precision metallic components to passenger cars, commercial
vehicles, two-wheelers, three-wheelers, and off-highway vehicle (OHV) OEMs directly worldwide.

Investor insight: ▪ Outlook: Current PBT is at 4%, and the aim is to increase it to double digits in 1-2 years, driven by
cost control measures, with an increase in contribution margins by 1% per year. VARROC is
working on improving efficiencies across verticals, which was not the focus earlier. Expect 2w
industry to breach 2019 peak volumes in 2-3 years.

▪ Debt profile: Net debt is INR 1,227mn. In 12-18 months, VARROC aims to bring net debt/EBITDA
to 1.0x from 1.8x currently.

▪ Order book: Of the new orders, 40% are from Bajaj Auto for Q1FY24 versus 25% in FY23. VARROC
is supplying telematics, traction motors, DC-DC convertors, and sensors to Bajaj Auto.

▪ EV transition: With rising EV penetration, starter motors and magneto are expected to phase out,
which may be replaced by traction motors that have 6-7x higher ASPs.
▪ Content per vehicle: Current content is INR 8-10k in ICE and INR 25-30k in EV 2Ws. It is likely to
expand due to the development of more products and catering to 4W.

▪ Polymer business: VARROC is expanding presence in passenger vehicles, EV components, and

products for the exports market.

▪ Lighting business: VARROC further strengthens its position as a global 2W lighting player,
increasing its presence in Asia in 4W lighting segment.

▪ Divestment of global business: Divestment was entirely completed in July 2023.

Analyst annotations: VARROC is focused on investing and building capabilities to capture trends in electronics, EV products,
and connected & light-weighting space. The company’s approach in the EV 2W space is to cater to
original equipment manufacturers (OEM), while it would be selective in dealing with start-ups. We
remain watchful of how the EV components space evolves in terms of insourcing versus outsourcing
by OEMs and new entrants. An anchor customer such as Bajaj Auto EV would help the firm develop
an understanding of the EV components space and provide it with first-mover advantage.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 111,219 (7.6) 8,208 7.4 25 NA 0.2 0.1 1.6 NA 9.2
FY21 43,739 (60.7) 3,380 7.7 755 NA 4.9 (21.0) 1.2 90.1 20.7
FY22 58,442 33.6 3,593 6.1 (814) 76 (5.3) (44.2) 1.3 NA 20.7
FY23 68,631 17.4 5,467 8.0 361 (26) 2.4 (55.3) 6.8 188.5 13.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Jay Kale, CFA, [email protected], +91 22 6164 8507

Ketul Dalal, [email protected], +91 22 4204 8693
Nishant Chowhan, CFA, [email protected], +91 22 4204 8667

57
Building Material

58
Represented by:
Vinod Bahety
Chief Financial Officer
Ambuja Cements
Charanjit Singh Bloomberg Code: ACEM IN, Market Cap: INR 872bn, CMP: INR 439 (as on 8 September 2023)
Head of IR

Executive digest: Ambuja Cements (ACEM IN), founded by Narotam Sekhsaria and Suresh Neotia, started operations
with a capacity of 0.7mn tonne in Gujarat. Currently, it is part of the Adani Group and has a standalone
capacity of ~31.5mn tonne. Including its subsidary ACC, its current consolidated capacity stands at
67.5mn tonne.

Investor insight: ▪ Management has reiterated its long-term target of expanding consolidated cement capacity to
140.0mn tonne in the next five years from the current 67.5mn tonne.

▪ Accordingly, post completion of the ongoing integrated expansion project by ACC at Ametha in
Madhya Pradesh for ~3.0mn tonne clinker and 1.0mn tonne cement, focus would be on the
expansion projects in ACEM.

▪ Management says financial strength is evident in its ability to fund the acquisition of Sanghi
Industries (SNGI) and to repay its debt.

▪ SNGI has 6.6mn tonne of clinker capacity while cement capacity is 6.1mn tonne. ACEM will
increase cement capacity in SNGI to 15.0mn tonne in the next two years.

▪ Management believes acquisition of SNGI is a high-quality acquisition as it holds a significant

advantage in the form of a huge limestone reserve of 1.0bn tonne, a captive jetty and a captive
power plant.

▪ SNGI’s acquisition is likely to address clinker transportation challenge in the western markets.
ACEM will set up bulk terminals and grinding units along the West Coast, which will enable an
efficient movement of clinker as well as cement via low-cost sea routes.
▪ ACEM will focus on Gujarat, Rajasthan, Maharashtra, and Kerala markets considering SNGI’s strong
presence in these regions.
▪ Management expects ACEM to report a significant improvement of INR 300-400 in EBITDA/tonne
in FY24. This uptick is likely to be driven by optimization of manufacturing costs, better logistics
cost management and implementation of other cost savings measures.

Analyst annotations: We believe volume growth will be healthy, led by robust demand and master supply agreement (MSA) with
ACC. Also, lower fuel prices and cost savings efforts bode well for future margin. The gradual completion of
the announced growth capex in phases should bolster volume.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 383,980 7.6 51,224 13.3 24,864 (30.6) 12.5 7.0 9.0 43.8 20.6
FY24E 360,982 17.5 66,080 18.3 33,540 68.6 13.6 9.3 12.7 32.2 18.0
FY25E 400,913 11.1 79,654 19.9 44,064 31.4 17.9 10.3 13.9 24.5 14.5
FY26E 433,884 8.2 87,602 20.2 44,801 1.7 18.2 9.6 12.9 24.1 12.9

Source: Company, Elara Securities Estimate

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

59
Represented by:
Ayush Bagla
ED & Overseas IR
Cera Sanitaryware (Not Rated)
Bloomberg Code: CRS IN, Market Cap: INR 118bn, CMP: INR 9,090 (as on 8 September 2023)

Executive digest: Cera Sanitaryware (CRS IN) is one of the leading building materials companies in India, established in
1980 by Vikram Somany. It is a market leader in the sanitaryware space and also operates in the faucets
& tiles business. Its plants are strategically located to cater to customers across the country as well as to
compete with peers over cost efficiency. The company has a strong distribution network, which
comprises 5,500 dealers. In FY23, it reported turnover of INR 18bn.

Investor insight: ▪ The sanitaryware industry is valued at INR 50bn in India as on FY23. The market has witnessed a
shift from being largely unorganized to organized, which has sharply lowered the share of
unorganized market.

▪ Increasing sanitaryware manufacturing capacity in India faces challenges due to lack of economic
viability. Expanding manufacturing capacity is challenging because it necessitates a large number
of trained laborers, and it takes a couple of years to train them. Additionally, obtaining adequate
clay for production and managing high transportation cost are obstacles.

▪ In the past decade, there have been no major addition to fresh manufacturing capacity in the
sanitaryware industry in India. However, demand continues to grow in the high single digits.
Building new capacity is a time-consuming process, and usually takes 3-4 years.

▪ High replacement cost for renovating toilets results in a longer product life cycle for sanitaryware
products, spanning 15-18 years.

▪ CRS had good years during FY05-14, primarily driven by the real estate cycle. During this time, the
B2B segment benefited, but it was relatively small, and replacement demand was limited. In recent
years, the company has expanded its product range to include 40-50 SKU, and even slight design
changes have led to significant price variations.
▪ Over the past 4-5 years, there has been a sudden emergence of B2C demand, although the
industry still relies heavily on B2B at 70-80%. However, CRS has achieved a unique ratio with 68%
of sales coming from B2C and 32% from B2B, which has created customer loyalty.
▪ The company has gained market share in the past 5-6 years and become the top firm in the
industry. Its success can be attributed to a focused approach in one segment, financial discipline,
and a low capital expenditure model.

▪ Imports from China have reduced significantly, and currently account for a mere 1% of the market
compared to the previous 4-5%
▪ In FY23, sales breakdown of sanitaryware was 24% at the entry level, 17% in the mid-range, and
59% in the premium category. For faucets, it was 27% at the entry level, 48% mid-range, and 25%
premium. The blended breakdown was 27% at the entry level, 30% mid-range, and 43% premium.
Sanitaryware and faucets together account for 85% of sales in FY23.

▪ The Southern region is a high-paying market for CRS, characterized by large-sized toilets and
higher disposable income. In FY23, the geographic spread was 40% in South India, 20% in West
India, 31% in North India, and 8% in East India, with exports accounting for 1%.

▪ Andhra Pradesh and Telangana are the best-performing markets, followed by Kerala despite its
small size. Kerala stands out due to its unique product composition and wealthy dealers with
extensive infrastructure.

▪ The company expects to grow revenue at a rate of 17-18% in FY24. While the tiles segment does
not show significant growth, focus is on sustaining and improving margin, aiming for a 50-75bp
annual increase. The first two quarters are the most subdued due to seasonality.

60
 ▪ The commercial segment in sanitaryware and faucetware is relatively small, including IT parks and
commercial spaces. Hospitality is considered a niche segment, but it purchases premium products,
for which CRS has premium brands.

▪ CRS manages its business with a high number of stock keeping units (SKU) by retaining a 70-day
inventory distributed across the country. It has identified hot-selling products stored in company
warehouses available at nearby locations for dealers, ensuring just-in-time delivery.

▪ Capex has been completed, with INR 690mn spent on faucets as on FY23. Production capacity has
expanded from 150,000 pieces to 300,000 with zero capex and currently at 400,000 with an
additional INR 580mn capex. There is currently no product shortage in sanitaryware.

Analyst annotations: CRS is a prominent player in India's sanitaryware and faucetware market, known for its strong brand
and extensive product range. With nationwide distribution and a robust cash balance, the company is
well positioned for growth, driven by a thriving housing market and increased demand in home
improvement. We favor the company for its diverse product portfolio, wide-reaching distribution, and
strong brand reputation.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 12,220 (9.4) 1,654 13.5 1,013 0.3 77.9 13.8 12.4 116.7 67.8
FY21 12,243 0.2 1,581 12.9 1,008 (0.6) 77.5 12.3 9.7 117.3 70.9
FY22 14,458 18.1 2,287 15.8 1,568 55.6 120.6 16.6 14.2 75.4 49.0
FY23 18,035 24.7 2,930 16.2 2,161 36.2 166.1 19.8 17.3 54.7 38.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Amit Purohit, [email protected], +91 22 6164 8594

Rohit Harlikar, [email protected], +91 22 6164 8562
Vidhi Puj, [email protected], +91 22 4204 8692

61
Represented by:
Madhumita Basu
Chief Strategy and Nuvoco Vistas Corporation
Marketing Officer
Bloomberg Code: NUVOCO IN, Market Cap: INR 134bn, CMP: INR 374 (as on 8 September 2023)
Bishnu Sharma
AGM, Investor Relations
Hari Gupta
DM-Investor Relations

Nuvoco Vistas Corporation (NUVOCO IN) is part of the Nirma Group, which started the cement
Executive digest:
business in CY14 through a 2.3mn-tonne cement plant at Nimbol, Rajasthan. With current cement
capacity of 23.8mn tonne, it is the fifth largest in India and the leading cement company in East India.
Also, it has a presence in ready-mix concrete (RMC) business with 50+ operational plants across India
as of Q1FY24.

Investor insight: ▪ The ongoing 1.2mn tonne capacity expansion project at Haryana-based Bhiwani unit is likely to
be completed in Q3FY24, taking its total cement capacity to ~25mn tonne.

▪ The management reiterated its continued focus on deleveraging and is unlikely to start any major
growth capex until its net debt reaches the target range of ~INR 35-40bn. Also, NUVOCO does
not intend to breach the net debt-EBITDA level of 2-2.5x.

▪ NUVOCO targets to augment its cement capacity from 25mn tonne to 30-32mn tonne by CY31 in
a phased manner. Once the desired net debt level is attained, it is considering a brownfield
expansion project at Chittorgarh in Rajasthan with daily clinker capacity ranging from 6,000 to
7,500 tonne, along with the addition of another grinding unit.
▪ Also, NUVOCO may consider expansion at Risda (Chhattisgarh) and Gulbarga (Karnataka),
although the final decision on the location to be prioritized is awaited. Gulbarga would be a
greenfield expansion, with focus on servicing western markets.

▪ NUVOCO is likely to incur a capex of ~INR 6bn in FY24, which is primarily intended for: 1)
completing railway sidings in Sonadih (Chhattisgarh) and Jajpur (Odisha), 2) debottlenecking
projects at Nimbol (Rajasthan) and Risda (Chhattisgarh) and 3) ~INR 2.5bn for normal running
capex.
▪ The management expects to achieve a volume growth of ~10% YoY in FY24.

▪ NUVOCO used to receive ~INR 100/tonne of incentives. However, this has reduced to ~INR
50/tonne at present due to the absence of INR 40/tonne incentive from the West Bengal-based
Panagarh unit and INR 7-8/tonne from the Rajasthan unit. However, commencement of the
Haryana grinding unit is expected to create new incentive opportunities for NUVOCO.

We believe NUVOCO is well-placed to seize any favourable demand opportunities following the
Analyst annotations: completion of ongoing expansion projects and better demand prospects driven by the general
elections in CY24. Further, lower fuel prices, focus on increasing the share of premium products and
many cost optimization initiatives should help margin recovery. Also, the recent sharp price hike
attempts in East India, NUVOCO's core market, bodes well.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 102,890 13.6 12,104 11.8 (1,689) - (4.7) (1.9) 1.7 - 14.7
FY24E 111,729 8.6 17,607 15.8 1,734 - 4.9 1.9 5.3 77.0 9.9
FY25E 118,736 6.3 19,594 16.5 3,499 101.8 9.8 3.8 6.6 38.2 8.7
FY26E 128,406 8.1 22,148 17.2 5,398 54.2 15.1 5.6 8.2 24.7 7.5

Source: Company, Elara Securities Estimate

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

62
Represented by:
Anand Gupta
Deputy CFO
Prince Pipes & Fittings (Not Rated)
Karlh Kolh, Head IR Bloomberg Code: PRINCPIP IN, Market Cap: INR 81bn, CMP: INR 736 (as on 8 September 2023)

Executive digest: Prince Pipes and Fittings Limited (PRINCPIP IN) is one of India’s largest PVC pipe manufacturers & multi-
polymer processors. The company specializes in manufacturing plumbing, sewerage & drainage piping
systems for residential & commercial applications and chlorinated polyvinyl chloride (CPVC) piping
systems or industrial pipes that find applications in industrial and infrastructure projects. PRINCPIP also
serves the agriculture sector through products in borewell and agriculture piping categories. It has
seven manufacturing facilities with total installed capacity of 325,000 MTPA. It has pan-India presence
with 1,500+ channel partners. In FY23, PRINCPIP achieved a turnover of INR 27.1bn.

Investor insight: ▪ In Q1, there was 19% volume growth despite issues related to ERP transition, which hit operations
during April to mid-May. Q2 is expected to return to normal. The mix of pipes and fittings shifted
from 65% and 35% to 80% and 20%, respectively, due to the ERP transition issue, affecting margin.
EBITDA margin dropped to 8%, but it is expected to return to 12-14% in Q2
▪ PRINCPIP aims for volume growth of 12-15% for the rest of FY24, outpacing the market's expected
growth of 8-9%.

▪ The pipes segment derives 65% revenue from plumbing and soil, waste and rainwater (SWR) pipe
and the rest from agri irrigation. Salience of agri has dropped from 35% a few years ago

▪ Chlorinated polyvinyl chloride (CPVC) pipes form 20-25% of sales, which is sold at a premium of
2.0-2.5x of unplasticized polyvinyl chloride (UPVC) pipes. Value-added products form 30% of sales
and includes CPVC & polypropylene (PPR) pipes and earns higher-than-blended EBITDA margin
of 12-14%

▪ On a sustainable basis, PRINCPIP aims to earn INR 18-22 EBIT per kg in pipes. In Q1, this metrics
had fallen to INR 11-12 per kg
▪ North and West India markets (60% of sales) are the strongest for PRINCPIP and East India is the
weakest market. To expand its footprints in East India, the company is in the process of putting up
a plant at Bihar, which will operationalize by Q4FY25. Addition to this plant, it plans on
debottlenecking capacity at current facilities, which together will increase overall capacity of the
pipes division from the current 325,000 MTPA to 380,000-390,000 MTPA by FY27
▪ Strong demand is observed in the piping industry, with growth in the agri and plumbing
segments. Infrastructure demand is robust, presenting institutional opportunities at the state level.
There is untapped potential for HDPE in the Nal Se Jal initiative as PRINCPIP targets states, such as
Rajasthan & Uttar Pradesh and some eastern states. Margin in this segment are relatively low in
the range of 4-7%, but the focus is on utilizing unused production capacity. Existing facilities at
Jaipur, Haridwar, and Telangana will serve ancillary states

▪ The real estate sector is driving demand for projects, and this trend is expected to continue for the
next 3-4 years. The cost of pipes and fittings in overall project expenses is 1.0-1.5%

▪ PRINCPIP has shifted its focus to B2B projects, with 25% of revenue coming from this segment, up
from 15-18% in the past. This shift has provided valuable insights into potential of the projects
segment

▪ Overall working capital returns were historically high but have come off recently. Efforts are
underway to reduce debtor days from mid-50s to mid-40s through the channel finance and trade
control policies. Distributors with outstanding balances are being onboarded, and its
creditworthiness is considered for bank facilities to lower working capital requirements. Inventory
days are observed to be in the range of 65-70 days, with 30 days for raw materials and 40 days for
finished goods

63
 ▪ Water tanks represent a growth opportunity, with estimated 50-70% growth expected in the
current year. Three plants have started delivering, and the company anticipates sustained growth
of 20% over the next 3-5 years. Water tanks have a margin of 10-12%

• In the bathware segment, there is potential for an EBITDA margin of 15-18%, but this will be
achieved after reaching scale over 3-5 years. Initial years may see a cash burn of INR 150-180mn
pa, as the company invests in building the brand and expanding the segment

The company continues to focus on expanding its capacity, distribution and on new product launches
Analyst annotations:
to sustain its robust growth, with a focus on building materials and plumbing segments of 65%.
PRINCPIP is also entering the bathware segment to leverage its brand and distribution.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 16,357 4.1 2,288 14.0 1,125 37.1 10.2 18.2 15.2 72.2 34.7
FY21 20,715 26.6 3,616 17.5 2,218 97.2 20.2 23.6 20.4 36.4 22.0
FY22 26,568 28.3 4,157 15.6 2,499 12.5 22.6 21.6 20.3 32.6 19.1
FY23 27,109 2.0 2,503 9.2 1,216 (51.3) 11.0 9.2 8.8 66.9 31.8

Source: Company, Bloomberg, Elara Securities Research

Analyst: Amit Purohit, [email protected], +91 22 6164 8594

Rohit Harlikar, [email protected], +91 22 6164 8562
Vidhi Puj, [email protected], +91 22 4204 8692

64
Chemicals, Agro Chemicals & Sugar

65
Represented by:
Pramod Patwari, CFO Balrampur Chini Mills
Bloomberg Code: BRCM IN, Market Cap: INR 82bn, CMP: INR 407 (as on 8 September 2023)

Executive digest: Balrampur Chini (BRCM IN), an integrated sugar-ethanol manufacturing company, operates 10 sugar
mills in Uttar Pradesh with manufacturing capacity of 80,000 tonne of cane crushing per day and
distillery capacity of 1,050 kiloliters per day as on FY23. It also generates 175.7MW of cogeneration
power. BRCM has embarked on a cane development program to expand sowing in its command area
as well as diversify balance in variety, which is already sowed expected to bear fruit from this season.

Investor insight: ▪ No Committee formed for cane price increase: Every year, the government forms a Committee
which recommends cane prices for the season, and then it takes a final call. To date, no committee
has been formed, which recommends the price revision to the government for this season.
Rationally, the cane price increase for the season should be in the range of INR 0-10/quintal. The
Fair And Remunerative Price (FRP) rise by the government this year has been ~7% on recovery
rate adjusted basis
▪ Potential for 10% rise in cane sowing: BRCM expects ~10% increase in cane sowing in its command
area, driven by extensive cane development exercises. It expects sugar recovery to improve and
balance of variety to be better. The mix of 238 variety of cane has fallen to 45%. Crop condition
looks good as well

▪ Sugar prices to increase: Sugar prices have risen to INR 39/kg in India, driven by continued
demand, which may be partly driven by hoarding. Around 4.0mn tonnes of cane is expected to
be diverted to manufacture ethanol this year. The sugar trading community expects FY25 to be
bad, and, hence, it is bullish on sugar prices. If prices continue to rise then it may involve
government intervention through stock limits, following which the crushing season will
commence, which will reduce the price anyway. Maintaining a proper balance between ethanol
and sugar has led to better sugar prices and the entire basket of sugar-plus ethanol is benefitting.

Analyst annotations: BRCM is well placed to reap the most benefits of increasing sugar price as its cane crushing and sugar
production are expected to increase. Revision of sugarcane state-advised price (SAP) is a key
monitorable and it is expected to be declared in the next three months.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY EPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 48,460 0.7 6,998 14.7 4,659 (2.9) 22.8 16.8 14.7 21.5 16.0
FY23 46,659 (3.7) 5,120 11.0 2,958 (36.5) 14.7 9.8 8.0 27.0 19.1
FY24E 60,509 29.7 8,888 14.7 5,366 81.4 27.1 16.5 16.2 15.0 10.3
FY25E 62,570 3.4 9,682 15.5 6,084 13.4 31.4 16.4 18.6 12.9 8.6

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

66
Represented by:
Simon Britsch
Executive Director
Bayer CropScience
Sanjiv Sharma Bloomberg Code: BYRCS IN, Market Cap: INR 239bn, CMP: INR 5306 (as on 8 September 2023)
Head of Commercial
Area West
Executive digest: Bayer AG is global leader in the agri input industry. Bayer CropScience (BYRCS IN) is engaged in
agrochemicals, which makes up more than 85% of its overall revenue as on FY23) and seeds businesses
at ~15%. The company has a complete portfolio of agrochemical products across crops in India. Within
seeds, it largely operates in rice and corn hybrid. Its key crop segments in India include rice, corn,
cotton, fruits and vegetables.

Investor insight: ▪ New and existing products driving growth: The company is launching new products in crop
protection and seeds. It is tapping demand in crop protection through new products as well as
label extensions. There is significant headroom for growth even for existing products. For eg, the
Vayego brand of insecticide, which was launched a few years ago, still has unmet demand despite
increasing supplies. BYRCS continues to have low channel inventory due to healthy consumption,
which drives demand from dealers at the start of the ongoing Kharif season in an otherwise
subdued market

▪ Cost structure: Management had undertaken provisions for severance packages in Q4FY23. It is
currently trying to streamline organizational cost
▪ Expanding reach: The company is expanding its presence through the better life farming (BLF)
centers. It is opening BLF centers in areas not covered by retail outlets. It also has rolled out the
Sahbhaagi platform where it teams up with village entrepreneurs and train them on agriculture &
farm input trade practices and has developed an earning model
▪ Market size of Tembotrione to increase: Tembotrione (Corn herbicide), which recently went off
patent, is expected to see expansion in market size due to the entry of several firms. The corn crop
has huge growth potential in India, which will drive demand for the molecule

Analyst annotations: BYRCS derives ~100% of its revenue from India; hence, it is a direct play in domestic agrochemicals
consumption growth. While the company has posted a top-line CAGR of 12.5% over FY20-23, it has
registered an expenses CAGR of 13.5% during the same period. In that backdrop, a cost control
exercise augurs well.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY EPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 30,646 15.9 5,999 19.6 4,236 22.6 8.5 22.0 28.8 53.0 37.3
FY23 35,110 14.6 6,676 19.0 5,034 18.9 10.1 21.2 25.9 42.1 31.3
FY24E 35,495 1.1 6,462 18.2 4,782 (5.0) 9.6 17.1 21.0 46.2 33.3
FY25E 43,105 21.4 8,723 20.2 6,513 36.2 13.0 19.1 23.5 33.9 25.4

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

67
Represented by:
Vibhu Agarwal
Group Head of IR
Gujarat Fluorochemicals
Bloomberg Code: FLUOROCH IN, Market Cap: INR 332bn, CMP: INR 3,071 (as on 8 September 2023)

Executive digest: Gujarat Fluorochemicals (FLOUOROCH IN) is a leading producer of fluoropolymers, fluoro specialty,
refrigerants and chemicals used in different industries. With three manufacturing facilities in India, a
captive fluorspar mine in Morocco, the company operates through a completely integrated value chain
in fluorine chemistry. FLOUOROCH is the only firm in India, which offers a range of fluoropolymers,
such as PTFE, PVDF, micro powders, FKM, FEM, PFA and PPA. It also offers R22, R125 and
fluorochemicals for pharma and agriculture applications.

Investor insight: ▪ Fluoropolymers: FLUOROCH has a 30% market share in the EU and a 20% market share in the US
for PTFE and PVDF as on FY23. Inventory destocking has hit demand in the US and EU markets.
However, end-user industries are doing well, and demand recovery is expected in H2FY24. The
largest end-user industry for fluoropolymers is automobiles, followed by chemicals,
pharmaceuticals and paints. On the pricing front, PFA is the highest priced polymer in the R-22
value chain. FLUOROCH operates in specialized grade fluoropolymers. Hence, the pricing impact
has been limited to 5-10%. PTFE capacity currently is 1,550 tonne per month (TPM) and would be
expanded to ~1,700 TPM via debottlenecking. Additionally, new fluoropolymers capacity would
be increased to 1,700 TPM by end-FY24 against 1,100 TPM currently

▪ Specialty chemicals: The company produced R-22 and R-125 refrigerants, and any beneficial
outcome in the US investigation regarding anti-dumping duty on R-125 export from China
through other countries route will be a positive. The R-32 plant expansion is on hold currently

▪ Battery complex: The planned capex for battery complex is INR 7-8bn and the company has
already incurred INR 2.5bn in FY23. Operations will start with an initial capacity of 3,000 tonne
that will likely grow to ~25,000 tonne. FLUOROCH is looking to offer battery solutions with LiPF6
salts, additives, electrolytes and LFP, a cathode material under this complex and margin profile is
expected to be similar to the company
▪ Others: 1) The planned annual capex is INR 10-15bn over next 3-4 years, 2) sodium-ion batteries
will be more on the storage side while lithium-ion batteries would be more prominent for EVs, 3)
pricing volatility in China is expected to be absorbed once production and consumption moves
from China. Currently, China produces and consumes ~90% of lithium-ion batteries, 4) caustic soda
prices are currently under pressure at INR 30/kg. The company generates small profit at this pricing
level, and 5) no expansion of caustic soda and chloromethane capacities is being planned

Analyst annotations: FLUOROCH continues to be the leading supplier in fluoropolymers and with PTFE and new
fluoropolymers expansion, it would further strengthen its position in fluoropolymer value chain. The
company is fully backwardly integrated, thereby generating better margin. Further, lithium-ion
batteries and other renewable markets offer huge expansion opportunities with significant
fluoropolymer applications. We expect the company to be strongly placed to capitalize on these
opportunities.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 39,536 49.2 11,976 30.3 7,759 115.8 71.5 20.4 13.0 42.8 28.9
FY23 56,847 43.8 20,472 36.0 13,231 69.0 120.9 27.3 20.2 25.1 16.8
FY24E 57,317 0.8 19,087 33.3 11,835 (10.4) 108.3 19.8 15.4 28.0 18.2
FY25E 69,477 21.2 23,925 34.4 14,955 26.3 136.8 21.2 17.0 22.2 14.4
Source: Company, Elara Securities Estimate

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

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Represented by:
Subhra Gaurisaria, CFO Rallis India
Srikant Nair
CS and Compliance Bloomberg Code: RALI IN, Market Cap: INR 46bn, CMP: INR 238 (as on 8 September 2023)
Officer

Executive digest: Rallis India (RALI IN) is a generic agrochemicals manufacturer involved in the making of insecticides,
fungicides and pesticides. RALI garners 89% of its revenue from crop protection and nutrition products
as on FY23 while seeds account for 11% of revenue. Domestic sales accounts for two-thirds of revenue.

Investor insight: ▪ September rains expected to be normal: After the rains picked up pace over June-July, demand
was robust. The dry spell in August has dampened industry sentiments, but the management
expects rains to be normal in September, which is good for standing crops and business
performance is likely to improve

▪ Significant scaling up of the cotton business: RALI is taking steps to improve profitability of the
cotton business, such as territory consolidation, sharpening portfolio and eliminating overhead
cost. RALI plans to scale up its cotton business in the next 3-4 years

▪ Strong demand for two key molecules: The company sees positive momentum for the
Pendimethalin herbicide used in soya, ground nut, cotton, etc. The Acephate insecticide plant is
operating at peak utilization for several years despite input cost volatility and no backward
integration. Demand for Hexaconazole was soft in FY23, owing to competition from Tebuconazole
fungicide and weak demand

▪ Demand for PEKK reviving: Polyether Ketone Ketone (PEKK) sees demand revival after two years
of freeze. It is a good margin business for RALI and demand is likely to improve in the upcoming
years

Analyst annotations: RALI remains focused on volume growth. New launches in the branded business with
commercialization of at least one molecule every year would drive growth in the medium term.

Key financials: YE Rev YoY EBITDA EBITDA Adj PAT YoY EPS RoE RoCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 26,039 7.2 2,741 10.5 1,642 (25.1) 8.4 9.7 8.4 23.6 13.3
FY23 29,670 13.9 2,183 7.4 919 (44.0) 4.7 5.3 5.0 40.8 16.5
FY24E 32,458 9.4 2,957 9.1 1,526 66.0 7.8 8.3 7.8 30.3 14.9
FY25E 36,966 13.9 3,839 10.4 2,097 37.4 10.8 10.5 9.9 22.1 11.4

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

69
Represented by:
Kunal Mittal
SVP of Planning and
Sumitomo Chemical
Coordination Bloomberg Code: SUMICHEM IN, Market Cap: INR 221bn, CMP: INR 443 (as on 8 September 2023)

Executive digest: Sumitomo Chemical India (SUMICHEM IN) is an subsidiary of Japan’s Sumitomo Chemicals Corporation.
SUMICHEM manufactures, imports and markets crop protection as well as environmental health
products along with feed additives. It garners ~75% of revenue as on FY23 from India and the rest
from exports. Glyphosate, Tebuconazole and Chlorpyrifos are among key products.

Investor insight: ▪ Rainfall patterns in September to determine fortune: The optimism post the June-July rains has
waned with a dry August. The company’s fortunes currently are dependent on the timing and
distribution of rainfall in September. Placements are not expected to keep pace due to a dry
August, but the inventory position is optimal

▪ Volume growth to drive business: Management plans to recover ~INR 2.5 bn of lost sales of Q1
through high volume growth as a rise in realization has been ruled out for this year. Exports
continues to witness a slowdown and recovery is expected only from Q4. It targets to have a flat
top line in FY24, driven by growth in the domestic business

▪ Technical price increase to be short-lived amid dearth in demand: The recent rebound in technical
prices from China is expected to be short-lived as there is no demand currently. The price increase
in India on formulations is expected from December. Global channel inventory is high in specialty
molecules as well

▪ Environmental clearance approval sought for new plants: Future expansion plans at the recently
acquired land at Dahej and Bhavnagar in Gujarat have started. The company is seeking
environmental clearance for the plants. Simultaneously, it is doing preparatory work on the site to
start construction once the approval is granted. The company expects an approval in CY24.

▪ To provide management and financial bandwidth to Barrix: The recently acquired Barrix Agro
Science is a R&D-driven company. Barrix has a 10% market share in the INR 4bn pheromone
market as on FY23. The pheromone market is growing in India as well as globally. SUMICHEM will
provide scale. Barrix has significant research experience, but it lacks knowledge of plant quality
and marketing. SUMICHEM management plans to set up a larger facility (location not shared) to
capitalize on the opportunity that Barrix’ products provide

Analyst annotations: The secular growth story of SUMICHEM is intact. The next phase of investment for creating capacity
for the parent business has commenced slowly and commercialization is expected to be back-ended.
However, once the Dahej & Bhavangar facilities start their operations, it is expected to produce new
generation products of the parent. We reiterate our positive stance.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY EPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 30,646 15.9 5,999 19.6 4,236 22.6 8.5 22.0 28.8 53.0 37.3
FY23 35,110 14.6 6,676 19.0 5,034 18.9 10.1 21.2 25.9 42.1 31.3
FY24E 35,495 1.1 6,462 18.2 4,782 (5.0) 9.6 17.1 21.0 46.2 33.3
FY25E 43,105 21.4 8,723 20.2 6,513 36.2 13.0 19.1 23.5 33.9 25.4

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

70
Represented by:
Anand Vora, Global CFO UPL
Ashish Dobhal, CEO-
UPL SAS Bloomberg Code: UPLL IN, Market Cap: INR 455bn, CMP: INR 607 (as on 8 September 2023)
Radhika Arora, Head- IR
Mandar Kapse, IR
Executive digest: UPL (UPLL IN) is the fifth-largest crop protection company in the world with leadership in post patent
as well as bio solutions (Source: Company). With a presence across 130 countries, it has products across
all crops. The company’s robust supply chain is supported by vertical integration with a well-diversified
sourcing mix. UPLL’s core capability is that it manufactures 72% of its Active Ingredient (AI)
requirements as on FY23.

Investor insight: ▪ Expanding presence in wheat, sugarcane, paddy and ground nuts: UPLL plans to launch
pyroxasulfone for the wheat crop and it is planning to expand into Uttar Pradesh and Madhya
Pradesh. It already has a presence in Punjab and Haryana. Management plans to expand its
presence in sugarcane through tie ups with sugar mills (it recently partnered with Nirani Sugars)
and strengthened its hold in rice through the launch of novel insecticide Flupyrimin from Japan.
UPLL has revived groundnut acreage in Gujarat through its ProNutiva program, leading to 35%
increase in ground nut yield and 36% rise in farmer income (Source: Company)

▪ Cotton crop not doing well: August has turned out to be dry, causing concerns over crop yield.
UPLL sales took a hit in cotton and pulses. The cotton crop has suffered in North India due to the
Pink Bollworm pest. The company has a solution for these pests, but the chemistry has been
banned by the State governments for several years. The slowdown in China has been substantial,
leading to high inventory levels and less stocking in March, as companies wait for a price decrease
during the Kharif season

▪ Focus on volume growth in H2: UPLL expects H2 to be positive and it will focus on volume to
retain its market share. Decrease in raw material prices would lower working capital requirements.
The company will have to demonstrate double-digit volume growth in H2 to reach its target of 1-
5% top-line growth

▪ Reality check for agtech: Agtech have realized that they cannot sustain cash burn by selling
products at lower prices; so, they have adjusted their strategies to incorporate new models. Some
companies, such as Plantech, Agrostar, and Dehaat, have been able to strike deals with small
distributors while others, such as Ninjacart and Skymet, are looking to enter product sales and
distribution

Analyst annotations: UPLL’s India and global businesses are under pressure, due to subdued demand. Coupled with that,
management expects some impact from high interest rates. We expect overall business to pick up in
the next six months, but at the current market price, the Street seems to have already factored it into
its numbers, and is looking beyond the next six months.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 462,400 19.5 95,290 20.6 39,500 27.1 51.6 16.0 11.9 14.9 8.6
FY23E 535,760 15.9 101,960 19.0 37,400 (5.3) 49.7 12.5 11.7 14.4 7.3
FY24E 543,805 1.5 104,410 19.2 38,149 2.0 50.7 12.2 11.9 12.0 5.9
FY25E 594,474 9.3 120,678 20.3 53,897 41.3 71.6 16.1 14.2 8.5 4.2

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

71
Represented by:
Yayesh Jhaveri
Promoter & Director
Yasho Industries
Deepak Kaku, CFO Bloomberg Code: YASHO IN, Market Cap: INR 20bn, CMP: INR 1,796 (as on 8 September 2023)

Executive digest: Yasho Industries (YASHO IN) was incorporated in 1985 and started production in 1996. It operates in
the specialty chemicals industry. The company has three plants at Vapi in Gujarat and the fourth one
is being set up at Dahej in Gujarat. It has manufacturing capacity of 12,500 mn tonne with two R&D
centers as on end-FY23.

Investor insight: ▪ Revenue mix and margin: The industrial segment comprises 82% of revenue while consumers
segment constitute the rest as on FY23. Around 63% of revenue is generated from exports.
Segment-wise revenue breakdown includes rubber chemicals at 25%, lubricant additives at 25%,
specialty chemicals at 15-20% and food antioxidants & aroma constitute 15% each. EBITDA margin
for specialty chemicals is in the range of 22-50% while commodity chemicals yield margin in the
range of 5-10%. The company is looking to achieve ROCE in the range of 22-25%

▪ Capital expenditure: The company expands capacity by 17,500mn tonne in the first phase of
expansion with focus on lubricant additives. Expected capex is INR 4.0bn with asset turnover of
1.5x at peak potential. Phase 2 expansion would require investment of INR 1.0-1.2bn. The
company plans to raise INR 2.7bn from debt to fund capital expenditure
▪ Customers: OEM in the auto industry (tyre, industrial conveyor belts and cables) is a major market.
The company has captured an 80% market share in India’s tyre industry

▪ Others:

• Major raw materials are amines; they are imported from the US, the EU, and some proportion
from China
• Peak debt can go to ~INR 4.5bn in FY24
• YASHO manufactures 150-160 products and top 15 products contribute 70-80% of revenue
in industrials as well as the consumer segments

Analyst annotations: YASHO currently has exhausted its capacity and looking to double it with expansion in lubricant
additives where it has order interest from four customers of which it is confident of converting at least
three, which will help it achieve complete utilization within three years of commissioning. The next
phase of growth with almost equal land parcel would need minimal amount of capex and can provide
equivalent trajectory for growth.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 2,971 385.7 13 119.9 11.0 41.5 42.7 10.5 7.1
FY21 3,594 21 490.0 14 214.8 79 19.7 31.4 28.7 17.3 10.4
FY22 6,138 71 933.8 15 527.3 145 47.7 41.8 37.1 40.3 25.2
FY23 6,670 9 1,107.2 17 643.0 22 56.4 31.3 26.2 26.6 18.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

72
Consumer Durable

73
Represented by:
Jairam Sampath, CFO Kaynes Technology
Neeraj Vinayak
Investor Relations Bloomberg Code: KAYNES IN, Market Cap: INR 118bn, CMP: INR 2,037 (as on 8 September 2023)

Executive digest: Established in 1988, Kaynes Technology (KAYNES IN) is an end-to-end and IoT solutions-enabled
integrated electronics manufacturing company, with capability to offer a range of electronics system
design and manufacturing (ESDM) services. It has three decades of experience in providing conceptual
design, process engineering, integrated manufacturing, and life-cycle support to major OEM firms in
the automotive, industrial, aerospace and defence, outer-space, nuclear, medical, railways, Internet of
Things (IoT), information technology (IT) and other domains. It also offers ODM solutions in smart
devices, IoT solutions, brushless-drive technology and Gallium Nitride technology. It has eight
advanced manufacturing facilities, two service centers & a design facility and has served 229 customers
in 20 countries for leading MNC.

Investor insight: Forays into OSAT business

▪ In August, KAYNES announced a foray into outsourced semiconductor assembly and testing
(OSAT)

▪ Total investment outlay is INR 37.5bn, of which INR 22.5bn would be the subsidy provided by the
Karnataka government while the rest is invested by KAYNES. It targets to invest INR 10bn through
internal accruals
▪ Ex-subsidy, asset turnover is expected to be 4-5x

▪ The land acquisition is expected to be completed by September 2023, and a trial line would
commence within six months. The facility would be fully operational with 11 assembly lines by
September 2025

▪ KAYNES would initially be focused on chips with four layers & above and high-density
interconnection, which would be useful for railways, industrial, and aerospace segments

▪ Key collaborations include global technology partner, testing machines, prototype designing
capability, and business development team

Mega railway opportunity

▪ Within the railways segment, KAYNES major target market is railway interlocking systems and
railway signaling, including train collision avoidance systems ([TCAS], popularly known as Kavach
in India)

▪ KAYNES has an 85% market share in railway interlocking components segment and its key clients
are Siemens, Hitachi, and Frauscher

▪ Indian Railways (IR) aims to upgrade signaling systems at 6,000 stations. Each station’s signaling
upgradation could be worth ~INR 100mn, of which 10% is the electronics portion. Considering
KAYNES’ market share at 85%, the potential opportunity could be worth INR 51bn

▪ IR targets to install TCAS across 68,000km track length. Globally, cost of installation is ~INR 20-
40mn per km while IR aims to bring down cost to INR 5mn per km. Electronics form 50% of total
cost. Hence, the total addressable market could be ~INR 170bn

Overall guidance
▪ Management aims to grow revenue by 40%, retain EBITDA margin at 15% and a PAT margin at
10% in the near to medium term

▪ Working capital stood at 99 days as on FY23. It aims to reduce it to 85 days in FY24 and 70 days in
FY25. Factoring in receivables, establishing local warehousing supply chain, and better inventory
management would aid in WC reduction
▪ The new facility at Chamrajnagar in Karnataka is set to be fully operational by Q4FY24

74
Analyst annotations: India’s electronics market is set witness robust growth and may rise at 32% CAGR over FY21-26 to INR
20.1tn in FY26 (source: Frost & Sullivan). KAYNES’s is well positioned in the domestic electronics value
chain and with the entry in OSAT, it is set to witness sustainable high-growth phase.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 11,261 59.4 1,683 14.9 952 128.4 16.4 16.4 16.4 58.8 31.2
FY24E 17,547 55.8 2,678 15.3 1,921 101.8 33.0 18.2 16.9 61.7 42.8
FY25E 23,728 35.2 3,606 15.2 2,623 36.6 45.1 20.5 19.3 45.2 31.7
FY26E 30,257 27.5 4,531 15.0 3,328 26.9 57.2 21.4 20.5 35.6 25.0

Source: Company, Elara Securities Estimate

Analyst: Harshit Kapadia, [email protected], +91 22 6164 8542

Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

75
Represented by:
Chirayu Upadhyaya
Head of IR
Polycab India (Not Rated)
Bloomberg Code: POLYCAB IN, Market Cap: INR 779bn, CMP: INR 5,193 (as on 8 September 2023)

Executive digest: Polycab India (POLYCAB IN) is India’s largest manufacturer of wires and cables, catering to a diverse
customer base across a range of industries. It is also a prominent firm in the fast moving electrical goods
(FMEG) industry, with products, such as fans, switchgears, LED lights, solar inverters, luminaries and
pumps. It has 25 manufacturing facilities across five strategic locations. It has a strong focus on
backward integration and has invested to ensure the quality of its products & operational efficiency.
Investor insight:
▪ Industry performance: With the government’s increasing infrastructure spend and PLI schemes,
the wires and cables industry is witnessing increased demand. Amid this growth in wires and
cables, POLYCAB emerges as the market leader with a 22-24% market share. In addition, it is also
steadily increasing its FMEG business, by launching new &quality products and expanding
capacity to increase market share
▪ Business performance: POLYCAB targets a revenue of INR 200bn by FY26. It has set this plan into
motion by increasing the number of products to cater to all segments, introducing its economical
Etira brand in wires and switches. It is also making new specialized cables to cater to the premium
segment, with better margin on these cables. Additionally, it is partnering with large distributors
to increase its reach in the FMEG segment
▪ Capacity expansion: Management expects to invest INR 6-7bn in capacity expansion, out of which
75% will be utilized for wires and cables and 25% for FMEG. It is looking to set up a new extra high
voltage (EHV) plant in Gujarat to tap into the growing EHV market, with production expected to
commence in FY26. Additionally, it also established a switch manufacturing plant during the year
to increase its FMEG sales, with capacity of 12mn units
▪ Control over prices: POLYCAB enjoys a competitive advantage in commodity procurement pricing
over industry peers. It can fix purchase price between the assigned period given by the seller. This
advantage enables it to offset the effects of volatility in prices of raw materials, such as copper. This
helps it to sustain margin as well as pass on any reduction in cost to the consumer
▪ Deep moat: The company has a large distribution channel, which focuses on educating
intermediaries, improves quality of services and establishes a long-term relationship. It also has
certificates, which helps it to supply quality cables. This coupled with pricing options, significant
capacity expansion, and ability to supply products across the country in the shortest time
compared to peers has enabled it to establish a moat to prevent margin from being eroded. This
also enables it to compete with China’s products in India, emerging as the preferred choice
▪ International business: There has been increased demand for RE internationally, resulting in rising
demand for cables in that segment. In addition to this, increasing infrastructural changes and the
China+1 effect have enabled POLYCAB to increase its international sales from 3% to 10%, a target it
had set for FY26. Lower cost, surplus capacity and quality certification enables it to compete with
local manufacturers in the US. Consequently, the US contributes 50% of its international sales in FY23

The current infrastructural boom and increased demand for consumer electricals make this the right
Analyst annotations:
match for POLYCAB, which, being the market leader, is doing everything right at the moment. Capacity
expansion, increased sales in FMEG and international markets, and introducing new products would
enable it to continue to earn its high margin and increasing sales every year. The large barriers to entry
in the industry enable it to sustain margins and steady dividend payout.
YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 88,300 10.6 11,400 12.9 7,840 47.3 52.7 23.5 23.3 14.1 9.5
FY21 87,922 -0.4 11,111 12.6 8,418 7.4 56.5 19.6 19.5 24.4 18.3
FY22 1,22,038 38.8 12,652 10.4 8,452 0.4 56.6 16.4 16.3 41.8 27.7
FY23 1,41,078 15.6 18,521 13.1 12,823 51.7 85.6 21.1 21.3 60.7 41.7

Source: Bloomberg, Company, Elara Securities Research

Analyst: Harshit Kapadia, [email protected], +91 22 6164 8542

Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

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Represented by:
Rajendra Gandhi, MD Stovekraft (Not Rated)
Irrfan Raeen, IR
Bloomberg Code: STOVEKRA IN, Market Cap: INR 18 bn, CMP: INR 555 (as on 8 September 2023)

Executive digest: StoveKraft (STOVEKRA IN) was incorporated in 1999 by Rajendra Gandhi. It manufactures a range of
kitchen solutions under the Pigeon brand (value), the Gilma (semi-premium) brand and acts as an
exclusive partner for kitchen appliances of the Black+Decker (premium) brand. Products comprise
cookware and cooking appliances while the home solutions segment consists of household utilities,
including the recently introduced LED bulbs and oximeters. Its flagship brands, the Pigeon and the
Gilma, have enjoyed a market presence for 15 years and high brand recall.

Investor insight: ▪ Industry scenario: FY23 saw a sharp increase in sales. Although Q4FY23 and Q1FY24 witnessed a
decline in quarterly sales, the upcoming months are expected to see an increase, thereby
surpassing FY23 levels, with the incoming festival season sales

Guidance

▪ The company posted record high top-line numbers in FY23. Management is focused on increasing
sales through entering new channels and increasing growth from existing channels

▪ It targets an EBITDA margin of 11%, with gross profit expected to remain at 30% level

▪ The company maintains its strong presence South and West India
▪ eCommerce continues to form 30% share of its revenue in FY23, with focus on increasing these
numbers in the upcoming years

▪ Air fryer business: The company launched air fryers in August 2022, and within a short span, it has
become a leader in the business and hold a sizeable market share
▪ Exports: Management is focused on building a network with retailers in the US by engaging in
white labelling with retailers there. Simultaneously, it is also looking to build its own distribution
and brand in the US, with exports estimated to form 20% of revenue if implemented. It is currently
the largest exporter of non-stick cookers in the country, with its exports being predominantly to
the US
▪ Retail sales: The company is focused on increasing its retail presence in the market by building new
stores. It currently has 90 stores, with an aim to build 25 new stores every quarter. It also aims to
increase its retail presence in North India, which could result in doubling the existing number of
retailers from the current number of 75,000. However, region-specific products emerge as a
challenge for exploring sales in new areas, which the company looks to overcome

▪ LED business: It is largest bulb brand across Karnataka. It also introduced its new innovative 9W
and 12W bulbs during the year, setting a new industry benchmark

▪ Shift from capex to opex model: The company is looking to shift from capex to opex model. It looks
to adopt leasing hereafter instead of additional investment. It plans to proceed with a low capex,
being at a mere 25%

Analyst annotations: The current demand landscape in India has shown increased shift toward premiumization and quality.
Stovekraft continues to emerge as a pioneer in this industry with its innovative products in various
segments. With an increase in its retail presence, focus on exports and new products, it has
consequently achieved record high sales. If it manages to increase its presence in North India, it could
result in significant improvement in its business. However, increased competition from branded firms
may impact margin.

77
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 6,698 4.5 359 5.4 31.3 65.6 1.15 2.3 5.0 - -
FY21 8,589 28.2 1,146 13.3 811.3 2492 24.91 29.6 20.5 18.4 13.2
FY22 11,363 32.3 940 8.3 576.3 -29 17.1 13.5 14.7 35.9 22.1
FY23 12,838 13 971 7.6 356.6 -38 10.83 8.5 11.2 34.7 14.6

Source: Bloomberg, Company, Elara Securities Research

Analyst: Harshit Kapadia, [email protected], +91 22 6164 8542

Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

78
Represented by:
Mithun Chittilappilly, MD V-Guard Industries
Sudarshan Kasturi, CFO
Bloomberg Code: VGRD IN, Market Cap: INR 137bn, CMP: INR 316 (as on 8 September 2023)

Executive digest: V-Guard Industries (VGRD IN) is a Kochi-based company, founded in 1977 by Kochouseph Chittilapilly
to manufacture market voltage stabilizers. Since then, it has established a strong brand and diversified
to become a multi-product company catering to the light electricals sector by manufacturing voltage
stabilizers, digital UPS systems & batteries, pumps, house wiring cables, switch gears, modular switches,
electric water heaters, fans, solar water heaters, air coolers and kitchen appliances. It outsources ~56%
of its product profile as on FY23, while the rest is manufactured in-house. It has manufacturing facilities
at Coimbatore in Tamil Nadu, Kashipur and Roorkee in Uttarakhand, Kala Amb in Himachal Pradesh
and Sikkim. It has been a dominant firm in South India and is also expanding rapidly in the non-South
geographies with such contribution increasing from 5% of total revenue in FY08 to ~46% of total
revenue in FY23.

Investor insight: Performance, strategy, and trends across product categories

▪ Demand was healthy during the Onam festival season in South India, and since VGRD is a strong
firm in the region, and it would aid in Q2FY24 growth
▪ There is strong demand for mixer grinders, gas stoves, and stabilizers (high single digits growth)
during Onam; however, there is increased competition in the industry
▪ VGRD gained market share in fans in FY23. Over FY20-24, it expects to double its fans revenue to
INR 6bn in FY26
▪ VGRD is setting up a table wall pedestal (TPW) fans factory at Hyderabad, which is currently
outsourced domestically. It lost market share in TPW fans during the past three years due to
increased competition from imports from China
▪ VGRD is also in the process of setting up mixer grinder manufacturing facility at Vapi, Gujarat
▪ Inverters revenue grew 25% YoY in Q1FY24, led by healthy demand and VGRD’s ability to meet
demand with the new facility in Uttarakhand. This has led to market share win in Q1
▪ The stabilizer portfolio grew 25% in Q1FY24, which has led to market share gains. July 2023 went
dull for VGRD while August witnessed 20-25% YoY growth in stabilizers
▪ The company lost its market share in water heaters in Q1FY24, however, it is improving after Q1
▪ Overall finished goods inventory level currently is at 47-50 days
Capacity expansion plans
▪ Capacity expansion activities over FY24-25 would help in increasing in-house manufacturing
contribution from 56% in FY23 to 75% by FY26
▪ Higher in-house manufacturing would lift margin gradually, and it could expand 30-40bp pa over
FY24-26
Kitchen portfolio
▪ Sunflame holds a dominating market share in North India in chimney, gas stoves & hobs and
thereby helps in commanding premium in North India
▪ VGRD’s kitchen portfolio presence would be restricted to South India and Sunflame would be
catering to the other regions
▪ Built-in chimney and hobs would grow faster than traditional appliances, such as gas stoves and
mixer grinders. Chimney would outperform all other kitchen appliances in the upcoming years
BLDC fans
▪ Brushless direct current (BLDC) motor fans constitute15-20% of total fans market in India currently
▪ Kerala and Maharashtra contribute 40% of total BLDC fans market
▪ eCommerce channel contributes up to 40% of the BLDC fans market

79
 Guidance and outlook
▪ Ad spend stood at 3.0-3.5% of sales prior to COVID. It stood at 2.5% of sales in FY23. Management
aims to revert to pre-COVID levels after margin normalizes amid increased price competition in
the industry
▪ Operating margin would be lower than other consumer electrical companies in the next 2-3 years
as it focuses on incubating more product categories and spending INR 200-250mn on moulds
and dies for new stock keeping units (SKU), leading to higher cost absorption
▪ EBITDA margin guidance is at 10% during FY24-26

Analyst annotations: Demand was healthy in South India during the Onam festival season, it implies demand recovery in
H2FY24 as we enter the upcoming Diwali season. This would provide support to the consumer
electrical companies. Moreover, brands, such as VGRD and Sunflame, are well positioned to capture
demand from high-growth categories, such as chimneys, hobs, modular switches and stabilizers.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 41,260 17.9 3,199 7.8 1,890 (14.2) 4.4 12.8 13.6 72.1 42.5
FY24E 43,794 6.1 3,759 8.6 2,395 26.7 5.6 14.7 14.9 56.9 35.9
FY25E 49,469 13.0 5,021 10.1 3,349 39.8 7.8 18.1 18.2 40.7 26.6
FY26E 53,722 8.6 5,940 11.1 4,019 20.0 9.3 18.7 18.8 33.9 22.1

Source: Company, Elara Securities Estimate

Analyst:
Harshit Kapadia, [email protected], +91 22 6164 8542
Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

80
Represented by:
Jitendar Verma, CFO
Manish Desai, Head of
Voltas
Corporate Finance Bloomberg Code: VOLTAS IN, Market Cap: INR 299bn, CMP: INR 904 (as on 8 September 2023)
Vaibhav Vora, IR

Executive digest: Voltas (VOLT IN), part of the Tata Group, is an engineering solutions provider and India's leading room
air-conditioning company with a market share of 21.6% at multi-brand retail outlets, YTD April 2023.
Its three business verticals are: 1) electromechanical projects engaged in turnkey projects, comprising
heating ventilation and air conditioning (HVAC), refrigeration and electrical power, 2) engineering
projects that cater to sectors, such as textiles machinery, mining & construction equipment, and 3)
unitary cooling products that assemble room and split air conditioners, commercial refrigeration, and
air coolers.

VOLT entered into a 50:50 JV with Arçelik AS (a household appliances subsidiary of Turkey-based KOC
Group) to access the INR 350bn consumer durables market in India, which is growing at 10-12%, as
per management. The JV launched products, such as refrigerators, washing machines (WM),
microwaves and dishwashers under the brand, VOLT BEK.

Investor insight: Industry performance: The impact on RAC demand due to poor weather conditions over June-July,
with demand expected to pick up in the upcoming months
▪ Business performance: There has been significant reduction in market share from 25% to 21%
currently, due to increased competition and price reduction by peers. Despite this, VOLT continues
to be the leader in market share as well as margin
▪ Despite lower sales during April-May and impact of weather in June, VOLT still managed to
achieve quarterly growth of 15% in revenue, with similar pattern expected to occur in upcoming
quarters’ revenue

▪ VOLT being a market leader in North India, is focused on increasing its market share in South and
East India where it still has room for major growth. The increasing market in East India provides
the ideal boost to its quest for increasing market share

▪ Despite inflationary conditions, the company has not increased its price of products over the past
18-24 months. Instead, it is focused on optimizing its production process by making products
available based on requirements. In addition, it also engaged in value engineering and inventory
management to control cost, thereby sustaining prices. However, any significant value
engineering undertaken stands the risk of being copied and implemented by competitors

▪ Management is looking to recover its lost market share, through continued innovation and process
improvement

▪ Plagued by legal issues in the past, which hurt project management sales, VOLT is seeking legal
recourse and hopes to recover profit in projects while also trying to sustainably increase
profitability

▪ Management is not looking to enter into exports business or third-part manufacturing due to
unavailability of surplus capacity

Analyst annotations: Despite a challenging environment and increased competition, VOLT remains a market leader in share
and margin. It has retained its focus on quality and innovation. However, with continued price
reduction by peers, it remains to be seen whether it can successfully recover its lost share, or will it be
able to sustain its current share in existing markets and increase its presence in newer markets.
YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 94,988 19.7 5,724 6.0 3,800 -24.9 11.5 7.0 6.7 78.8 46.7
FY24E 1,09,353 15.1 7,224 6.6 5,254 38.2 15.9 9.5 8.8 57.0 37.2
FY25E 1,31,250 20.0 10,456 8.0 8,368 59.3 25.3 14.0 12.9 35.8 25.5
FY26E 1,52,980 16.6 12,852 8.4 10,662 27.4 32.2 16.0 14.8 28.1 20.5

Source: Company, Elara Securities Estimate

Harshit Kapadia, [email protected], +91 22 6164 8542

Analyst: Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

81
Financials

82
Represented by:
Mr. Sanjay Wadhwa, CFO
Mr. Akshay Gavankar,
360 ONE Wam (Not Rated)
AVP, Corporate strategy Bloomberg Code: 360ONE IN, Market Cap: INR 186bn, CMP: INR 520 (as on 8 September 2023)
Mr. Abhishek Nalwaya
Head, Investor Relations
360 ONE (360ONE IN, Not Rated) is one of the fastest growing private wealth management firms in
Executive digest:
India with an AUM of ~USD 46.7bn as of June-23. It serves the highly specialized and sophisticated
needs of high net worth (HNI) and ultra-high net worth individuals (UHNI), affluent families, family
offices and institutional clients through a comprehensive range of tailored wealth management
solutions. IIFL Wealth helps >6,800 influential families in India. The company operates in two business
segments, viz., wealth management and assets management. The company started wealth
management activities in 2008 and subsequently acquired AMC license in 2015.

Investor insight: ▪ Yield scenario: The Wealth division’s yield is currently at 70bps, while the asset management
sector's yield previously stood at 80bps. The consolidated yield reaches 73bps. Additionally, the
yield for mutual fund distribution ranges from 40 to 45bps.

▪ Advisory business update: The Advisory business incorporates DPMS, NDPS/RIA, and corporate
treasury. The yield ranges vary, with DPMS yielding in the range of 40-42bps, NDPS/RIA at 20-
25bps, and corporate treasury at 4-6bps. Additionally, Advisory AUM amounts to INR 10bn and
caters to ~500-600 families.

▪ Focus on AIF funds: The company's core focus is on AIF funds, with managed AIF and PMS yields
standing at 38bps, while mutual distribution remains stagnant. Furthermore, AIF applications have
reached an all-time high. Private equity AIF assets total INR 210bn, and credit and real estate AUM
amount to INR 100bn.
▪ Attrition/employee vintage: The client's overall attrition rate for FY23 is 1.2%. At the junior level of
relationship managers (RMs), attrition falls within the range of 8-10%, while at the senior RM level,
it is <5%. Remarkably, over 50% of the employees have a tenure of more than five years.

▪ Customer-centric product expansion: The company's focus revolves around a product designed to
target clients with investable amounts ranging from INR 50mn to 250mn.

▪ Operating cost composition: The company's cost-to-income ratio currently stands at 45%, and may
always remain >40%. Employee costs account for 33% of the topline, consisting of 60% fixed and
40% variable components.

▪ NBFC business – aids in cross-sell: The NBFC business primarily serves as a provider of supportive
products exclusively for existing clients, and its total AUM amounts to INR 45bn. All assets are stage
1 assets, maintaining a spread of 3.25% despite the high cost of funds, and continue to grow in
comparison to the AUM in the wealth segment.
▪ Business model: The company operates with 80% recurring revenue model. The company’s
objective is to achieve a 20% growth in AUM.

Analyst annotations: 360 ONE is among the promising and fastest-growing wealth management businesses, defying
competition from bank-led wealth management companies. Strong foothold in advisory business and
focus on core AIF book expansion led by asset management diversification place 360 ONE ahead of
the competition. At the CMP, the stock trades at 20.8x P/E and 4.75x P/BV FY25E.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 8,509 (20.2) 3,274 38.5 2,012 (46.2) 20.6 7.0 NA 25.2 19.4
FY21 10,527 23.7 5,278 50.1 3,690 83.5 37.9 12.5 12.7 13.7 16.3
FY22 15,354 45.9 7,513 48.9 5,777 56.5 59.3 20.2 19.8 8.8 20.7
FY23 15,687 2.2 8,909 56.8 6,735 16.6 69.1 22.0 21.5 7.5 17.6

Source: Bloomberg, Company, Elara Securities Research

Shweta Daptardar, [email protected], +91 22 6164 8559

Analyst:
Himanshu Dhyawala, [email protected], +91 22 4204 8661

83
Represented by:
Mr. Parag Joglekar, Aditya Birla Sun Life AMC (Not Rated)
Chief Financial Officer
Bloomberg Code: ABSLAMC IN, Market Cap: INR 122bn, CMP: INR 422 (as on 8 September 2023)
Mr. Prakash Bhogale
Head – Business
Planning, Analytics &
Investor relations
Executive digest: Aditya Birla Sun Life AMC (ABSLAMC IN, Not Rated) is a joint venture between the Aditya Birla Capital
and Sun Life (India) AMC Investments Inc. It is the investment manager of Aditya Birla Sun Life Mutual
Fund. Additionally, ABSLAMC has various other business lines such as Portfolio Management Services,
Real Estate Investments and Alternative Investment Funds. As of March 2023, ABSLAMC had a total
AUM of INR 2.97tn and an equity AUM of INR 1.19tn. It has a country-wide branch network along with
diversified distribution, comprising banks, mutual fund distributors (MFDs), and national distributors.
In FY23, it delivered a revenue of INR 12.3bn and a PAT of INR 5.9bn.

Investor insight: ▪ Industry and business scenario: While industry flows have decelerated in the current quarter,
ABSLAMC has experienced significant growth in equity flows. In Q1FY24, there were 7.20mn new
SIP registrations, contributing to a total live SIP count of 66.5mn.
▪ Strategic growth outlook: ABSLAMC is focused on delivering long-term value to customers
through PMS, AIF, and other services, with the strategic focus on increasing overall AUM, growing
in top 30 cities, and concurrently, elevating the equity AUM share to 45-50%.
▪ AUM status: ABSLAMC’s total AUM now stands at INR 3,090bn, reflecting an 8% QoQ growth. This
includes INR 2,970bn in MF AUM and INR 90bn in offshore AUM. Retail accounts for 49% of the
AUM, while institutional investments contribute the remaining 51%.

▪ Focus on SIP growth: ABSLAMC’s monthly SIP book has reached INR 9.9bn, marking a 10% YoY,
and it continues to be focused on its growth. In the last quarter, 0.12mn new folios were added,
resulting in a total folio count of 7.9mn.

▪ Geographic presence: ABSLAMC aims to expand its presence in both T-30 cities and B-30 cities –
Currently, B-30 cities contribute 17% to its growth. Its digital platform and Aditya Birla Capital
branches play pivotal roles in facilitating growth within these cities.
▪ New fund expansion initiatives: ABSLAMC has observed higher gross and net sales in its focus fund
offerings, which include multi-asset allocation, balance advantage, small-cap, and mid-cap funds.
Moreover, it has introduced an India equity fund on its PMS platform and is currently awaiting
approval for the launch of several new funds.

▪ Gift city branch-outs: ABSLAMC has expanded its operations by establishing a branch in GIFT city
and has intentions to introduce ESG funds.
▪ Equity inflows and strategy: ABSLAMC’s primary focus is to enhance SIP flows to maintain steady
equity inflows. Furthermore, the company recently launched an FFO product, which consisted of
five offerings, and resulted in increase in gross sales.

▪ Passive funds: ABSLAMC plans to cross-sell passive funds to its active customer base. It is also
committed to enhancing its Index and ETF funds to achieve better yields and is also planning to
launch AIF, debt, and real estate funds. Notably, ABSLAMC has shown impressive returns on real
estate funds, with no delinquencies in the past few years.

▪ AIF strategy: ABSLAMC is aiming to increase its AIF share to double digits in the long term, primarily
motivated due to higher margins. To achieve this, it intends to expand its AIF team, which at
present comprises eight members, to maintain a sharper focus on AIF initiatives.

▪ One person branch: ABSLAMC follows a unique approach, wherein 80 one-person branches have
been established. These branches are converted into full-fledged branches once their assets under
management (AUM) reach a specific threshold. Typically, this conversion process takes ~18
months.

84
 ▪ Operating costs scenario: ABSLAMC foresees a marginal rise in employee costs due to upcoming
hires, along with a slight reduction in rental expenses. However, ABSLAMC expects a slight
increase in compliance and technology-related expenses.

▪ Promoters stack: By Oct-24, ABSLAMC is required to pare down its promoters’ shareholding to 75%
in compliance with the regulations.

Analyst annotations: With its balanced approach of maintaining high equity AUM share of 45-50% and grow alternate funds
such as PMS, AIF backed by increasing presence in in B-30, ABSLAMC is focused on delivering long-
term value to customers and shareholders. At the CMP, the stock trades at 16.9x P/E and 3.8x P/BV.

Key Financials: YE Revenue YoY NOPLAT NOPLAT Adj PAT YoY Fully DEPS ROE ROCE P/E EV/NOPLAT
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 11,597 (12.6) 4,382 37.8 4.944 10.5 17.2 38.9 38.0 24.5 25.0
FY21 10,679 (7.9) 4,220 39.5 5,263 6.4 18.3 34.8 33.5 23.1 24.8
FY22 12.930 21.1 5,616 43.4 6,485 23.2 22.4 33.2 32.3 18.8 17.9
FY23 12,266 (5.1) 5,009 40.8 5.964 (8.0) 20.6 25.3 24.8 20.5 19.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

85
Represented by:
Chetan Shenoy, ED &
Product Head
Anand Rathi Wealth (Not Rated)
Vishal Shanghvi, Head – Bloomberg Code: ANANDRAT IN, Market Cap: INR 58bn, CMP: INR 1,383 (as on 8 September 2023)
Investor relations

Executive digest: Anand Rathi Wealth (ANANDRAT IN, Not Rated), one of the leading non-bank sponsored B-C wealth
solutions firms in India, offers wealth management and distribution services in equities, commodities,
mutual funds, and structured products. Since 2002, ANANDRAT has evolved into providing well-
researched solutions to clients by facilitating investments in financial instruments through an objective
driven process. ANANDRAT had a total AUM of ~INR 434bn as of June 2023 with total revenue of INR
1.8bn and an APAT of INR 0.5bn in Q1FY24.

Investor insight: Target customers: High net worth individuals

▪ ANANDRAT operates in a pyramid structure, catering to retail clients with investments ranging
from INR 1.5 to 2mn at the lowest level, all of whom are high-net-worth individuals (HNIs).
ANANDRAT recognizes the importance of educating clients about wealth, focusing on the main
goal of understanding each customer's needs and offering tailored solutions and strategies to
build wealth effectively.

▪ Distinguishing between existing HNIs and new ones is essential, as each group requires a unique
strategy. Accurate segmentation is the critical factor. HNIs value their time, leading to minimal
negotiations, and most of their wealth accumulates in the last 3-4 decades, often derived from
their professions. This professional background facilitates easier access to initial capital, enabling
further wealth building.

Four key objectives

▪ Return: ANANDRAT targets returns of 12%, 13%, or 14% that impress eight out of 10 clients, while
achieving a favorable return on the entire balance sheet.

▪ Tax deferment: ANANDRAT focuses on expert application and understanding of Section 54 and
other sections for tax deferment.

▪ Wealth reinvention: ANANDRAT ensures no loss in the transmission of assets and safeguarding
wealth against potential unforeseen liabilities, despite low probability, due to significant impact.
▪ Estate planning: ANANDRAT implements synchronized nomination strategies with wills for clients
without incurring any charges due to an in-house team of lawyers.

Operational efficiency and growth guidance

▪ ANANDRAT’s approach centers on selling portfolios rather than individual products, with no direct
interference from clients in mix choices, a condition agreed upon by clients. It offers two distinct
avenues: advisory and distribution. The portfolio management relies on statistical tools such as
regression and correlation to achieve an average alpha of 3.5%, and it operates with minimal
human intervention.
▪ Each month, ANANDRAT welcomes over 100 new clients, offering them a streamlined approach
to asset allocation or product selection within two primary asset classes: equity and debt.
ANANDRAT focuses on structured products, which, despite lacking principal protection and tax
benefits such as indexation, are intentionally not diversified to avoid spreading thin across multiple
products. Impressively, 93% of these products have delivered a substantial 15% return, with 4%
providing a solid 6% return, while the remaining ensured the return of the principal amount.
Approximately half of the products belong to the equity category.

▪ ANANDRAT's acquisition numbers have witnessed an uptrend, indicating growth. Interestingly,

the company has never compared its SIPs with peers.
▪ The underwriting of stocks' value three years down the line is a calculated process for the portfolio,
involving 50 researchers, of which 70% specialize in equity research. Notably, one analyst is
overseeing the selection of all the promising schemes, resulting in a remarkable 10% alpha in the
model portfolio.

86
 ▪ Achieving a 20% growth rate is entirely feasible for ANANDRAT, and it considers itself fortunate
to be in a position where market growth directly translates into its own growth. The company's
existing clients have contributed 45% of its assets, leaving significant untapped potential in the
remaining 55%. Currently, its RMs manage an average of 29 clients per RM, with the possibility of
scaling up to 50 clients per RM. The addition of new RMs will expand its customer base and build
from there, and ANANDRAT’s most significant source of new clients is through referrals from its
existing satisfied clients.

Low attrition rates boost productivity

▪ Another crucial aspect is the human element, with the organization experiencing an impressively
low RM attrition rate of <1%, significantly outperforming the industry average of 20% to 25%.The
regret attrition (RM's with >400mn AUM ) is more or less same to non-regret attrition.

▪ ANANDRAT retains RMs due to its transparent bonus formula with no upper limit. The company
currently boasts a strong team of 308 RMs and has chosen a path that does not involve lateral
hikes. Talent development is facilitated by promoting CAs and IIMs from AM to RM positions,
ensuring they learn how to become successful RMS.

▪ Forty AMs have successfully transitioned into RMS roles, a testament to ANANDRAT’s excellent
training structure and focused support provided during the process.

Analyst annotations: ANANDRAT has carved its own niche with customer-centric strategy backed by strong advisory and
distribution, enabling consistent healthy assets and profitability growth. With portfolio returns
maintaining healthy momentum and high retention power (be it RMs or customers), ANANDRAT has
a competitive advantage in the crowded advisory space. At the CMP, the stock trades at 25.2x P/E and
7.6x P/BV at FY25E.

Key Financials: YE Revenue YoY NOPLAT YoY Adj PAT YoY FDEPS RoE ROCE P/E
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x)
FY20 3,318 20.0 584 17.6 614 4.0 15.0 40.0 49.0 92.2
FY21 2,653 (20.0) 352 13.3 451 (26.5) 10.9 21.1 21.0 126.9
FY22 4,175 57.3 1,206 28.9 1,268 181.2 30.4 43.3 40.5 45.5
FY23 5,486 31.4 1,614 33.9 1684 32.8 40.3 41.5 63.1 34.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

87
Represented by:
Vishal Kshatriya
Director of Sales Andromeda Sales & Distribution (Not Listed)
Banking & Financial
Products

Andromeda in India’s largest home distribution company with a history of 30 years, dealing with
Executive digest:
secured and unsecured products in the lending market. It boasts of direct branch operations across
170 cities, through which it caters to spoke locations to all cities. The company has clocked in monthly
disbursements of INR 50-60 bn as on June 2023

Investor insight: Business trends

▪ Post Pandemic, the distributor sees increasing demand in the housing loan segment in urban cities,
due to real estate boom and has a presence in Tier II & III cities

▪ Around 60-70% of customers already have 3-4 loans.

▪ The distributor has observed that previous home loan transfers, which used to take place in 2-3
years and has come off to six months

Retail lending
▪ Credit filters in the secured assets are intact

▪ SME funding is at 120-140% of collateral value, indicating higher power in the hands of borrowers
and showing signs of laxity in credit policies
▪ In the unsecured segment, borrower can avail multi-funding, which poses higher risk (for eg, a
salaried person with a pay package of INR 1.15mn can afford an EMI of 75,000; however, multi-
funding translates into an EMI of INR 200,000). However, the proportion of such borrowers is low

▪ Market trends continue to be positive as non-performing loans (NPL) are low as calls for collection
are fewer
▪ The reason for aggressive lending is due to availability of opportunities in Tier II & III cities, and
improvement in risk appetite; however, lending policies are intact

▪ Fintech mostly operate in areas where the bank does not, such as funding in the unlisted space.
However, digital lending by banks is low in risk
▪ Andromeda gets 60-70% clients which have availed multi-funding

▪ Funding opportunity have gone up due to increased risk appetite, faster repetition, and presence
in Tier II & III cities
▪ Commission payouts in home loan and Loan Against Property (LAP) have not changed in a
decade; some high paying banks also have reduced rates, usually in the range of 3-4%
▪ Salaried personal loans (PL) in the range of INR 5-10mn are available at a rate of 10.0-10.5% across
banks while LAP is available in the range of 8.9-9.5%, due to lower rate differential preference,
which may change
▪ For some customers, cash audits are conducted

Payout among lenders

▪ Average payouts in housing loans and mortgages have not changed.

▪ Currently, the payout ratio is in the range of 3-4% for distribution channels

▪ In case of personal loans, a 4% payout ratio is offered by fintech lenders and NBFC

▪ PSU banks have a negligible presence in unsecured lending through distribution

88
 Others
▪ The gap between salaried unsecured PL and home loans, including LAP, is 100-125bp. The salaried
segment avails personal loans at 10.25-10.50% without any collateral with a ticket size in the range
of INR 50-100mn

Analyst annotations: Growth is more secular in nature across secured and unsecured products. There are a few pockets of
concerns, but they are few. We anticipate growth momentum to sustain as ecosystem benefits play
through.

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Shweta Daptardar, [email protected], +91 22 6164 8559
Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500
Himanshu Dhyawala, [email protected], +91 22 4204 8661

89
Represented by:
Vimal Jain, CFO AU Small Finance Bank
Prince Tiwari, Head of IR
Bloomberg Code: AUBANK IN, Market Cap: INR 491bn, CMP: INR 735 (as on 8 September 2023)
Kunal Kakkar, SVP - IR

AU Small Finance Bank (AUBANK IN), promoted by Sanjay Agarwal, with 28 years of experience,
Executive digest:
started its banking operations in April 2017. The bank has an established market position in Rajasthan,
and has expanded operations to Maharashtra, Gujarat, and other states over the years. AUBANK
primary focus is the retail asset-financing segment, primarily in the vehicular financing, and small
business loans to MSMEs. As on June 30, the bank has established operations across 1,038 banking
touchpoints in 21 States and three Union Territories.

Investor insight: Business momentum

▪ Capex demand comes largely from renewables, infrastructure (government as well as private
sector), real estate & power; traditional sectors, such as manufacturing and textiles, have taken a
backseat
▪ In the corporate loan space, 100bp has been passed on to customers out of total hike of 250bp;
AA & Above Rated NBFC are borrowing in the range of 8.5-9.0%

▪ The loan mix will not change meaningfully; vintage products will remain in the same proportion
while upside is expected in home loans, branch banking and personal loans products

▪ The bank has seen a structural change in its credit culture due to data availability, CIBIL score
rectification, Aadhaar-PAN, and UPI, showing intent on the part of the defaulter to repay the loan

▪ The bank’s USP will remain rural geography and growing opportunity in the retail portfolio

▪ Transition from Small Finance Bank to universal bank will take place in the next 2-3 years. The bank
has minimal chance for transition loss, given its steady business model

▪ Management aims to build the bank in a “phygital” way

New initiatives
▪ AUBANK has identified digital banking as a key area of work. For this purpose, it is working on its
credit card portfolio, personal loans for individuals, liabilities through video banking on the AU
0101 channel and has issued UPI QR code for merchants. The bank is looking to bring them
together and create synergy benefits. Earlier Head of Credit Cards has been appointed as Head of
Digital Banking to improve profitability

▪ Second key risk area is evolving transaction banking after acquiring an AD-1 license. This would
open avenues in forex, cross-border transactions, overseas remittances, derivatives & treasury. Th
export-import process in the SME channel also will be catered through transaction banking

Home loans
▪ Home loans comprise 7% of loanbook, and AUBANK expects it to reach 10% with advances
reaching INR 2tn. Currently, the home loanbook is at INR 45bn pertaining to the affordable
housing portfolio. Eventually when the bank reaches 10% home loans of overall book, there
would be a sizeable portion of prime home loans (majorly average ticket size of INR 3.0-3.5mn in
Tier II & III cities)
▪ While growing the home loan portfolio, AUBANK faced competition from Aavas Financiers in the
initial years as it was operating in the same geography; This has been phased out, thereby leading
to negligible impact

90
SME advances
▪ AUBANK believes SME advances usually perform well in a scenario of rising Inflation. The hotel
and education sectors were largely hit hard during the pandemic and a reversal is taking place.
Competition among banks is rising, but developing a distribution channel will continue to be a
challenge

▪ The bank has observed the rate at which the first loan is provided to MSME customer is more than
the prime borrowing rate and eventually 2-3 years later, Balance Transfer out takes place with
involvement of PSB. Apart from BT outs, the bank has witnessed high prepayments in SME
advances
▪ Identification of red flags is difficult in the SME and MSME portfolios, due to scattered segmentation
into 50 sectors

Unsecured personal loans and credit cards

▪ Unsecured lending in terms of fintech lending is evolving rapidly, with sizeable share with large
NBFC. However, high collection cost remains a major challenge

▪ The pure unsecured (personal loan and credit card) portfolio is 3% of loanbook as on FY23, and
the bank expects it to increase in the range of 8-10% with advances reaching INR 2tn

▪ The current personal segment of the bank (operating with ticket sizes of INR 0.1-1.0mn) provides
risk protection since they are majorly offered to salaried Existing to Bank (ETB) customers

▪ Provisioning standard in the credit card portfolio: the bank has started to provide with 90 DPD and
a write-off with 180 DPD

▪ The credit card portfolio is expected to breakeven by FY25

Others
▪ AUBANK’s vehicular financing portfolio is a mere INR 250bn as on FY23 whereas the nearest NBFC
competitor has a portfolio INR 700-800bn, and it is still growing at 20-25% YoY. Hence, the bank
sees huge opportunity in the vehicles segment by catering to the unexplored, subsegments, such
as trucks and new vehicles
▪ Around 20% of deposits are yet to be repriced (10-12% has been repriced after 2-3 years)

Cost and margin

▪ Margin has peaked in the banking industry in Q4FY23 and AUBANK has seen margin compression
of 40bp in Q1FY24, majorly due to large repricing. The bank expects a further decline of 15-20bp
in the upcoming quarters and bottoming in Q3FY24

▪ In Q1FY24, cost of funds has increased by 9bp to 6.58%; cost of funds remains a key monitorable;
in Q1FY24, the bank has reduced its peak deposit rates by 25bp across savings accounts and term,
deposits. However, management does not expect cost of funds to increase more than 20bp in
FY24

Other highlights
▪ AUBANK has 300 branches (100 urban and 200 in rural & semi-urban areas) whereas in the past
two years, the bank has added 180-190 branches in urban and metro areas, catering to large
deposits centers. The gestation period of 6-12 months for these branches is on the verge on
ending, and it has started to contribute to the bank
▪ The cost-to-income ratio is expected to sustain at current levels and then come off to ~60% in the
next two years

▪ AUBANK is currently working with Accenture to build a data warehouse, and with the help of
data analytics it is developing a merchant-based lending platform based on data collected from
installed QR codes

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Analyst annotations: While AUBANK has acceded to NIM pressure and limited levers on credit cost, it aims to sustain ROA
target with levers on other income. We have baked in the uncertainty into our estimates; even as
strengthened balance sheet and capital buffer lend comfort, near-term ROA challenges render
valuation a constraint. Our stance of AUBANK’s long-term growth and quality remains unchanged
despite challenges, underscoring our confidence in its execution capability.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 16.0 8.7 7.6 28.2 10.3 28.1 6.2 1.4 12.2 12.9 1.5
FY23 18.2 14.0 9.4 23.3 12.7 23.2 5.4 1.5 13.4 10.5 1.3
FY24E 17.6 (2.9) 9.6 2.0 12.9 2.0 5.6 1.4 12.1 10.3 1.2
FY25E 18.9 7.2 10.6 11.0 14.3 11.0 5.2 1.4 12.0 9.2 1.1

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

92
Represented by:
Rakesh Shinde
Head of IR
Bank of Baroda
Bloomberg Code: BOB IN, Market Cap: INR 1023bn, CMP: INR 198 (as on 8 September 2023)

Headquartered at Vadodara, Bank of Baroda (BOB IN) has expanded its operations through mergers
Executive digest:
and acquisitions before being nationalized in 1969. The GoI’s shareholding stood at 63.97% as on June
30, 2023. Currently, BOB is among the five largest banks in India.

Investor insight: Business momentum

▪ Overall credit demand is expected to grow at 14-15% YoY, 2% above industry growth. This credit
demand will be led by retail credit growth of 25-28% YoY whereas there would be yield pressure
on the corporate portfolio and expected to grow at 10-12% in FY24

▪ Corporate Loans underwriting standards have improved with a change from asset-based to
cashflow-based financing post pandemic, and the market has been rewarding low-debt
companies

▪ In the next three years, BOB expects a loan mix in the ratio of 35:35:30 (retail : corporate : agri &
MSME) from 27:43:30

▪ The retail portfolio will drive credit growth

Home loans
▪ Within the retail segment, growth will be driven by home loans, which contribute ~ 60% of the
overall retail portfolio, and this book is expected to grow at 20% for FY23

▪ Home loans remain a highly competitive segment. There is moderate pressure since a majority of
banks are offering similar home rates. Home loans in the Balance Transfer market are cooling off,
due to low arbitrage opportunities for housing loan customers. Arbitrage is profitable with a
difference of 100-120bp

▪ Home loan BT–IN has been negligible from private banks and NBFC to PSU and vice versa
▪ HDFC Bank has been one of the major competitors with aggressive pricing due to merger
synergies, and BOB expects it to last for the next 6-9 months

▪ BOB is currently offering HL-fresh loan at 8.7% and HL – existing customers at 9.25%

Auto and education loans

▪ Auto and education loans are expected to grow at 25% YoY for FY24
▪ For auto loans, BOB has tie-ups with Maruti Suzuki India and Hyundai India, which has helped car
dealers to acts as Direct Selling Agents for the bank and tie-up with corporate houses, such as
M&M and Tata Motors. In FY23, the entire auto loanbook got repriced at 8.85-9.00%, and BOB
currently offers car loans to New to Bank (NTB) customers at 8.5%

Personal loans
▪ Personal loans are expected to double in FY24 due to low base. This product caters to 30mn
customers (out of 60mn non-FI) on the BOB World App with the help of pre-approved business
loans (PABL). These products are expected to add 5bp to NIM. These loans are done through the
digital mode with low cost of acquisition

▪ Unsecured loans form 2% of overall loanbook as on FY23. They are largely digital personal loans
in the range of INR 0.05-0.5mn with an average ticket size (ATS) of INR 0.15-0.20mn. Around 75%
of these loans go to the salaried customers and 100% are Existing to Bank (ETB)customers

Overseas book
▪ The international portfolio comprises 18% of global advances as on FY23 and is expected to remain
in the range of 15-18% in FY24. The loan mix ratio is 60% as syndication loans, 30% as trade finance
and 10% local credit

93
 ▪ Loan syndication operates at margin levels of 1.9-2.0% and overall overseas portfolio contributes
~1.2% ROA in FY23

▪ Around 70% of the international book pertains to non-Indian firms and syndication loans are
provided to only non-Indian firms

Cost and margin

▪ BOB currently operates at a ROA of 1.11% as on Q1FY24. It aims to improve to 1.5% in the next
three years and 2% in the next 5-10 years. ROA levers would be improvement in fee income and
credit cost to remain below 1% level

▪ The bank has achieved an overall NIM of 3.27% in Q1FY24 and guides for NIM to be in the range
of 3.5-3.6% with change in loan mix over next 2-3 years and stable levels of 3.3% in FY24

▪ The cost to assets ratio is expected to decline by 10-20bp in FY24

Asset quality
▪ The slippages ratio is set to be ~1% in FY24

▪ SMA1 and SMA2 as a percentage of standard advances is at 0.29% as on Q1FY24

▪ The PCR ratio (excluding TWO) is 78.52% as on Q1FY24

▪ BOB has dedicated a collection vertical of 300 employees for RAM (Retail+Agri+MSME) advances,
which has helped them build good traction in collections

Other highlights
▪ In the next years, BOB expects fee income to be 20% of total Income and the cost-to-income ratio
to reach ~40% levels from the current ~13% and ~47%, respectively.

▪ It aims to increase fees income growth to be 1.5x of NII growth in FY24. This will be led by wealth
management and cash management services, which contributed INR 4,000mn each in FY23., and
are expected to increase to INR 6,000mn each in FY24 with a RM network of 2,500 targeting
~0.25mn customers. Ultra-HNI customers will be catered through RADIANCE, a new product. The
bank has rolled out 0.5mn point of sale (POS) machines in August, which would eventually help
in mobilizing cross-selling income
▪ Around 2,500-3,000 banking employees are retiring every year; five years later, the bank expects
employee count to stabilize at ~72,000-75,000. BOB has added Feet on Street and also has Baroda
Global Shared Services subsidiary with an employee base of 4,000; this headcount will be 6,000-
7,000 in the next two years. Variable pay is on a growing scale on PLI measures

▪ In Q1FY24, the bank had provided the entire treasury income of INR 11.5bn

Analyst annotations: Better outcome on asset quality may ensure that BOB delivers a ROE of 14-15% in the near term. We
believe continued delivery on core performance (excluding one-offs) will drive a rerating. BOB is our
preferred pick in the PSU basket after SBI.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 223.9 5.6 72.7 777.3 14.0 777.3 4.6 8.9 0.6 14.0 1.3
FY23 268.6 20.0 141.1 94.0 27.3 94.0 3.8 15.3 1.1 7.2 1.1
FY24E 297.0 10.6 148.8 5.5 28.7 5.5 3.4 14.3 1.0 6.9 1.0
FY25E 326.2 21.4 165.8 17.5 32.0 17.5 3.1 14.2 1.0 6.2 0.9

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

94
Represented by:
Suresh S Iyer, MD & CEO
Can Fin Homes
Ajay Kumar Singh, Deputy
Managing Director Bloomberg Code: CANF IN, Market Cap: INR 103bn, CMP: INR 774 (as on 8 September 2023)
Apurav Agarwal, CFO
Prashant Joishy, Deputy
General Manager
Can Fin Homes (CANF), a housing finance company promoted by Canara Bank, was incorporated in
Executive digest:
1987. The company primarily caters to low and middle income group individuals and first-time home
buyers. The company focuses on housing loans to individuals (89% of the loan book). Besides housing
loans, CANF offers top-up personal loans, mortgage loans, loans for sites and staff loans. As of FY23,
CANF’s AUM was at INR 325bn. With headquarters in Bengaluru, the company has pan-India presence,
with 205 branches and 12 satellite offices, as of Q1FY24. Mr. Suresh Srinivasan Iyer is the MD and CEO
of the company.

Investor insight: Demand outlook positive

▪ CANF has observed that HDFC used to be the dominant player in the Housing Finance Companies
(HFC) sector, while it continues to witness considerable interest in both HFCs and NBFCs. The
government maintains a positive outlook for NBFCs and HFCs, expecting minimal major issues,
with only four banks exerting significant influence in this arena.
▪ In contrast to banks that primarily cater to customers in larger towns, CANF has a distinct customer
base, with 73% falling within an income range of INR 2 -2.5mn.
▪ Typically, salaried individuals initially seek housing in peripheral areas before transitioning to
central areas as their income increases. Before the introduction of the Credit Linked Subsidy
Scheme (CLSS), affordable housing faced supply challenges, but the demand side remains robust.
However, with CLSS drying up, the future of affordable housing becomes uncertain.

▪ Additionally, the smaller ticket size of AHFC (affordable housing finance company) is expected to
face challenges with the drying up of CLSS (credit linked subsidy scheme).

DSA business share as high as 80%, need improvements

▪ Previously, there was a shortage in the MIG segment, but that shortage no longer exists. CANF
has seen a significant shift, with 80% of its sanctions now coming through DSAs, up from the
previous 52%, and CANF is actively working to enhance this situation.

▪ Due to the impact of COVID-19, CANF’s direct business was affected, prompting the
implementation of incentives for its own staff. As a pilot initiative, 51 branches have been launched
with team sizes of five or more, with one member from each team assigned the responsibility of
direct customer acquisitions.

▪ Recent improvements have enhanced efficiency, accountability, and transparency, including

centralized disbursement and reconciliation. CANF is evaluating valuation with a third-party
vendor and has completed a tie-up for litigation software.

▪ A credit reviewing monitoring department has been established, and cheque signing power will
be delegated to the branches. While maintaining the branch's unique selling proposition (USP) for
sanctioning, reviews will now be conducted by the central team.
▪ The cost-to-income ratio has increased from 7% to 8.5% in the past few quarters.

Asset repricing and cost of borrowing to come down

▪ The entire book, comprising 100% variable rates with an annual reset clause, is scheduled for
repricing by January 2024. The company reported a BT out of 1,250mn for the quarter, prompting
a review of the annual reset policy. Although the possibility of quarterly repricing is being
considered, there is a concern that it may not be equitable for customers if rates rise and the
structure changes to quarterly adjustments.

95
 ▪ A significant portion of the company's borrowings (40%) was linked to the repo rate. Currently,
CANF is engaged in discussions with the banks to potentially lower the repo rate to a range of
100-120bps, aiming to reduce the existing 140bps premium over the repo rate. Notably, emerging
players in the market have the support of strong entities willing to take a long-term approach,
without any immediate pressure for investor exit or an IPO.

Reorganization in execution phase

▪ The organization is enhancing the strength of CANF's head office by relocating senior personnel
and second-line leaders to that location. This strategic move creates opportunities for young
talents to thrive at the branch level. The company has allocated a budget for recruiting 100 new
employees. By next year, CANF plans to execute its succession plan, ensuring a seamless transition
of leadership and responsibilities.

Construction finance for small developers

▪ HDFC primarily focuses on construction finance, and it is important to note that no lender can
assure financing for all the customers. The company is cautious about the concentration risk
associated with single projects. Its main target comprises CAT-B and CAT-C developers,
emphasizing those with lower market prices and lower completion risks. The company does not
compromise on price expectations and aims for an ideal market share of 10%.

Analyst annotations: With housing finance space seeing a vacuum, CANF is poised to expand market share and continue
to maintain healthy business growth. While we closely monitor the operating systems revamp, CANF
historically has demonstrated superior execution skills and pristine asset quality. We maintain
Accumulate – the stock trades at 2.1x PABV FY25E.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 8,162 2.3 6,638 (1.6) 4,711 3.3 35.4 16.6 1.9 23.0 3.5
FY23 10,146 24.3 8,392 26.4 6,212 31.9 46.6 18.5 2.0 17.4 3.0
FY24E 11,583 14.2 9,289 10.7 6,571 5.8 49.3 16.5 1.8 16.5 2.5
FY25E 13,619 17.6 10,419 12.2 7,706 17.3 57.9 16.4 1.7 14.0 2.1

Source: Company, Elara Securities Estimate

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

96
Represented by:
J Sadagopan, DGM & CFO City Union Bank
V Ramesh, SGM & Chief
Compliance Officer Bloomberg Code: CUBK IN, Market Cap: INR 491bn, CMP: INR 735 (as on 8 September 2023)
Jayaraman K, GM –
Accounts & Advances
City Union Bank (CUBK IN) is one of the oldest private sector banks in India incorporated as The
Executive digest: Kumbakonam Bank in Tamil Nadu in1904. As on Q1FY24, total business stood at INR 941bn, in which
deposits comprise INR 517bn with a loanbook of INR 424bn. Trading and MSME loans together
constitute 50% of total loanbook. As on Q1FY24, CUBK had a network of 752 branches and 1,671 ATM
across the country. It has a strong presence in South India with 645 branches of which 519 are in Tamil
Nadu. Dr N Kamakodi is MD & CEO.

Investor insight: Loan growth

▪ Growth has been sluggish at 5-6% YoY; for Q2FY24, CUBK expects growth at 6-7% YoY; for
Q3FY24, it would be 8-9% YoY and 10-12% YoY for FY24. Growth in FY24 would be driven by retail
& SME

▪ To achieve the target growth of 10-12% for FY24, CUBK would have to show an incremental
growth INR 20bn, which would be largely in H2FY24

▪ The bank would also need to disburse INR 10-12bn per month to have an net of INR 5bn on the
book

▪ For FY25, CUBK expects loan growth in the mid-teens, aided by digital lending, account
aggregator and colending

▪ Th bank expects inward proposals of INR 25bn from branches per month i.e INR 300bn for FY24,
from INR 230bn in FY23 and INR 160bn in FY22
▪ Branches are mainly a source of gold loans and MSME

▪ For the retail segment, it aims to increase to 13% in FY24 with focus on housing loans and to 20%
of overall book in the long term
▪ CUBK has 30 credit processing centers (CPC) where branches send their proposals; CPC then send
their recommendations to the credit committee and board
▪ Around 60% of advances to MSME are in cash credit

▪ Advances of less than INR 50mn account for 60% (excluding gold); including gold loans, it would
be 80%

▪ For 90% of customers, CUBK is the sole lender

MSME segment
▪ Growth during FY21-22 was driven by ECLGS; however, those borrowers were under stress
and the bank slowed. Things were looking better up to Q2FY23

▪ Average ticket size in MSME is INR 4.5mn, which was earlier at INR 3.5-4.0mn. Currently, it has
asked the branch staff to go for INR 5-30mn ticket size to reduce cost

▪ Focus within this segment is textile, iron & steel, food processing and pharmaceuticals

▪ MSME accounts for a 50% share, which may gradually reduce to 43%

▪ Around 3% of the book is unsecured.

▪ For corporate lending, CUBK wants to target corporate houses with INR 5-10bn turnover

97
Reasons for slower loan growth
▪ Post RBI inspection, there has been tightening in the underwriting norms

▪ CUBK used to consider loans to people with CIBIL score below 650-600, which it has
discontinued. Lending to entities with CIBIL MSME Rank (CMR) of more than 5 is also not being
considered. Lending to CMR 4-5 is done with adequate collateral (80-120% collateral); for CMR
1,2 and 3, it insists on 80% collateral

▪ Sourcing from branches is not as comfortable as pre-COVID

▪ Quality inward proposals are not coming in

▪ The sanction rate has reduced from 55% to 48% while disbursals are getting stuck due to rate
of interest negotiations (pricing pressure)

▪ For incremental growth, CUBK aims to have adequate collateral

▪ Unutilized cash credit limits, which used to be around 17-20%, have inched up to 25-30%.
However, the bank expects improvement from Q3FY24

▪ The rejection rate has increased to 50% from 35%

▪ The incoming ratio of clients has reduced

▪ If customers are highly rated, they prefer moving on

▪ Geographic concentration of credit growth is 75% from South India while 20% is from
Maharashtra, Gujarat and Rajasthan

▪ Co-lending: The bank would start colending partnerships from September for vehicular, home
and gold loans
▪ Gold loans: Overall gold loanbook is INR 78bn, of which INR 65bn is Agri-backed Loans.

Deposit growth
▪ CUBK has a CASA of 30%, which compared to larger banks is much lower
▪ If the interest rate cycle were to reverse, it would be easier for the bank to garner low cost deposits

Margin
▪ CUBK’s lending rate is in the range of 11.0-11.5% with a MCLR at 9.25% and EBLR (which is repo
linked) at 9.5%, which is the bank’s floor rate

▪ For MSME, lending rates are based on MCLR and for all other products it is through EBLR
▪ Yield on advances has gone up by 50bp in one year (June 2022 to June 2023)

▪ The cost of deposit has increased from 4.5 to 5.5%.

▪ NIM would be 3.6% for FY24 vs 3.9% in FY23

▪ For entities with high CMR rating, rates have been voluntarily reduced

Asset quality
▪ Gross slippages in FY24 are expected to be INR 9bn (the worst case scenario is at INR 10bn). In
Q1FY24, there was a one-off on account of change in accounting policies

▪ Q2FY24 recoveries would be on the higher side

▪ Lower provisioning was aided by lower slippages

▪ The bank made additional provisioning on account of Expected Credit Losses (ECL); there would
be requirement of INR 0.6-0.7bn in additional provisions

▪ Restructured pool is ~6% of total advances

▪ Within the MSME portion, out of INR 180bn, INR 11bn would be NPA. MSME restructured book is
~2.16% (60-90 DPD)

98
 ▪ SMA 1 – 2.36% and SMA 2 – 2.25%

Opex
▪ Opex is set to remain elevated due to tie ups with BCG (fee of INR 300mn) and opex would see
growth of 15% YoY in FY24

Other highlights
▪ CUBK does not have a network of DSA and thus the entire reliance is on branches. Within
branches, there is no verticalization to source proposals. DSA have not been onboarded since the
bank does not have a large share of the retail portfolio. Within the next two years, it would start
to explore this area too

▪ The bank plans to add 50 branches in FY24

▪ Currently, it takes 30-60 days to sanction big ticket size proposals

Digitization process with BCG

▪ Digital processes would be initiated for MSME with a turnover less than INR 50mn and for
home loans

▪ For MSME with turnover less than INR 30mn (plus renewal and enhancements), it would be
piloted in end-October, another in December 2023 and January 2024 and then home loans
in June 2024

▪ For MSME, assessment would be done through GST collections and banks statements

▪ This software is expected to lower TAT (in-principal sanction in two days), help in credit
assessment, reducing rejection rate; sourcing would continue to be done by branches
▪ ROA: The bank would sustain a ROA of 1.5%
▪ Other income: Treasury did well in the past two years, which is not case currently and hence Other
income has taken a hit
▪ Operating profit is expected to contract in FY24; however, PAT growth of 15% YoY would be
supported by lower provisioning. If recoveries are higher at INR 22-25bn, net profit growth would
be 20% YoY
▪ The attrition rate has been on the higher end in the past two years at 15%, which on an average
basis was 5-6%

Growth challenges with NIM pressure are likely to trigger earnings softness while lower credit cost
Analyst annotations:
would cushion impact. CUBK has encountered challenges, such as divergence on asset quality and
internal process lapses, which has hurt its image, and recovery has been slower than peers with
pockets of concerns persisting. We believe these issues will linger; thus, longer-term time correction is
likely.

PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
Key financials: YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 18.2 (15.9) 11.3 (3.5) 18.0 (5.6) 27.0 16.4 1.9 40.8 6.4
FY23 20.2 11.3 14.3 26.4 22.8 26.4 24.3 15.4 1.8 32.3 4.6
FY24E 23.8 17.9 15.8 10.7 25.2 10.7 20.6 13.6 1.6 29.1 4.1
FY25E 32.0 58.5 19.9 39.5 31.8 39.5 15.3 15.1 1.7 23.1 3.6

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

99
Represented by:
Nilesh Dalvi CreditAccess Grameen
Senior vice president –
Investor Relations Bloomberg Code: CREDAG IN, Market Cap: INR 228bn, CMP: INR 1,432 (as on 8 September 2023)

Executive digest: CreditAccess Grameen (CREDAG IN) is a microfinance institution that provides loans to low-income
individuals and families in India. The company was founded in 2006 and has since grown to become
one of the largest microfinance institutions in India. CREDAG offers a variety of loan products, including
personal loans, business loans, and housing loans. The company also offers a variety of financial
services, such as savings accounts, insurance, and investment products. The company is well-
positioned to continue to grow in the future, as there is a large and growing demand for microfinance
services in India. As of Q1FY24, CREDAG had a loan portfolio of INR 218bn with active borrowers
reaching 4.4mn.

Investor insight: Branch network expansion and key focus areas

CREDAG is experiencing steady growth, adding ~100,000 new customers each month. In the past
quarter alone, it expanded its branch network by 42, reaching a total of 1,826 branches. The
company's strategic focus includes an annual branch network growth target of 8-10%, with emphasis
on expanding its presence in states beyond the top three. Its core business areas encompass
microfinance (MFI), retail financing, and dynamic liability management.

Liability diversification with increasing foreign borrowings

▪ Foreign borrowings, including External Commercial Borrowings (ECBs) and Non-Convertible
Debentures (NCDs), constitute 19% of the overall borrowing portfolio. CREDAG maintains
relationships with 17 foreign borrowing lenders, including lenders from India, Taiwan, Qatar,
Dubai, Singapore, and others. The company targets to raise USD 300mn. Notably, the average
tenure of these foreign borrowings exceeds three years.

▪ CREDAG is focused on increasing the foreign currency component in its portfolio, from 20% to
30% in the near future, where a 10% increase in the foreign currency share is expected to have a
minor impact of just 10bps on the cost of funds. Simultaneously, CREDAG is aiming to reduce its
bank borrowings to 40%.

Recent borrowings raise

In FY23, CREDAG initiated NCD tranche I, amounting to INR 5bn, with an average coupon rate of 9.6%.
Recently, last week, CREDAG successfully concluded NCD tranche II, raising INR 10bn at an average
coupon rate of 9.3%. Notably, the top-20 borrowers collectively account for ~85% of CREDAG's total
borrowings.

Spread analysis
CREDAG's average cost of funds is 9.6%. In FY24, it focused on achieving NIMs in the range of 12%-
12.5%, whereas in Q1FY24, it reported NIMs of 13%, largely due to the benefits of repricing.
Additionally, individual unsecured loans were 24%, two-wheeler loans 22.5%, gold loans varying from
16% to 18%, mortgage-secured loans in 18-20% range, and affordable housing loans ranging from
13%-14%.

Calibrated retail finance expansion

CREDAG focuses on growing its retail financing business. It aims to increase it to 15% by FY28. The
company is targeting the monetization of the top ~10% of its existing MFI customers, wherein ~21%
of the total customers are already utilizing retail loans. To facilitate this expansion, CREDAG has a retail
finance team of 200 with 87 retail financing branches.

Loan classification
Loans up to INR 125,000 fall under the MFI category, while loans ranging from INR 0.2mn to INR
0.25mn are classified as individual personal loans. Loans exceeding INR 0.25mn are collateral loans
secured against property.

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 Target customer
In the individual retail finance sector, CREDAG targets the top 5-7% of its customers to drive growth.
For the two-wheeler business, the focus is on the top 10% of customers, for mortgage businesses, the
aim is to grow by targeting the top 1-5% of the customer base.

Growth guidance
▪ CREDAG targeted ROA in the range of 4.9-5%. MFI business growth is targeted in the range of 20-
25%, of which 10-15% growth may be through increase in customers and the balance 10%
through growing the ticket size.

▪ CREDAG is targeting to enter Telangana and Andhra Pradesh in FY24.

Partnerships
CREDAG has formed a strategic partnership with the subsidiary of his parent company to offer
insurance products. Following this collaboration, the company has partnerships with five companies
for the insurance product. Additionally, CREDAG has a tie-up with ICICI Bank to provide cash
withdrawal facilities, which has resulted in monthly cash withdrawals ranging within INR 50-60mn.

Stage-wise loan book

Karnataka loan book stands at INR 60bn, followed closely by Maharashtra and Tamil Nadu at INR 45bn
each. Madhya Pradesh has a loan book of INR 15bn, while Bihar has surpassed INR 10bn. Odisha’s
loan book stands at INR 7bn, and Uttar Pradesh has crossed INR 4bn. Rajasthan and Gujarat hold loan
books of INR 2.5bn each, and West Bengal has a loan book of INR 1bn.

Pre-payment and repeat customers

Customers have the flexibility to make pre-payments during the last 10 weeks of their loan tenure or if
the outstanding loan amount falls below INR 5,000. Additionally, CREDAG's repeat customer segment
accounts for 65% of its business, with an average ticket size of INR 49,000.

EMI tenure and collection efficiency

CREDAG offers weekly EMI options for two-wheelers and individual loans, while mortgage loans follow
a monthly EMI schedule. The collection efficiency is consistently high at ~99%, with no adverse impact
of heavy rainfall.

Promoter stake
At present, the promoters do not have any immediate plans to divest stake in the company. Instead,
they are committed to maintaining their ownership stake >60% in the future.

Analyst annotations: Riding on sectoral tailwinds of growth and better credit quality environment as also pricing power and
superior execution across cycles, CREDAG is best placed in the micro finance space deserving premium
valuations. At the CMP, the stock trades at 2.9x FY25E PBV.

Key Financials: YE
March
NII
(INR mn)
YoY
(%)
PPoP
(INR mn)
YoY
(%)
PAT
(INR mn)
YoY
(%)
EPS
(INR)
Core RoE
(%)
RoA
(%)
P/E
(x)
P/ABV
(x)
FY22 16,530 11.4 11,402 19.8 3,530 168.7 22.6 8.8 2.0 63.2 5.6
FY23 21,143 27.9 15,065 32.1 8,260 134.0 52.0 17.8 3.9 27.5 4.5
FY24E 28,771 36.1 21,014 39.5 12,784 54.8 80.4 22.3 4.9 17.8 3.6
FY25E 35,443 23.2 25,793 22.7 15,290 19.6 96.2 21.4 4.7 14.9 2.9

Source: Company, Elara Securities Estimate

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

101
Represented by:
Praveen Kutty, Head –
Retail Banking
DCB Bank
R Venkatesh, CIO & Bloomberg Code: DCBB IN, Market Cap: INR 37bn, CMP: INR 118 (as on 8 September 2023)
Head-Ops, Tech & HR

Incorporated in 1995, DCB Bank (DCBB IN) was formed via the merger of Ismailia Co-operative Bank
Executive digest:
and Masalawala Cooperative Bank. The Aga Khan Fund for Economic Development (AKFED) and
Group companies are the largest shareholders in the bank with a combined stake of 14.82% as on
June 30, 2023. DCBB had a network of 436 branches and 409 ATM as on June 30, 2023.

Investor insight: Business momentum

▪ DCBB has clocked in deposit growth 22.6% YoY and credit growth of ~18.9% YoY for Q1FY24. It
sees growth volume and conversion rates reverting to pre-pandemic levels. Retail and personal
loans lending rate is at 11-11.5%.
▪ Credit cards have seen an increase in demand, and it is not just fintech based

▪ Out of overall advances, around 45% of the book is mortgages and home & business loans-based
book and 23.2% is agri & inclusive banking. Out of overall advances, 85% of loans have a ticket
size of less than INR 30mn

▪ DCBB aims at building at balance sheet of INR 1tn in next 3-4 years
▪ The bank operates at current ROA of 0.94% and it aims to increase it to ~1.16%. The breakdown
is as follows:

▪ NIM to average assets at 3.6x

▪ Fees to average assets at 0.9x

▪ Total income to average assets at 4.5x

▪ Cost to average assets at 2.5x

▪ Net income to average assets at 2.0x

▪ Credit cost at 45bp

▪ ROA pre-tax at 1.55%

▪ ROA post-tax at 1.16%

Mortgages
▪ DCBB aims to change the sourcing mix for mortgages. The current 52% of the sourcing is done
through direct selling agents (DSA), cross-selling, organic demand and top-up. It aims to reduce
contribution from DSA without comprising DSA payout and try to grow the book organically
▪ The bank would continue to focus on small ticket secured lending on the advances front and rely
on longer tenure deposit space due to large mortgage component in advances book

SME book
▪ The TREDS portfolio is a yield enhancer with a tenor in the range of 45-90 days, which are currently
providing better income the Overnight Index Swaps and SLR Bonds.
▪ The RWA-total assets ratio stands at ~52.91%, which has adequate headroom for the impact of
INR 3-4bn TREDS portfolio

▪ Traditional CC and OD portfolios have slightly higher ticket size than business loans

Colending
▪ The colending portfolio is INR 27bn, comprising 7.8% of advances

▪ Spurting demand is higher in consumption; the conversion ratio remains constant for all lenders

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 ▪ The colending portfolio is largely for gold loans, followed by school finance, asset-based financing
and unsecured lending

▪ Its colending philosophy would cater to unexplored geographies and products to avoid friction
with the co-lending partner

▪ DCBB aims to diversify with PSU & private banks, and NBFC
▪ The overall colending portfolio space is INR 450bn, with Central Bank of India having a market
share of one-third of the overall space; the bank sees huge opportunity in this space with the retail
colending segment growing in the range of 20-22%
▪ The potential credit cost in the colending book will be higher for gold loans and unsecured
lending; for mortgages, it would operate at normal levels

Deposits
▪ Around 70% of the liability franchise are granular retail deposits

▪ Large component of deposits have been coming from nationalized banks

Asset quality
▪ The provision coverage ratio (including TWO) is 77.07% for Q1FY24
▪ Slippages: There has been a slight uptick due to mortgages; recoveries are expected to pick up in
the upcoming quarter
▪ Low credit cost as on Q1FY24 is 23bp as the shift from restructured to NPA would require an
Incremental provision of 5% compared to new loan to NPA at 15%

Other highlights
▪ The cost to average assets is 2.73% as on Q1FY24. DCBB aims at bringing it down to 2.5%. It would
be the same for colending partnerships, Technology advancement (core banking systems have
been built on plug-and-play model, which will help in building API banking) and improvement in
productivity metrics

▪ Overall headcount declined 326 sequentially to 9,579 in Q1FY24 vs 9,905 in Q4FY23 with an
average 450,000 average CTC. This would have an impact of INR 146mn in terms of employee
expenses

▪ Cost to communications have come off sharply, from 194 communications to the current 7. These
communications largely pertain to collections, remedial measures & auction-related and the rest
are done through SMS

▪ The cost-income ratio came in at 63.88% for Q1FY24

▪ Fee income: DCBB has lost PSLC income & treasury income of INR 800mn. The bank would like to
build recurring income and it does not include any one-offs that would arise through trade income
and TPP distribution
▪ Since the bank largely operates in the ATS range on INR 2.0-2.5mn, it faces competition from
existing domestic players in scattered geographies

▪ The bank would continue to lend on the basis of historical trends rather than future projections

▪ It expects to add 20-25 branches every year in growing semi-urban areas

Analyst annotations: DCBB has had a good cycle, but structural operational limitations exist (long walk on liabilities &
investment requirements) and may cap returns with a ROE of 12-13% in FY25. The impending
management transition is an overhang.

103
Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 8.0 (10.0) 2.9 (14.3) 9.3 (14.5) 4.6 7.8 0.7 12.8 1.1
FY23 7.9 (1.3) 4.7 61.8 14.9 61.5 4.7 11.4 1.0 7.9 0.9
FY24E 9.3 18.2 5.5 19.0 17.8 19.0 4.0 12.1 1.0 6.6 0.8
FY25E 11.7 48.7 6.7 45.0 21.7 45.0 3.1 13.2 1.1 5.4 0.7

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

104
Represented by:
Venkatraman
Venkateswaran, CFO
Federal Bank
Souvik Roy, Head of IR Bloomberg Code: FB IN, Market Cap: INR 346bn, CMP: INR 148 (as on 8 September 2023)

Federal Bank (FB IN) is a mid-size private sector bank with a significant presence in Kerala. The bank
Executive digest:
offers a range of financial services, including merchant & international banking, and foreign exchange,
leasing facilities, money markets and agricultural advances. As on Q1FY24, FB had 1,366 branches and
1,920 ATM pan-India. Net loanbook stood at INR1.84tn with a deposit base of INR 2.2tn as on June 30,
2023.

Loan growth
Investor insight:
▪ Competitive intensity continues to be there on the liability and asset sides

▪ FB expects broad-based growth across corporate, commercial & business banking and retail of 17-
18%

▪ Gold is expected to grow by 20-25% YoY, with commercial banking at17% and card at 30-60%,
and CV & CE at 60-70% YoY
▪ Retail book

▪ Some private bank banks as well SBI aggressive lending in housing loans to customers with a
CIBIL score below 750 at rates below 8.6% are eating up into the market share. Home loans
enhance cross-selling abilities and also are seen as long-term products

▪ The high yielding portfolio’s (personal loans, credit cards and MFI) share remains less than
10% even if growth accelerates at 30-40% YoY. Within the next two years, this segment would
account for 7-8% share

▪ With the RBI’s growing concern on personal loans (including mortgage, car and credit cards),
some banks have been asked to slow their credit card portfolio; however, no such indication
has bene received for FB

▪ Currently Gold loanbook would be INR 220bn, of which agri gold would be INR 130-140bn

▪ In FY22, 71mn personal loans were given amounting to INR 920bn, volume-wise was up 49%
YoY, value-wise was up 21% YoY; the past year’s growth was based on this. Since there are no
entry barriers on personal loans, this is bound to happen

▪ With rates at peak, people are deferring their decision to buy homes, and affordable housing
is also slowing

▪ Corporate book

▪ FB has been witnessing good opportunities in renewables and power

▪ Pricing is good for AAA-rated entities; the bank is selective here and sees other opportunities,
such as fees & allied services; hence, it prefers to go for supply chain of larger groups

▪ Private capex has yet to pick up as it is mostly government-driven and FB is hesitant to lend

▪ Management feels there is stress in the RE portfolio, particularly on the builder and
construction fronts

▪ Business and commercial banking continues to do well, particularly in electronics, infra, seafood
exports, food & agriculture

▪ On fintech partnerships, the final decision is with FB; fintech partners act more like sourcing agents
as underwriting, recovery, fraud management, and asset quality management is done by the bank

▪ More than 50% of the book is concentrated in Kerala, Tamil Nadu and Karnataka

105
Deposit growth
▪ Deposit growth has not increased, but would sustain at current levels. In early June, expectations
were that the repo rate hike has been passed on; however, inflation has been higher and hence
the bank does not expect rate cuts in FY24. This has led to liquidity being tightened, which, in turn,
has led to higher short-term rates

▪ In the most attractive bucket of 2.5-3.0 years, rates are 7.25-7.30%. In 2.5-3.0 year bucket, FB is
offering 7.30% vs 7.25% by top banks, and senior citizen would be near to 8.0%

Asset quality
▪ Credit cost was 39bp for FY23. Its aim would be 40-45bp for FY24

▪ FB has not seen any one-off or stress in personal and gold loans

▪ ECL would have an impact of less than 100bp. There would be an option to recognize it over five
years, even if the bank does not opt for it; the impact would be less than 100bp. However, across
the industry, there would be a one-off impact

▪ On the slippages front, since moratorium came to an end in March 2023, there were higher
slippages in Q1FY24. However, slippages would be lower in Q2FY24

Margin
▪ For the overall system, FB expects deposit pricing to move up. However, for the bank, a majority
of the repricing has already been done; however, there would be some flow through in Q2FY24

▪ NIM would be slightly better by 6-7bp at 3.2% for Q2FY24, due to COF peaking and a mix change
toward higher yielding loans

▪ Good quality customers are onboarded at slightly lower margin as well, and focus is on risk-
adjusted returns

▪ For pricing purposes, risk premium is considered at the product level

Opex
▪ On the asset side for personal loans and credit cards, the cost-income ratio for fintech partnerships
is a bit higher

▪ Tech Expenses has amounted to 4.6% in FY21, which has moved up to 6% of opex in FY23, and
overtime aims to be 7.5%.

▪ FB would continue to invest in brand equity, branch addition, and marketing expenses

▪ Branch addition

▪ Around 100 branches would be added this year

▪ Majority addition is in Tier II & III cities in Tamil Nadu, for states like Gujarat, Maharashtra and
North India, branches will open in Tier I

▪ For metro areas, FB plans to open new branches where it has the potential to lend to SME in
both categories of INR 100mn and 1INR 100-250mn

▪ Branches would be added for the purpose of deposit gathering, customer servicing and gold
loans. Around 75-80% business is through branches

Other highlights
▪ Equity dilution:

▪ The bank’s Tier-1 was at 13%, although it was comfortable from a regulatory standpoint, it
was lower than other banks

▪ FB feels the market opportunity is good

▪ Capital raise would be used to fuel growth

106
 ▪ If the bank waits for another 1.0-1.5 years, higher growth in the unsecured segment would
have brought down CET 1 to 12%; also macros would change, which could hamper growth

▪ Marquee investors have invested in the company as well as a few hedge funds, which have
led to improvement in liquidity for trading post dilution

▪ FB would not require capital raise for another three years, with growth of 18-20% leading to
consumption of 100bp every year (excluding any funds from the listing of NBFC subsidiary)

▪ The bank’s focus is on delivering consistent performance

▪ FB continues to look for inorganic growth opportunities in the MFI space; however, focus would
be on good risk metrics

▪ Other income

▪ Credit growth of 18-20% should translate into Other income growth of 25-30% with
improvement in fees (due to credit cards; along with unsecured and gold loans, there would
be higher processing fees), trade and forex

▪ FB aspires to grow the fee-assets ratio from 0.9% in FY23 to 1.0% in FY24 and further to 1.1-
1.2% in two years

▪ The bank expects penal interest charges to come off, which would impact Other income

▪ ROA: FB aims to improve it by 140bp in the next two years

Analyst annotations: We believe sectoral headwinds on NIM and other variables may have an overhang. Investors have had
concerns on core operating performance; thus, delivery on stated parameters (NIM of 3.30-3.35% and
ROA of 1.30-1.35%) is critical to build confidence and aid in rerating.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 37.6 (1.1) 18.9 18.8 9.0 12.8 8.3 10.8 1.0 16.4 1.7
FY23 47.9 27.6 30.1 59.3 14.2 58.3 6.5 14.9 1.3 10.4 1.5
FY24E 52.2 8.8 31.3 3.9 14.8 3.9 6.0 13.6 1.2 10.0 1.3
FY25E 60.4 26.0 35.5 18.0 16.8 18.0 5.2 13.6 1.2 8.8 1.2

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

107
Represented by:
Abhinek Bhargava
Head IR & Strategy
ICICI Bank
Nitesh Kalantri Bloomberg Code: ICICIBC IN, Market Cap: INR 6,795bn, CMP: INR 971 (as on 8 September 2023)
AGM, IR & Strategy

ICICI Bank (ICICIBC IN) is one of the largest private sector banks in India, which was incorporated in
Executive digest:
1994. As on Q1FY24. total deposits stood at INR 12.4tn and advances at INR 10.6tn. The advances mix
consisted of 55% retail loans (33% mortgages). ICICIBC is one of the technological-driven banks with
digital initiatives, such as application programming interface (API) banking for MSME merchants,
supply chain solutions, digital solutions for merchandise exports and startup ecosystem banking. It has
a distribution network of 6,074 branches and 16,731 ATM & cash recycler machines. Sandeep Bakshi
is MD & CEO of the bank.

Investor insight: Loan growth

▪ Loan growth has been broad-based across retail, SME and corporate
▪ Retail segment

▪ Housing loans have been holding up well; incremental growth has come off, driven by
increased competition and pricing pressures. However, volume is holding up well compared
to Q1FY24 and Q4FY23. Since March 2023 rates have moved below 8.5% (new merged entity
is offered at 8.4%), ICICIB will not go below 8.6% so as to not compromise on spread or
profitability. Mortgages would see flat growth YoY

▪ The unsecured segment has seen healthy growth. Risk metrics have been tightened for
unsecured retail in June 2021, and most underwriting is above a CIBIL score of 90-95%. It
keeps monitoring overdue trends of the CIBIL distribution of new customers

▪ Auto loans have been growing well; there is an increase in average ticket size (ATS) and
volume is good

▪ A cleanup happened on the retail front during COVID, either through restructuring or NPA;
the revolver has come off – 60-70% of pre-COVID; also, there has been better underwriting
policies

▪ In the unsecured portfolio, credit cards make up 75% of market share, and they are held by
four institutions. They have good underwriting and better customer profiles; ICICIBC is
comfortable in its credit card book. Around 20-25% of the credit card portfolio is Amazon Pay
credit card, which is a slightly better profile

▪ For personal loans, which are easy to sell, the bank needs to have good collection mechanism
and it is well distributed across banks, NBFC and fintech. ICICIB’s personal loans are majorly
into ETB at 60-65%, within which 85% is to the salaried customers. ATS is around INR 0.7-
0.8mn. There is no personal loans below INR 50,000

▪ Spread between home and personal loans is 2-3%, which historically 4-5%

▪ The fixed rate loans include personal, auto and credit cards

▪ Around 90-95% CIBIL score is above 750

SME & business banking

▪ It is building up on the back of a strong distribution network

▪ Before GST, the banks were not comfortable to underwrite the balance sheet of the SME; GST
enhanced the gamut of the lending space, and COVID & demonetization accelerated the pace of
digital adoption; for eg, Instabiz adoption, activation and growth in book has been good; Added
to this is the generational shift toward digital services

▪ ICICBC looks at the following documents for underwriting in SME: Aadhaar card, GST returns and
bank statements

108
Corporate segment
▪ Over the past year, growth has been driven by 2-3 sectors, namely RE, NBFC & HFC, which grew
on good pricing. The trend continues to be stable, volume is holding up, with festival season
growth doing well

▪ RE growth has been good

▪ During COVID, it had an opportunity to grow market share, but spreads were low; thus, the bank
grew corporate at 10% YoY

▪ In the corporate segment, around 85-90% disbursements are A- & above, BBB has come off to less
than 0.5%
▪ Corporate book can grow by 100,000 every month at the rate of 8%; however, at a borrowing
rate of 7.8%, NIM would be compromised

▪ Capex announcements are at five-year high. Levers, such as a lower corporate tax rate, PLI
schemes, infra and China +1 will take time to play out. Corporate are disciplined with respect
to over leveraging and maintaining a cash reserve ratio of up to one year

▪ Gross fixed assets continue to increase for corporate; however, loan to the industry by banks grow
by 4% YoY (net of repayments and prepayments). For ICICIB, if pricing is too tight, funding will not
take place

▪ Corporate book growth remains sluggish due to:

▪ Brownfield capex: companies are more dependent on internal accruals or smaller size of
corporate loans (more of this is happening)

▪ Greenfield projects are not coming up

▪ Infra is on the balance sheet of government

▪ Lot of big capex funded by foreign lenders; for eg, Reliance at USD 5bn, 95% was funded by
foreign lenders or PE; Arcelor Mittal was funded by Japan

▪ Lighter scale of capex happening for sectors, such as RE, automobiles, and PLI is set to trigger
aviation.

Deposit growth
▪ WTD at 7.4% for one year, RTD at 7.1%, add on that CRR & SLR and PSL, thus there is a need to
decide on profitability to price products

▪ For HDFC Bank, it is important to watch for deposit book, since it has reduced its rates for housing
loans; this would enhance market share but compromise margin

Asset quality
▪ Overall asset quality is stable
▪ Behavior of the secured and unsecured portfolio has largely been the same for a certain CIBIL
score, however, below a certain score, behavior is different. ICICBC continues to monitor the
portfolio (for eg, the self-employed and the salaried to see early stage stress buildup)

▪ Behavior of the portfolio has been better post COVID as it has moved up the underwriting norms
and CIBIL score

▪ ICICBC has seen good recovery trends in retail NPA as well post COVID

▪ If the credit cycle were to worsen, SME and retail would pose risks, and within retail, it would affect
the unsecured

▪ To detect early warning signals, there are two departments: business intelligence unit (BI) and risk
unit; BI assess data via different cuts: CIBIL score-wise, geography-wise, journey, and delinquency
trends for the past three years

109
ECL provisioning
▪ Expected Credit Losses takes into account historical and forward looking trends, such as GDP,
PD*LGD at the system and global levels

▪ ECL for banks would be implemented by FY25

▪ Challenge in its implementation is to compute ECL since it is more of a subjective and time-
consuming model. Since every borrower assessments needs to be done through cashflow, both
operating and the sale of collateral (legal constraints and time to sale)

▪ Banks have been submitting ECL Provisions to the RBI currently with a two month lag

▪ First phase would transition into ECL, and it needs to assess Stage 1, 2 & 3

▪ Stage 3 – NPA, which would be largely rules-based

▪ Stage 2 – stress loans – assessment-based on PD*LGD; it would be up to banks if they wish to

take historically up to 5, 7, and 10 years.

▪ Another difference is that the International Financial Reporting Standard (IFRS) requires
provisioning on NFB (outstanding but not invoked) and undrawn commitments

▪ Thus, provisioning would be slightly higher for Stage 2 while Stage 3 would be lower due to
rule-based
▪ Second phase would be provisioning example, unsecured portfolio which is now provided in 180
days, 60-70% in 90 days. Currently, for ICICIBC, it has accelerated provisioning, and unsecured is
100% provided; except for mortgage, everything is 100% provided within six months, and this
helps in assessing risk-based performance better

▪ To avoid the difference, the RBI has come up with guidelines and it will keep evolving

Opex
▪ COA is coming off due to digital sourcing

▪ In the past 12 months, 545 branches were opened and there will be pick up in FY24 at 700-800
branches

▪ The bank has added 30,000 in the past 12 months

▪ Even tech spend would continue to grow albeit at a slightly slower pace. In tech spend, YoY
growth will come off to 8.0-8.5% in the medium term post operating leverage

▪ ICICIBC would continue to build its branch network, people & distribution, and technology

▪ Overall, Operating expenses would be at elevated levels but lower than in Q1 due to increments
and promotions

▪ Attrition was at 30-31% in FY23 vs 36% in FY22, better than peers, and ICICIBC expects attrition to
be lower, due to:

▪ Pending attrition during FY21-22 due to COVID

▪ Culture should work well (no target-driven approach)

▪ Compensation divided into

o Fixed-based on position

o Variable cash-based dependent on organizational performance, fixed as a

percentage of basic pay

o Variable cash-based with difference based on team’s performance

o Introduced RSU – stock options for middle management, front-line staff and branches
– 50% employees get that i.e 18,000 employees are eligible, which in the long run
would help in retaining them

110
 ▪ Most of the attrition is at the junior level, leadership and two levels below it is 5%
▪ Middle level attrition is more cause for concern since more than the financial impact, there is impact
on customer servicing and productivity

▪ Around 2% at the senior levels who stay for 15-20 years; two levels below senior management
who stay for 8-10 years, with an attrition at 5%

Analyst annotations: ICICIBC has performed well in this cycle, and we believe it has strong underlying. Levers are set to
continue to deliver better risk-adjusted return ratios even on high base of FY23. The risk of an earnings
disappointment is rather low, in our view.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 392.5 7.8 233.4 44.1 33.6 43.5 21.2 15.0 1.9 28.9 4.4
FY23 490.9 25.1 319.0 36.7 45.7 36.0 17.0 17.5 2.2 21.3 3.6
FY24E 559.5 14.0 355.8 11.5 50.4 10.3 14.9 16.6 2.2 19.3 3.1
FY25E 616.2 25.5 376.8 18.1 54.0 18.1 13.5 15.5 2.1 18.0 2.8

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

111
Represented by:
Saptarishi Bapari, Head
of IR
IDFC First Bank (Not Rated)
Bloomberg Code: IDFCFB IN, Market Cap: INR 650bn, CMP: INR 95 (as on 8 September 2023)

IDFC Bank (DFCBK IN) was initially established as IDFC in 1994 to facilitate infrastructure finance in
Executive digest:
the country. IDFC FIRST Bank came into effect on December 18, 2018, after the merger of IDFC Bank
and Capital First (CFL). IDFC FIRST Bank has transformed from infrastructure to dominant retail
banking in four years since the merger, increasing the CASA ratio from 8.6% to 46.5% as on June 30,
2023, and increased retail deposits from 27% to 77% of total. The bank has a distribution network of
824 branches. Total funded assets stand at INR 1,715bn, largely concentrated toward home loans,
loans against property (LAP), auto & consumer loans and rural finance. V Vaidyanathan is MD & CEO
of the Bank.

Investor insight: Loan growth

▪ As the industry grows by INR 20tn, IDFCFB needs to grow by INR 400-500bn. It expects the overall
credit book to grow by 25% YoY, largely driven by retail growth of 28-29% YoY in the next 2-3
years
▪ The deposit customer base enables cross-selling opportunities for home, personal, education &
auto loans, credit cards and gold loans. It can also cross-sell 2W and used car loans; however, the
same takes place through dealers

▪ Gold loans is largely done through branches

▪ Aadhar Implementation, the UPI, large amount of data related to credit score and awareness
around CIBIL score have enabled a large segment of the economy to come under the banking
gamut.

▪ Retail segment

▪ Home loans
o In the home loan segment, 20-25% incrementally is being lent to ETB customers, of
which 90-95% have a deposit account with IDFCFB

o BT-outs in this segment have come off

o Rates are comparable to peers at 8.6% on an incremental basis and they are slightly
higher

▪ Few products have come from the NBFC, such as consumer durables, 2W, used cars, LAP and
business loans. Products like rural finance as a segment have enhanced after the merger

▪ Two wheelers – major firms are NBFC and captive arm of manufacturers; however, in the
banking space, IDFCFB has the largest exposure of ~INR 125bn (HDFCB at INR 100-110bn).
Yield from this portfolio is the range of 17-18% and management believes growth will be
driven by capabilities

▪ Unsecured loans, which include rural financing, digital personal & business loans, and credit
cards, as a segment is doing well due to RBI’s push on financial inclusion and digital economy

▪ Average ticket size for digital personal loans is ~ INR 0.2mn, and new to credit (NTC) customer
base would be less than 5%

▪ Salaried personal loans would be 55-60% and the salaried on the overall advances would be
70-75%

▪ IDFCB believes there is huge runway for growth as retail credit-GDP ratio is low at 18-19%,

▪ Within overall book, NTC would be 10-11%

▪ IDFCB buys from SFB to fulfil PSL requirements

112
▪ Post pandemic, infra and capex demand have shown potential corporate demand; however, retail
will remain core competency until the bank reaches net worth of INR 2,000-3,000bn. IDFCB will
continue to cater to the working capital loans pertaining to the infrastructure segment instead of
long tenor loans

▪ Wholesale banking: new initiatives taken by the bank are cash management services, transaction
banking, FastTAG with FastTAG remaining one of the most attractive products

▪ With the FastTAG segment

▪ IDFCB is placed on top as an acquirer bank (119mn transaction volume) and issuer bank
(80mn transaction volume, followed by ICICI Bank at 70mn) among 37 banks

▪ The bank has launched a 3-in-1 product for FastTAG comprising fuel recharge + parking lot
payments + toll payments

▪ It has partnered with car manufacturers like Maruti Suzuki and Mercedes for pre-installed
FastTAG from IDFCB

▪ The CD ratio of the bank is higher at 107% due to its history of no deposits; it has an internal target
of 100% in FY24 and gradually expected to move toward 90-95%

▪ It believes that product mix needs to evolve based on demographic changes

▪ IDFCB primarily has an urban-oriented book, but since the merger, it has increased its presence
and book in rural areas

Deposit growth
▪ Majority repricing is done and hence there will not be much difference on the growth front
▪ Around 20-25% of the deposit base would be self-employed

▪ Primarily, the bank’s deposit base is urban-domiciled

Asset quality
▪ Currently, the bank is not witnessing any signs of stress in the unsecured segment
▪ It has the highest NPA in LAP at 2.3%, rural financing has the lowest, home loans should be less
than 0.25%, unsecured personal loans at 0.5%. and overall credit cost would be less than 1.5%
▪ To monitor trends, the bank uses data points, such as bounce rates, collection efficiency and SMA
1-2

Margin
▪ Management does not expect a rate cut in H2FY24 due to rising inflation
▪ Lending rates are comparable with larger banks

▪ NIM will be range-bound in the next two years

▪ Difference between the highest SA and TD rate is 50bp whereas for larger banks, this difference
is ~300-350bp. IDFCB does not expect cost of SA to change in the next year
▪ Out of total inflated cost legacy borrowing book of INR 170bn, INR 125-130bn will be paid off by
FY25, leading to a positive impact on blended cost of funds

Opex
▪ IDFCB would continue to invest in technology (required for enhancements) and branches

▪ Around100-150 branches would be added per year as it would aid in not only customer servicing
but also brand-building
▪ Cost-income ratio

▪ Retail assets had a cost-income ratio of 54% in FY23, within the next 2-3 years, it would be less
than 45%

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 ▪ Its wholesale banking is at 35% & retail and wholesale together, the cost-income ratio is near
40%

▪ The ratio has been at elevated levels due to credit cards (165% in FY23 vs 234% in FY22) and
retail liabilities

▪ The ratio in the credit card segment was165% in FY23, and it is expected to be in the range of
100-110% by end-FY24 and break-even in FY25, while for retail liabilities, it runs around +170%
levels; it would take 5-6 years to come off below 100% as there is scaling up

▪ The overall cost-income ratio will come off in a gradual manner to 50-55% in the next 5-6 years

▪ Marketing spend

▪ Team India sponsorship is an expensive deal amounting to INR1.3bn, which is within bank’s
marketing budget

▪ Team India sponsorship is only for BCCI events, home and bilateral series

▪ IDFCB had similarly sponsored the IPL, which helped in improving visibility, especially for
deposit garnering

▪ The bank had a TOMA (Top of Mind Awareness – Marketing Indicator) score of 2 in FY21,
which has improved to 22 in FY23 vs Top 4 banks’ 70-75

Other highlights
▪ Based on the risk return perspective, the bank believes it is at par with larger peers

▪ Main revenue for the branch is based on deposits by the transfer pricing mechanism. It has
adopted a three-level cost structure for better analysis of its cost with L1 cost: directly attributable
cost (rent, electricity, people), L2 – apportion cost (based on cost drivers) and L3 – attributed
corporate and admin overheads
▪ In semi urban and rural areas, it targets only a few specific business segments

▪ IDFCB has an enabling approval of INR 30bn in AGM for capital raise; hence, the bank would
consider raising within six months to 1.5 years

Analyst annotations: The bank has been progressing reasonably well. The success story has been more on the liability side
with the type of deposit traction bank has been able to sustain. The key monitorable will be to look for
improvement in cost ratios, which, in turn, will drive improvement in the return ratios.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY20 19.4 153.6 (28.6) 47.3 (5.9) 25.5 33.6 (17.1) (1.8) (16.1) 3.0
FY21 25.0 29.0 4.5 (115.8) 0.8 (113.7) 26.0 1.2 0.3 117.7 3.0
FY22 32.8 31.4 1.5 (67.8) 0.2 (71.6) 19.8 1.2 0.1 414.6 2.8
FY23 49.3 50.2 24.4 NA 3.8 NA 13.2 11.0 1.1 24.8 2.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

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Represented by:
Nirmal Jain, MD IIFL Finance (Not Rated)
Kapish Jain, CFO
Bloomberg Code: IIFL IN, Market Cap: INR 233bn, CMP: INR 613 (as on 8 September 2023)

Executive digest: IIFL Finance (IIFL IN, Not Rated) is a financial services NBFC that provides a range of loans and
mortgages. The company’s AUM stood at INR 683bn as of June 2023. Its loan mix consists of home
loans at 34%, gold loans at 33%, business loans at 14%, microfinance at 12%, construction & real estate
at 4%, and capital market finance at 1% for the quarter ended June 2023. As of Q1FY24, the branch
network stood at 4,412 branches and 500+ cities. As of Q1FY24, GNPA fell to 1.8%, PCR was 159%
and CRAR was 20.6%.

Investor insight: ▪ Growth outlook: IIFL is aiming for a 25% YoY growth in the overall business, with its robust
distribution network playing a pivotal role in achieving this objective. Additionally, IIFL is keen on
leveraging its existing customer base through cross-selling of products. Furthermore, in the next
2-3 years, IIFL is targeting an ROA within the range of 3-4% and an ROE ranging from 20% to 25%.
Lastly, IIFL has allocated a substantial annual budget of INR 3bn for technology expenses.

▪ Spread analysis: IIFL can sustain its yield in a range of 17-23%. Moreover, it has the ability to pass
on any incremental cost of funds directly to its customers.
▪ MFI business: In the MFI business, the average ticket size falls within the range of INR 30,000 to
INR 40,000. There lies immense scope for business expansion given that the market penetration is
low at ~30%.

▪ Collection model – Cost-efficient: Collections operate differently based on the area's specifics, with
bi-weekly collections offering cost advantages and weekly collections delivering higher efficiency.
While the company observes a rising trend in digital collections, cash collection still constitutes a
significant portion, accounting for ~60-70% of the total.

▪ Gold loan business – Unique strategy: IIFL has introduced a doorstep gold loan service in select
cities. The gold tonnage increased in the range of 5-6% YoY.
▪ Asset quality management: IIFL aims to elevate its stage 2 provision to a range of 80-90% while
maintaining a PCR at 100%+. Additionally, ~30% of the customer base comprises new-to-credit
individuals.
▪ Home loan business dynamics: IIFL has an extensive home loan branch network encompassing a
total of 400 branches, where, the average ticket size for affordable housing loans is INR 1.5mn.
Notably, 65% of these loans are extended to salaried individuals, while the remaining 35% are
catered to self-employed applicants. Furthermore, IIFL sanction a substantial 50-60% of its loans
for builder projects such as flats and housing developments.

▪ Risk mitigation: IIFL actively pursues geographic diversification as a risk management strategy,
strategically capping its exposure in various states based on their respective GDPs to mitigate risk.

We reckon IIFL has succeeded in building a scalable and profitable business model led by right
Analyst annotations: customer segmentation on gold loan side, robust collection model on the MFI side and maintaining
core home loan business strategy. IIFL is a formidable play in the diversified retail space and is poised
for a valuation re-rating. At CMP, the stock trades at 1.8x FY25E P/BV.

Key Financials: YE
March
NII
(INR mn)
YoY
(%)
PPoP
(INR mn)
YoY
(%)
PAT
(INR mn)
YoY
(%)
EPS
(INR)
Core RoE
(%)
RoA
(%)
P/E
(x)
P/ABV
(x)
FY20 24,239 (2.6) 11,506 (13.3) 5,018 (36.8) 13.3 11.0 1.5 46.2 4.9
FY21 32,079 32.3 21,734 88.9 7,601 51.5 20.1 15.0 2.0 30.5 4.3
FY22 37,949 18.3 24,235 11.5 11,879 56.3 31.3 20.1 2.7 19.6 3.6
FY23 48,587 28.0 30,475 25.8 15,003 26.3 39.5 19.4 3.0 15.5 2.6

Source: Bloomberg, Company, Elara Securities Research

Shweta Daptardar, [email protected], +91 22 6164 8559

Analyst:
Himanshu Dhyawala, [email protected], +91 22 4204 8661

115
Represented by:
Baldev Prakash, MD &
CEO
Jammu & Kashmir Bank (Not Rated)
Pratik D Punjabi, GM & Bloomberg Code: JKBK IN, Market Cap: INR 97bn, CMP: INR 101 (as on 8 September 2023)
CFO

Executive digest: Jammu & Kashmir Bank (JKBK IN), headquartered at Srinagar, was established in 1938. The J&K
government owns a 63.4% shareholding, which has declined from its previous shareholding
of 70.2%, owing to the market sale of shares by the promoter, in line with increased interest from
mutual and pension fund units, along with subscription by the retail public.

Investor insight: There are four changes underway at the bank: 1) standardization of policies, 2) asset quality
management, 3) technology, and 4) employee training.

J&K & Ladakh

▪ There is overall improvement, led by governance, development, public administration and security

▪ Tourism continues to be main driver

▪ Tourism has improved with footfalls of 190mn in FY22 and 0.8mn in H1CY23; for CY23, it is
expected to be 220mn
▪ Infra development accessibility and all-weather connectivity

▪ G20 has further improved prospects

Loan growth
▪ JKBK expects credit growth of 15% YoY in FY24

▪ Within J&K, majority of the loanbook is toward employee loans, horticulture, MSME and SME.
Capital commitment announcements have been made by the State government, and the bank
official being a part of this Committee would aid in bank lending

▪ Outside J&K, credit growth is 20% YoY on the back of lower interest rates and servicing
▪ JKBK has changed its list of underwriting policies of every product and policy; any deviation from
here needs consultation of the Board

▪ Retail segment

▪ In the personal loan segment, loans are given to government employees, government
corporation, and education universities. The bank has launched an app specifically to get loan
approval within 10 seconds; in the past quarter, it has made disbursements of INR 4.0bn

▪ Home loans grew by 20% YoY in June albeit on low base

▪ Corporate segment

▪ Outside of J&K, it lends majorly to AAA, AA, Maharatna and Navratna entities while being
cautious on consortium lending

▪ A & Above-rated entities account for 84% share in the corporate book. Of which, AAA-rated
is 38%

▪ JKBK has been conservative on infra lending

▪ Due to the PLI announcement, industries have shown an interest are cotton and textile

▪ Bank has a CD ratio of 69% as on June 2023, and believes higher growth can be achieved through
the use of leverage, which in turn would aid in margin improvement

▪ Post the mining opportunity in the State, JKBK would get additional opportunities in terms of
ancillary services related to rehabilitation

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Deposit growth
▪ The bank expects deposit growth of 10% YoY in FY24

▪ Bank issued CD worth INR 15bn to understand the dynamics of funding

Margin
▪ NIM is expected to be 3.75% in FY24

▪ Investments worth INR 80bn have been redeemed and repriced, which gave lever to yield on
investments. There is no shift from AFS to HTM in FY24

▪ Cost of deposit stood at 4.32% and we expect a further hike

Asset quality
▪ GNPA reduced to 5.77% in Q1FY24 vs 6.44% in Q4FY23, which is expected to go down further as
management does not expect any surprises; hence, guidance for GNPA ratio of 4.5% in FY24

▪ Slippages were INR 2.5bn in Q1FY24; the trend is expected to sustain

▪ JKBK has been trying to build resilience in the balance sheet and has enhanced PCR to 87.55% as
on June 2-023 and also created a floating provision in March 2023

▪ One-time Restructuring stood at INR 21.9bn, of which standard restructured book is INR 9bn. Of
the NPA book, 95% has been provided for. JKBK expects an upgrade of INR 1.5-2.0bn from NPA
to standard within the OTR book

▪ Focus is on improving PCR to avoid any adverse impact of ECL

▪ JKBK has contingency provisions of INR 6.9bn

▪ Credit cost guidance is flat or nil for FY24

▪ Financial sector NPA comprises IL&FS, which has been fully provided for

Opex
▪ The cost-income ratio stood at 66.2% as on March 2023, which has improved to 65% in June 2023;
the bank aspires to reduce it to 60% by March 2024 by leveraging technology; cost to serve would
go down

▪ Also, high cost employees are scheduled to retire over the next 3-4 years (~1,500) while new
employees would be onboarded at one-third cost

▪ Of overall opex, 74% accounts for employee expenses, due to some accounting issues in actuarial
valuation

Other highlights
▪ JKBK expects the entire digital transformation to be rolled out by March 2024

▪ It has upgraded to Finnacle 10 from Finnacle 7 and this has helped to create trackers, such as SMA
tracker, which gets reported to senior management on a daily basis

▪ ROA expansion key driver would be NPA management

▪ For FY24, the bank has set a target of 1.0-1.1%

▪ For FY25, it is 1.15-1.20%

▪ Normalized level would be 1.25-1.30%

▪ ROE would be in the range of 14-15%

▪ Capital raise: The bank has an enabling provision to raise Tier II bonds, which would be done in
Q3FY24. It would not be keen on raising equity currently

117
 ▪ Other income

▪ It is expected to be INR 10bn in FY24 (Q1FY24: INR 2bn)

▪ Management expects to grow treasury (20 employees) from FY26

▪ Other drivers would be forex, insurance tie-ups (life & general), and cash recovery from
technically written-off accounts (pool: INR 43bn)

▪ With respect to employee addition, strategy would be to onboard local people for marketing to
enhance the connect

▪ JKBK has 300 branches in J&K and Ladakh

Analyst annotations: While there could be drag on NIM, better Other income (tie-up with insurance firms) and higher
income from written-off accounts would support revenue traction. Add to that, a lower cost-income
ratio and lower credit cost (negligible) would support strong earnings growth and sustain ROA
improvement. The bank (proforma) does not show any material impact on earnings on transition to
the ECL framework.

Key financials:
PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY20 15.3 (11.2) (11.4) NA (16.0) NA 6.4 (17.5) (1.2) (6.4) 1.5
FY21 15.8 3.9 4.3 NA 6.1 NA 6.1 6.5 0.4 16.8 1.3
FY22 11.0 (30.6) 5.0 16.1 5.4 (11.2) 8.9 6.7 0.5 18.9 1.4
FY23 18.6 69.0 12.0 138.7 11.6 115.9 5.2 13.3 1.0 8.7 1.2

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

118
Represented by:
Rahul Rebello, MD&CEO
Vivek Karve, CFO
Mahindra & Mahindra Financial Services
Dinesh Prajapati, Senior Bloomberg Code: MMFS IN, Market Cap: INR 373bn, CMP: INR 301 (as on 8 September 2023)
VP- Group Treasury &
Corporate Affairs

Mahindra & Mahindra Financial Services (MMFS IN) is a vehicular financing NBFC. The company’s AUM
Executive digest:
stood at INR 8,324bn as of June 2023. Its loan mix comprises auto and utility vehicles at 33%, tractors
at 13%, cars at 21%, commercial vehicles and construction equipment at 11%, pre-owned vehicles at
12%, and SME & Others at 5% for the quarter ended June 2023. As of Q1FY24, the company’s branch
network spanned 27 states and seven union territories through 1,367 offices. MMFS saw a decrease in
GS3 of 4.3%. PCR is at 60% with strong capital adequacy at 21.2%, as of Q1FY24.

Investor insight: ▪ Industry outlook: Demand remains stable, with original equipment manufacturers (OEMs) capable
of supplying vehicles. And although there is some inventory, dealers maintain optimistic
sentiments. Furthermore, there is a favorable cash flow situation on the ground, with a promising
monsoon season spreading across relevant states.
▪ Spreads analysis: MMFS' fixed book accounts for 95%, and it expects a margin of 7.4% in FY24.
Additionally, it has not experienced a significant impact from rate hikes.

▪ Strategy and approach: MMFS has strategically diversified its product mix, prioritizing digitalization
and focusing on Commercial Vehicles (CVs), Heavy Vehicles (HVs), and Light Commercial Vehicles
(LCVs).

▪ New business reportage: MMFS is experiencing growth in its SME lending, leasing and digital
financing segments within its target range. These segments are expected to account for 15% of
the total business by FY25. Notably, in the SME business, the credit cost assumption is set below
1%.

▪ Rise in prime customers: The gradual increase in prime customers may have a slight impact on
margins. Currently, ~10-15% of incremental sourcing each month is attributed to prime customers.

▪ Operational efficiency focus: MMFS is committed to reengineering its processes in order to manage
and control costs effectively. As part of this effort, MMFS is dedicated to Project Udan and continues
to emphasize on digital initiatives. While these digital initiatives may incur some costs, the
anticipated benefits from them are expected to outweigh the expenses.
▪ Growth outlook: Disbursements have remained robust, and MMFS has consistently gained market
share in both the auto and tractor segments. MMFS anticipates maintaining credit costs at current
levels and expects write-offs to be within the current ballpark range.

Analyst annotations: Clearly, calibrated diversification into new asset classes, and elite customer outreach would reduce
business cyclicality. Product diversification, expanding customer reach and greater emphasis on asset
quality would result in healthy growth, controlled credit cost and steady margin for MMFS. At the CMP,
the stock trades at 2.2x FY25E PABV.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 57,378 1.3 37,252 (10.3) 9,888 195.0 8.0 6.5 1.3 37.6 2.7
FY23E 63,521 10.7 37,519 0.7 19,844 100.7 16.1 12.1 2.3 18.8 2.4
FY24E 78,840 24.1 48,361 28.9 23,090 16.4 18.7 13.1 2.2 16.1 2.3
FY25E 96,615 22.5 60,386 24.9 28,906 25.2 23.4 15.1 2.2 12.9 2.2

Source: Company, Elara Securities Estimate

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

119
Represented by:
Ankit Jain, CFO MAS Financial Services (Not Rated)
Dhvanil K Gandhi,
Promoter & Business Bloomberg Code: MASFIN IN, Market Cap: INR 48bn, CMP: INR 881 (as on 8 September 2023)
development

Executive digest: MAS Financial Services (MASFIN IN, Not Rated) is a diversified loan financing NBFC. The company’s
AUM stood at INR 66,839mn and its subsidiary, MRHMFL, had an AUM of INR 84bn as of June 2023.
Its loan mix consists of micro-enterprise loans of INR 40bn, SME loans of INR 31bn, two-wheeler loans
of INR 5.8bn, commercial vehicle loans of INR 4.5bn for the quarter ended June 2023. As of Q1FY24,
the branch network was 155, spanning seven states and NCR (Delhi). As of Q1FY24, MASFIN had GS3
at 2.13%, with CRAR at 25.31% and an ICR at 1.53%.

Investor insight: Growth guidance

▪ MASFIN manages INR 185bn in assets with a steady 25% growth rate in both AUM and
profitability. Its three-year plan aims for a consistent 25% growth rate, emphasizing on its
dedication to expansion and performance. This story revolves around the power of compounding,
showcasing impressive off-book leverage and remarkable organic YoY growth at 20-25%.

Capital position healthy

▪ Capital adequacy exceeded 25%, along with robust asset quality signifying healthy asset condition.
Last quarter return on equity (ROE) was 16%, mirroring consistent ROE performance off-book.
▪ Credit cost within the book ranges in 1.5-2%, representing 1.12% of the balance sheet.

▪ The net return on assets (ROA) is at 3%.

Expansion in SME, new geographies

▪ MASFIN is making significant strides in extending its rural business footprint, targeting 30-40 new
geographies. This expansion includes venturing beyond Gujarat and into states such as
Maharashtra and Madhya Pradesh, a move accelerated post-COVID. Comprehensive market
mapping has been conducted, facilitating the establishment of new SME-focused branches in
Gujarat, with branch sizes varying within 5-35 personnel, tailored to the specific needs of both
rural and urban areas.

▪ The lending structure consists of a balanced 50% direct branches and 50% partner micro-lending
share, with a write-off rate of 1.5%.

Active tracking and measurement for better asset quality

▪ MASFIN has a steadfast commitment to quality, actively tracking credit behavior, with 15-20% of
the customers being repeat, while also attracting a significant number of new customers. The
selection criteria for NBFCs include assessing promoters and CRAR (capital to risk-weighted assets
ratio), among other parameters. The loan disbursement process typically takes 2-3 days after
scrutinizing cash flows, ensuring meticulous attention to detail in lending operations.

▪ The primary focus is on achieving a target return on assets (ROA) ranging from 3.25% to 3.75%
across all the products, with substantial buffer provision of INR 220mn set aside in addition to
standard provisions.

Focus on MSME, housing

▪ MASFIN's major focus is on MSME and housing sectors, with an expectation of faster growth in
the housing segment, which has already displayed strong performance. Notably, MSME has
outpaced other sectors on growth.

▪ MASFIN is poised for significant growth in its NBFC business this year, targeting an impressive
expansion rate of 20-25%. In September 2021, it operated from 99 branches, and as of now, it has
expanded to 170 branches, with plans to further increase this to 180 branches by the end of the
year.

120
 ▪ Direct business is set to experience accelerated growth, surpassing other performance indicators.
The yield has exhibited rapid growth, outpacing other metrics, with an average contract delivering
a substantial yield of 13-14% to MASFIN.

Analyst annotations: MASFIN is turning out to be a steady compounder story with 20-25% growth and profitability. A
combination of strong business skill sets, reach on the MSMSE side and robust risk management
practices is supplemented by strong execution skills. At CMP, the stock trades at 2.4x FY25E P/ABV.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 4,137 9.3 3,149 7.3 1,674 9.0 30.6 17.5 3.8 28.8 4.9
FY21 3,425 (17.2) 2,770 (12.0) 1,444 (13.8) 26.4 13.3 2.8 33.4 4.1
FY22 3,477 1.5 2,470 (10.8) 1,593 10.4 29.1 12.8 2.7 30.2 3.7
FY23 4,721 35.8 3,027 22.5 2,033 27.6 37.2 14.3 2.8 23.7 3.2
Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

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Represented by:
Shalibhadra Shah, CFO Motilal Oswal Financial Services (Not Rated)
Chetan Parmar, IR
Bloomberg Code: MOFS IN, Market Cap: INR 131bn, CMP: INR 881 (as on 8 September 2023)

Executive digest: Motilal Oswal Financial Services (MOFS IN, Not Rated) offers financial products and services, including
stock broking, asset management (public, private and real estate), private wealth management,
investment banking and home finance. The group also had a treasury of ~INR 13.8bn as of June 2023,
most of which has been invested in own funds/PMS. MOFS has a unique and diversified client base
that includes mostly HNI/urban customers. Bolstered by treasury gains, MOFS (consolidated) reported
revenue of INR 12.6bn and a PAT of INR 5.3bn in Q1FY24. The promoters own ~69.7% of MOFS.

Investor insight: ▪ Capital allocation: MOFS has a net worth of INR 70bn, indicating a 23% YoY growth. This comprises
INR 47bn in investments, INR 12bn in housing finance and INR 11bn in broking net worth. MOFS
is aiming at a net worth of INR 1,000bn by its 50th year.

▪ Capital market (distribution/brokerage/NII): In the brokerage segment, retail and institutional

contributed 85% and 15% to the overall topline revenue. The capital market business is
consistently generating INR 3bn in monthly revenue. In the past three years, the number of demat
accounts has tripled, which indicates substantial growth. This business operates primarily through
advisory services and has a team of 1,729 advisors. MOFS utilizes four distinct sourcing channels,
including franchise, HNI, branch networks, and a digital channel.

▪ Franchisee business contributes 55% to the total brokerage revenue with partner network of
8,000, covering an impressive 96% of pin codes. Notably, it operates as an asset-light model.
Furthermore, the distribution's AUM stood at INR 223bn.
▪ HNI focus: HNIs contributes 20% to the total broking revenue. AUM for the HNI segment stands
at INR 4bn, with an even split of INR 2bn sourced from wealth management and another INR 2bn
from retail investments.
▪ Operating cost: MOFS anticipates annual operating expenses and technology costs totaling INR
1.5bn.
▪ Growth strategy: MOFS has a strategic objective of emphasizing cross-selling opportunities and
augmenting its average revenue per user (ARPU). In FY24, the investment banking (IB) segment is
expected to surpass INR 1bn in revenue. MOFS maintains a dedicated focus on catering to ultra
high net worth individual (UHNI) clients, specifically those with net worth exceeding INR 0.5bn.

▪ Asset and wealth management: In the past three years, MOFS experienced robust growth in its
asset and wealth management business. The margin in the asset and wealth management
business currently stands at a respectable 50bps. MOFS serves a total of 5,800 families and is
capitalizing on strong synergies to cross sell a diverse product range. Furthermore, MOFS is actively
pursuing the hiring of senior-level employees to strengthen its team.

▪ Relationship managers: In FY23, MOFS successfully onboarded 70 relationship managers (RMs),

bringing the total count to 200, and there are plans to recruit an additional 50 RMs in the
upcoming FY24. Notably, there is a growing proportion of RMs with a tenure of three years or
more.

▪ Private equity and real estate: MOFS' AUM in private equity and real estate segments amount to a
total of INR 120bn. This includes INR 50bn in real estate AUM and INR 70bn in private equity AUM.
Their strategy involves launching a new real estate fund every 18 months and an equity fund every
36 months.

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Analyst annotations: There lies significant scope for cross-sell across business segments and MOSL’s ecosystem to build a
scalable and profitable business model. While housing finance business turnaround is in place, the
lending and asset management businesses should form the next leg of growth for MOFS.
AT CMP, the stock trades at 9.8x P/E and 1.7x P/BV FY25E.

Key Financials: YE Revenue YoY NOPLAT YoY Adj PAT YoY FDEPS RoE ROA P/E P/B
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 21,385 (13.2) 8,115 (11.1) 1,834 3.9 12.4 6.0 1.8 71.2 4.2
FY21 36,251 69.5 20,153 148.3 12,604 (28.9) 85.7 33.4 10.4 10.3 2.9
FY22 42,968 18.5 21,193 5.2 13,098 53.2 89.1 25.8 8.4 9.9 2.3
FY23 41,771 (2.8) 18,765 (11.5) 9,317 (8.2) 62.9 15.6 4.7 14.0 2.1
Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

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Represented by:
Arun Sundaresan, Head
Product management
Nippon Life India AMC (Not Rated)
and IR Bloomberg Code: NAM IN, Market Cap: INR 206bn, CMP: INR 331 (as on 8 September 2023)
Arash Arethna, Lead-
Investor Relations

Executive digest: Nippon Life India Asset Management (NAM IN) is the asset manager of Nippon India Mutual Fund.
Nippon Life Insurance (NLI), which is Japan’s leading private life insurer, is the promoter of NAM and
currently holds ~73.7% in the company. With a total AUM of INR 4.04tn, NAM is the fourth-largest
mutual fund manager in the country, with reach in 270 locations and a total 1,000 employees and
folio count of 20.1mn.

Investor insight: Small-cap and mid-cap equity segment

▪ NAM’s net flows account for 21% of the market share, with small-cap and mid-cap equity segments
performing exceptionally well. Redemption rates have been lower than expected, and in the past
quarter, there was a notable 7bps increase in terms of AUM (assets under management).
▪ Over time, NAM has steadily built its position in the market. During favorable periods, exponential
benefits have been reaped. The small-cap and mid-cap segments accounted for 42% of the
portfolio. The number of SIPs has increased significantly, growing from 125,000 in March 2022 to
400,000 (3.2x).

▪ NAM has experienced robust traction in large-cap and multi-cap segments. With presence in 300
locations, its reach is extensive. Notably, the B30 segment in terms of equity holds a significant
portion, primarily comprising individual investors.

TER regulations and challenges

▪ The Total Expense Ratio (TER) comprises four elements: Base TER, B30, GST, and an additional
5bps. All four are factored into the overall TER.

▪ TER encompasses all elements except for transaction costs and brokerages, as these pertain to
basis transactions that cannot be capitalized. There is no significant concern regarding the TER
being high, especially considering that it was significantly rationalized in 2019.
▪ TER is applied at the scheme level, and there was a notable impact of nearly 6bps, primarily due to
arbitrage funds. About 2-3bps are attributed to operational efficiencies, with the potential to
further reduce these costs to 6-7bps through the use of DMA and RTA. It is important to note that
STT and brokerage costs were not previously accounted for, and their impact alone accounted for
18-20bps.

▪ This approach appears contradictory to SEBI's practices, as selecting the asset class level would
allow for benefits to flow across different schemes. To ensure economies of scale, it is imperative
to pass on these advantages, especially considering that NAM has the largest small-cap fund.

▪ Addressing the main problem of transparency can be achieved by capping at the scheme level
and disclosing brokerage alongside TER. The management is not overly concerned about
regulatory changes, and it is possible that the changes may be accepted by September end.
Furthermore, NAM’s net sales market share surpasses its competitors.

AIF and offshore business

▪ NAM operates in Alternate Investment Fund (AIF) and offshore business sectors. Currently, the
offshore business is gaining traction, though the sector is smaller at present. Regulatory authority
SEBI is actively addressing and closing any existing loopholes in the industry.

▪ The core elements revolve around the platform's versatility, aiming to streamline the distributor's
experience by eliminating the need to engage with 40 AMCs individually. The model's foundation
lies in providing comprehensive support, with the core focus of the AMC being asset management.

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 Distribution channels
▪ Distributors maintain an intense presence, and while training support and technical assistance are
secondary, the primary advantage or potential threat lies in Jio ability to expand the market,
though it can enhance the base potential.

▪ Distribution channels play a crucial role, with 75% of NAM’s operations conducted through
distribution, and the remaining 25% handled directly. Among distribution, banks account for 20%,
national entities such as MJ Bajaj contribute 20%, and individual advisors make up 60%. Notably,
there is a base of 90,000 mutual fund distributors, characterized by a granular distribution
structure that offers lower concentration risk and significant growth potential.

Analyst annotations: NAM is better placed in the AMC space given the steady market share maintenance, strengthening
reach in B-30 market and robust distribution platform. At CMP, the stock trades at 22.7x P/E and 5.5x
P/B FY25E.

Key Financials: YE Revenue YoY NOPLAT YoY Adj PAT YoY FDEPS RoE ROCE P/E
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x)

FY20 12,030 (18.6) 4,230 15.0 4,153 (14.6) 6.6 16.1 16.1 49.9
FY21 10,621 (11.7) 4,027 (4.8) 6,803 63.8 10.8 23.9 23.9 30.6
FY22 13,066 23.0 5,712 41.8 7,442 9.4 12.1 22.6 22.6 27.4
FY23 13,498 3.3 5,930 3.8 7,233 (2.8) 11.7 20.7 20.7 28.2
Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

125
Represented by:
Jairam Sridharan, MD-PCHFL
Yesh Nadkarni, CEO –
Piramal Enterprises (Not Rated)
Wholesale Lending Bloomberg Code: PIEL IN, Market Cap: INR 260bn, CMP: INR 1,090 (as on 8 September 2023)
Ruchika Jain, AVP- Investor
Relations

Executive digest: Piramal Enterprises (PIEL IN, Not Rated) is an Indian multinational conglomerate headquartered in
Mumbai, India. The company was founded in 1937 and is involved in a wide range of businesses,
including financial services, healthcare and real estate. Piramal Enterprises is one of the largest private
sector companies in India and has a market capitalization of over USD 20bn. PIEL employs >50,000 and
has operations in >20 countries. Piramal Enterprises is also a major player in the Indian real estate
sector. The company's real estate business includes development, investment, and asset management.

Investor insight: Restructuring in final phase

▪ In the past three years, PIEL has undergone a challenging journey in its wholesale book, facing
significant asset quality issues, while simultaneously undergoing a profound transformation to
redefine its corporate identity and nature.
▪ The retail business, which now comprises 55% of the company’s book, required time for its
establishment and growth, and the major phase of this development is now complete.
▪ Beginning with the liability side, PIEL has substantially bolstered its capitalization, utilizing these
funds for provisions and the repayment of short-term debt, resulting in a notable accumulation of
capital reserves.
▪ In 2019, PIEL’s dominant short-term borrowing structure led to an asset-liability mismatch, but a
complete turnaround has occurred since then, marked by the full repayment of short-term debt
and a positive asset-liability matching across various time buckets.

Inorganic growth feasible due to high capital

▪ Despite facing challenges, the net worth has increased compared with three years ago, and the
loan book currently grapples with an abundance of equity, creating a situation where the focus is
on inorganic growth. The defensive approach adopted in 2020 has created a question as to how
to use the additional equity.
▪ PIEL, distinguished for its deal-making expertise, stands out among NBFCs as it explores inorganic
deployment due to the challenge of organically utilizing its substantial capital. The management
is not actively seeking out deals but taking a hawk eye approach for a proper, attractively-priced
deal.

▪ In light of the need for a significantly higher level of equity, even to accommodate a book twice
the current size, inorganic deployment is a necessary strategy, particularly in sectors such as MFI,
SME, affordable housing, and gold loan businesses catering to India's small-scale market.

▪ PIEL considers it vital to exercise patience and acknowledge its overcapitalized status. PIEL exhibits
expertise in handling intricate transactions, showcasing its ability to acquire assets with
imperfections and refine them into ideal ones for future sale. A buyback is a favorable option, but
it is currently not feasible due to SEBI regulations.

▪ A substantial amount of provisioning, including an additional INR10bn provision for prudence and
offsetting an unusual gain in the December quarter, totaling INR 60bn in the past two years, was
made for the wholesale book.

DHFL acquisition, key benchmark

▪ The acquisition of DHFL came at a cost of 43cents on the dollar, with relatively few successful
ventures in its portfolio. However, there has been a positive shift in the loan book, partially
attributed to DHFL's contribution to profitability, despite several pending cases. It is worth noting
that DHFL had previously written off assets for these cases before the acquisition, suggesting that
recoveries could result in gains. While INR 400bn of fraudulent transactions were written off before
the acquisition, no such issues were found on the retail side of DHFL.

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 Guidance
▪ The AUM guidance is to achieve a book of INR 1.25tn by 2028, with INR 900bn in the retail
segment.

▪ Approximately 70-75% of the wholesale portfolio is guided in the real estate sector, with a
corresponding return on assets (ROA) ranging from 3.5% to 4%.

▪ PIEL is aspiring to maintain a consistently high-quality loan portfolio that performs well throughout
economic cycles, which is a commendable objective.

▪ To reduce wholesale assets worth INR 180bn in the next five years, PIEL will restructure and write
off stressed assets, including INR 30bn in land assets. All remaining assets will be divested or written
off by 2025.

▪ In the real estate finance sector, PIEL’s strategy involves focusing on financing small developers in
tier II/III cities, with ticket sizes ranging from INR 100 to 150mn. Additionally, it will tap into the
uncontested corporate mid-market lending space, where expected return is 14% with ticket sizes
ranging from INR 350 to 400mn.

▪ PIEL has maintained a diversified retail portfolio with allocations in housing (40-45%), used cars
(10%), LAP (20-25%), and unsecured loans. This year, it achieved a positive ROA ranging from 2.5%
to 3%. PIEL’s strategy includes plans to increase book yields, reduce the existing opex ratio of 6%,
and further lower credit costs. These strategic measures are aimed at enhancing the company's
financial health and profitability in the retail segment.

Threats to unsecured lending

▪ Despite the RBI's previous reduction in risk rates for unsecured lending, it is surprising that these
rates have not risen as expected. There is growing anticipation that the RBI may take aggressive
measures to increase these risk rates.
▪ In recent months, unsecured lending has shown weakness, primarily due to the high levels of
unsecured leverage among customers, with >8% of the credit-seeking population holding >10
different credit lines, a significant and concerning threat. This behavior bears resemblance to the
trends observed before the 2007 financial crisis. Despite the tightening of lending norms, there
remains strong demand for credit, and the emergence of Buy Now, Pay Later (BNPL) services has
complicated credit bureau scores.

With metamorphosis still afoot, high opex/AUM and balance sheet repair (legacy book clean-up
Analyst annotations:
yielding zilch income) may restrict returns. Moreover, excess capital deployment via M&A/other
measures may best improve RoE to early double-digits, as PIEL operates at low leverage (2.5x: Q1FY24),
high capital adequacy (34%: Q1FY24). Said that, the management’s immediate focus is on RoA
accretion (0.2%: Q1FY24), to be steered by retail book expansion aiding costs metrics and accelerated
legacy clean-up – strategy is supportive of credit growth and quality. At the CMP, the stock trades at
0.8x P/BV FY25E.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 35,004 23,015 19,988 83.8 4.1 1.3 13.0 0.7
FY23 49,400 41 (26,202) (2.1) 99,686 4.0 417.7 5.9 4.2 2.6 0.8

Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

127
Represented by:
HP Singh, CMD Satin Creditcare Network (Not Rated)
Aditi Singh, Head-
Strategy Bloomberg Code: SATIN IN, Market Cap: INR 21bn, CMP: INR 208 (as on 8 September 2023)

Executive digest: Satin Creditcare (SATIN IN) is a microfinance NBFC. Its consolidated AUM stood at INR 95bn – the core
MFI and MSME business, housed under SCNL, posted an AUM of INR 84bn, and its subsidiaries,
Taraashna (TFSL) witnessed an AUM of INR 4bn, Satin Housing Finance (SHFL) an AUM of INR 5.2bn
and Satin Finserv (SFL) an AUM of INR 6.5bn, as on June 2023. SATIN’s portfolio of loan mix consists of
MFI at 88% and non-MFI at 12% for the quarter ended June 2023. As of Q1FY24, SATIN's branch
network was spread across 23 states and union territories in India. As of Q1FY24, its standalone GNPA
was 2.5%, CRAR 25%, and cumulative collection efficiency 99.6%.
Investor insight: Post-pandemic growth acceleration
▪ The pandemic, characterized by a nine-month lockdown, posed significant challenges as SATIN’s
business model relied on physical presence, and growth was further hindered by both
demonetization and the pandemic, with primary customer base in large cattle and animal
husbandry.
▪ During the pandemic, SATIN’s client base was unchanged as it refrained from adding new clients
and opted not to lend to delinquent clients, resulting in a reduction in numbers. Unfortunately,
SATIN had to let go of its growth in the pandemic as the denominator base did not expand.

▪ Following the COVID-19 pandemic, SATIN’s new customer base increased from <20% to 43%, and
the share of the portfolio allocated to new customers now stands at 50%.

▪ The risk management and business development teams will jointly assess, while the branch
expansion plan must undergo a thorough evaluation process.

Asset quality management

▪ SATIN follows a benign collection process that is highly sensitive, with no use of force allowed or
possible. The only approach is to communicate to the customers that their credit score is affected
on non-repayment.
▪ SATIN achieved lowest credit costs by implementing a delayed write-off approach, allowing non-
payers ample time before recognizing losses. The credit costs of SATIN were 10-11%, while the
industry average was 14-15% in FY21-23, per third party sources.
▪ The delinquency rate of the industry was 4.40%, while for SATIN it was 0.90%.

Better asset quality and efficiency focus

▪ Significant improvement in the 90-day past due (par 90) category results from a rejection rate that
is 5-10% higher than the industry average. While this situation can be frustrating, it has ultimately
led to better performance. SATIN's approach involves meticulous management of distinct DPD
buckets: to handle the 1-60 day and 60–90-day buckets separately, and there is a dedicated team
responsible for the 90–420-day bucket.

▪ SATIN diligently tracks attendance, maintaining detailed track sheets. An area of concern that
requires attention is cashless repayments. Maintaining high attendance is crucial as it helps identify
genuine customers.
▪ Incentives are based on loan count, disbursement, and portfolio quality as key performance
parameters. The issue of attrition primarily occurs at the beginning of the customer journey, with
a significant 60% attrition rate observed within the first two months. Geo-tagging is carried out at
the customer's residence and the meeting centre for accurate tracking.

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 Guidance
▪ SATIN's guidance aims for a YoY growth of 25%, with robust return on assets (ROA) exceeding 4%
and credit costs maintained within 1.5-2%.

▪ The higher cost of funds, influenced by variations in credit ratings and capital adequacy ratios, is
balanced by lower credit costs.

▪ Net interest margins (NIMs) are expected to remain relatively stable, contingent on the condition
that yields may decrease if the cost of funds (COF) decreases.

Analyst annotations: SATIN has come a long way in terms of geographic expansion and risk management. With underlying
industry tailwinds remaining strong, we expect the business outlook to be healthy and the margin
profile robust. At the CMP, the stock trades at 0.8x FY25E.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 9,134 14.2 3,995 9.2 1,550 (23.0) 28.5 2.5 2.2 7.3 0.8
FY21 7,378 (19.2) 2,648 (33.7) (140) NM (2.3) (0.2) (0.2) NM 0.7
FY22 7,509 1.8 2,108 (20.4) 207 NM 3.0 0.3 0.3 70.3 1.0
FY23 9,406 25.3 4,117 95.3 48 (76.8) 0.6 0.1 0.1 335.5 1.1

Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

129
Represented by:
Sanjay Mundra,
President
Shriram Finance
Jai Singh, Vice President Bloomberg Code: SHFL IN, Market Cap: INR 733bn, CMP: INR 1,955 (as on 8 September 2023)

Executive digest: Shriram Transport Finance Company (SHTF IN) was established in 1979 and is headquartered in
Mumbai, India. The company caters to borrowers with a modest credit profile and relatively
underbanked customers. SHTF extends loans for tractors, small commercial vehicles, three-wheelers,
passenger commercial vehicles and construction equipment. SHTF has a niche presence in financing
used trucks for small truck owners (SRTOs). It has a network of 2,930 branches pan-India, at present.
As of Q1FY24, SHTF’s AUM was at INR 1,932bn, mainly constituted of used vehicle loans. Mr. YS
Chakravarti is SHFL’s MD and CEO.

Investor insight: Loan growth led by volume

▪ The loan ticket size is set at INR 63,000, and the current growth rate for commercial vehicles (CV)
is a healthy 12%, with even a 4-5% increase in volumes contributing positively to market share.
▪ Meaningful impacts are typically observed when the second monsoon is unfavorable. Regions
such as Karnataka, East India, and Madhya Pradesh belt have experienced rainfall deficiencies,
although last year saw rains arriving after 15 September, necessitating further observation. On the
other hand, a shortfall in rainfall in the northern belt is not expected to have a substantial impact.

▪ In terms of loan portfolio contributions, SHTF sees MSME loans accounting for ~10%, while two-
wheeler loans make up ~5%. A combined segment comprising two-wheeler loans and personal
loans contributes significantly, representing ~20% of the portfolio. Gold loans are also a substantial
component, making up ~17-18% of the overall portfolio. These insights shape SHTF's approach to
pricing and customer segment strategies.

▪ In terms of growth, there is an overall expectation of 15% growth in the medium term, with CV
and farm-related loans anticipated to outperform other sectors. Ultimately, the goal is to achieve
margins in the range of 8.2-8.5%.
▪ In the past 15 years, SHTF has experienced a growth pattern characterized by a 5% rise attributed
to volume and a more substantial 7-8% growth led by value, with market share gains following in
a sequential order of intensity.

Unsecured lending and tractors – Huge potential

▪ It is worth highlighting that the unorganized sector still constitutes >50% of the market. This
underscores the vast potential for growth and expansion in serving this large, underserved portion
of the market. This strategic insight informs SHTF's approach to capture opportunities in the
financial landscape.

▪ In the commercial vehicle (CV) sector, light commercial vehicles (LCV) account for ~19-20% of the
portfolio, with a significant 45% belonging to heavy vehicles, primarily represented by STFC.
Furthermore, the CV sector itself constitutes 50% of SHTF's portfolio, with heavy CVs contributing
21% within this category. Notably, there is a significant surge in tractor demand, highlighting a
promising market opportunity in this sector.

MSME lending in focus

▪ In the realm of MSME lending, loans yield an average of 17-18%, reflecting a healthy return on
investment. The current strategic focus centers on nurturing existing customer relationships, with
the next phase involving the acquisition of new customers.
▪ SHTF’s concentration in MSME lending is notable in regions such as Andhra Pradesh (AP),
Telangana, and Tamil Nadu. This focus has recently been expanded to new areas. There is a
substantial opportunity in this segment, particularly within the ticket size range of INR 0.2 - 0.5mn.

130
 Cost of funds to be lowered, margins to be healthy
▪ Consumer loans play a significant role, particularly in areas such as gold loans and two-wheeler
vehicle loans, with small ticket sizes being the norm. Notably, prepayment rates are high, reaching
10%.

▪ On the horizon, there is an upcoming credit rating assessment scheduled for November, which
will likely have implications for future lending strategies and risk assessments.
▪ Lastly, in terms of financing, the target for the worst-case cost of funds (COF) is set at 8.9%,
ensuring a stable financial foundation for SHTF’s operations.

▪ Pricing strategies within SHTF are undergoing a comprehensive evaluation, considering multiple
factors including freight costs, fuel expenses, interest rates, and maintenance costs. It is noted that
the Dedicated Freight Corridor (DFC) is not expected to have a substantial impact on operations.

▪ The credit landscape includes a credit cost maintained at a stable 2%. Return on assets (ROA)
consistently performs well, hovering at 3% or higher, while return on equity (ROE) falls within a
respectable range of 16-18%.

Analyst annotations: SHFL stands at an inflection point given the strong sectoral tailwinds, product diversity in place and
stable asset quality environs. While we closely monitor unsecured book expansion, near-to-medium
term prospects are promising. AT CMP, the stock trades at 1.3x FY25E P/ABV.

Key Financials: YE NII YoY PPoP YoY PAT after minority YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) interest (INR mn) (%) (INR) (%) (%) (x) (x)

FY22 93,160 12.4 74,100 18.5 27,078 7.3 91.9 9.7 1.8 21.3 2.5
FY23 169,630 82.1 123,440 66.6 59,792 120.8 185.4 17.3 3.5 10.5 1.7
FY24E 186,655 10.0 128,529 4.1 68,479 14.5 182.9 14.9 3.1 10.7 1.5
FY25E 213,326 14.3 144,457 12.4 77,747 13.5 207.6 14.9 3.0 9.4 1.3
Source: Company, Elara Securities Estimate

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

131
Represented by:
Saloni Narayanan, CFO State Bank of India
Pawan Kedia, IR
Bloomberg Code: SBIN IN, Market Cap: INR 5,207bn, CMP: INR 583 (as on 8 September 2023)

Executive digest: State Bank of India (SBIN IN) is the oldest and largest bank in India. As on June 30, 2023, GoI
owned 57.47% of the bank’s equity capital. The SBI Group offers a range of banking and non-banking
products & services to corporate and retail customers. It has a presence across the world. Through
its non-banking subsidiaries and joint ventures, it offers a range of financial services, such as investment
banking, credit cards, life & general insurance, fund management, primary dealership, and broking &
factoring.

Investor insight: Business momentum

▪ Robust credit demand continues with the festival season around the corner; working capital Loans
utilization is at 50-52%. Term loans are 19% undisbursed portion. This portion pertains to capex
demand from traditional segments, such as infrastructure, NBFC, iron & steel & cement and non-
traditional segments, such as solar, EV, hydrogen & ESG. A major part of advances will be repriced
in Q2FY24.

Retail portfolio - Xpress credit loans

▪ The portfolio amounts to INR 3,107bn and expected to grow at 25-30% YoY

▪ The penetration rate for this product is 26% (~4.7mn salaried customers out of a total of 18mn
customers) with an ATS of INR ~0.5mn. HDFC Bank is the biggest competitor for the bank since it
has a a customer base of ~80mn.
▪ The segment has a GNPA of 0.7% and no write-offs currently apart from INR 4.0bn during COVID-
19. Collections is not a major concern for these loans and the bank would like to sustain the
delinquency rate below 1%

▪ Out of total customer base of this product, 94% belong to CG, SG, Defence Armed Forces and
other government institutions at 83% and the rest pertaining to reputed corporate
▪ The average repayment period is 12-14 months and utilization is usually for home refurbishments,
marriage, and child education

▪ Loan is disbursed on the basis of the CIBIL Score by classifying the customer broadly into four
segments: platinum & diamond (48%), gold (32%) and silver (20%)

▪ Personal loans provides a yield of +11%, and the banks do not see major competition from reputed
NBFC operating at a yield of ~16%, due to primary difference in the quality of customers

SME loans
▪ It is broadly catering to four segments: vendor distribution, which is largely done with large
corporate, trade and services segments for customers up to INR 50 Mn threshold, balance sheet
financing - improvement in underwriting standards & digital loans – pre-approved business loans
(PABL) book amounts to INR 10bn
▪ Relationship Manager infrastructure, simplified assessments and improvement in turnaround time
(TAT) would help SME Loans to grow at 18-20% for the next four years

Account aggregator
▪ SBIN has been continuously working on the account aggregator platform and fulfilled ~16.6mn
demand through this platform
▪ The current platform consists of 15 account aggregators, 120 NBFC and 35 tech partners

132
 Others
▪ The colending portfolio is set to reach INR 200-250bn in the next two years and looking for fintech
partnerships

▪ The gold loan portfolio amounts to INR 1.01tn (INR 760bn are agri-backed loans). The bank has a
1,500-1,600 gold points and will continue to remain cautious due to operational factors

▪ Housing loans remain an attractive segment for all banks, due to low delinquency and collateral.
With the mortgage-GDP ratio of 11%, structural demand has increased for semi-urban and smaller
geographies. SBIN has launched a four-month campaign providing home loans at a concession.
Around 55% of home loans are originated through branches
▪ The bank does not want to be aggressive in terms of pricing of car loans; the overall car loans
portfolio has crossed INR 1tn mark in Q1FY24

▪ The CASA ratio declined 245bp YoY to 42.88%, but not a major decline compared to other peers.
The bank has seen an increase in utilization of the sweep facility offered to savings account
customers, which has eventually helped in customer retention

▪ Overall target ROA is 1.2% for FY24

Cost and margin

▪ Margin is expected to decline in Q1FY24 and the uptick is expected in Q3FY24. SBIN does not
expect the RBI to bring down the repo rate

▪ Incremental Net Demand and Time liabilities (NDTL) is INR 1,540bn and the bank needs INR
150bn, largely brought in to mop-up excess liquidity due to INR 2,000 notes coming into the bank.
Additional cost would be INR 840mn

Asset quality
▪ Fresh slippages and recovery came in at INR 76bn and INR 36bn, respectively, in Q1FY24; SBIN
expects to improve this in the upcoming quarter. AUCA recovery remains cause for concern for
the bank, amounting to INR 1,800bn with no major chunky recoveries left. Only retail recoveries
are left, which would be labor intensive
▪ Management expects slippages to be INR 40bn for Q2FY24

▪ Credit cost was 32bp for Q1FY24; SBIN has set a target to remain below 50bp levels
▪ PCR including AUCA stands at 91.41%
▪ 30% of the COVID restructured book is provided

Other highlights
▪ ECL impact: the bank expects the ECL provisions to be INR 50bn per year for the next five years
after taking into consideration probability of default, exposure at default and loss given default for
the past five years. SBIN has been adequately protected for its impact

▪ Fee income: Cross-selling is expected to reach USD1bn in the next two years from the current levels
of INR 36bn with the help of its extensive branch network. This will be driven due to
commoditization of 70% of SBIN products on the SBI YONO App. There has been no amendment
in fees arrangement (lower than the industry standard) with SBI Life and management doesn’t not
expect any change in near term.
▪ The cost-income ratio is expected to show no major upside as a large part of cost is Sunk cost

▪ SBIN does not have any plans of listing any of its subsidiaries

Uncertain macros notwithstanding, SBIN has delivered good performance overtime. We believe SBIN
Analyst annotations:
will be a strong play on recovery.

133
Key financials: PPoP YoY NP YoY EPS YoY P/PPOP RoAE RoAA P/E P/ABV
YE Mar
(INR bn) (%) (INR bn) (%) (INR) (%) (x) (%) (%) (x) (x)
FY22 678.7 (5.1) 316.8 55.2 35.5 55.2 10.4 13.0 0.7 16.4 2.2
FY23 837.1 23.3 502.3 58.6 56.3 58.6 8.4 17.9 1.0 10.4 1.8
FY24E 936.1 11.8 539.6 7.4 60.5 7.4 7.5 16.5 1.0 9.6 1.6
FY25E 1,025.6 22.5 570.7 13.6 63.9 13.6 6.9 15.3 1.0 9.1 1.4

Source: Company, Elara Securities Estimate

Analyst: Prakhar Agarwal, [email protected], +91 22 6164 8502

Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

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Represented by:
Rajiv C Lochan, MD Sundaram Finance (Not Rated)
M Ramaswamy, CFO
Bloomberg Code: SUF IN, Market Cap: INR 291bn, CMP: INR 2,624 (as on 8 September 2023)

Executive digest: Sundaram Finance (SUF IN, Not Rated) was established in 1954 with the primary objective of financing
the purchase of commercial vehicles. SUF has today grown into one of the most trusted financial
services groups in India. It has a nationwide presence of nearly 691 branches, As of Q1FY23, SUF has
an AUM of INR 373bn, wherein CV financing contributes 47% to total AUM, cars 25%, construction
equipment 11%, tractor 8% and commercial lending 5%.

Investor insight: CV cycle- Early stages of upcycle

MHCV cycle – downcycle began in 2019, COVID accelerated it. Typically, the upcycle could have
begun in 2021, but extended COVID downcycle got protracted and 2H of 2022 saw beginning of
upcycle which led to tonnage increase, increase in road infra, impact of GST benefits came through
which led to expansion in available capabilities and the recent periods also saw demand catching up.
While capacity expansion still stands in replacement stage, the MHCV demand led by strong tipper
demand, renewal in healthy bus demand which had evaporated during COVID and haulage which
only improved recently although led by replacement demand and not much expansion. So next few
years replacement demand to continue as the economy picks up, and over the next 2-3 years as growth
manifests, upcycle will continue.
Impact of DFC corridor
As DFC comes in, there will be some shift in MHCV demand, but some substitution demand will come
by, and new demand will open up.
Rural to boost transportation
Rural agriculture growth stands intact led by GOI initiatives followed by opening of supply chains
giving demand to logistics, transportation, and cold storage.
Scrappage policy:
Post elections, scrappage policy will come into effect and older fleet will have to sunset which will give
kicker to replacement demand.
Core purpose intact
▪ SUF's foundation was built on serving customers who were underserved by the financial system
or faced high loan rates. Over time, these customers have thrived, enabling SUF to compete with
banks. However, SUF's core principle of reducing borrowing costs for the underserved population
is unchanged.
▪ SUF primarily focuses on semi-rural areas, with an urban customer base consisting of self-employed
individuals in the passenger vehicle sector.
MSME to add new growth revenue
▪ SUF’s diversification journey continues with a new focus on MSME financing, which is expected to
drive the next growth phase. Despite challenges posed by the pandemic, SUF's diversification
efforts in the past 15-20 years have progressed steadily. SUF is working to strike a balance between
financing used and new assets, aiming to strengthen financial stability. By introducing MSME
financing, SUF is making its portfolio more resilient to critical situations.
▪ Additionally, SUF is achieving geographical balance and leveraging local talent for expansion. SUF
emphasizes cautious market entry, prioritizing familiar markets before exploring new ones.
▪ SUF's core focus remains on serving customers who are underserved by the formal financial
system, including small entrepreneurs, transport operators (now expanding into retail and used
commercial vehicles), and small business creators.
Uptick in demand due to MHCV upcycle, South remains center point
▪ The MHCV downcycle, initiated in FY19-20 and prolonged by the impact of COVID-19, constrained
replacement, and expansion demand. However, in FY23, a clear upcycle has emerged,
characterized by increased tonnage, GST benefits, and improved road infrastructure, fueling
expectations of further expansion demand, particularly with the reopening of educational
institutions.

135
 ▪ The government's commitment to investing in rural agriculture and supply chain infrastructure
presents an opportunity for new supply chain and logistics financing initiatives.

▪ SUF stands out by emphasizing input metrics over output, driven by a commitment to both growth
and stability. It has already secured a double-digit market share in the southern commercial vehicle
segment and aspires to achieve the same in other regions within three years.
▪ SUF’s long-term guidance targets a robust 16-18% CAGR for both assets under management
(AUM) and profit after tax (PAT).

Branch expansion to be organic, efficiency key

▪ SUF primarily finances assets vital for small enterprise livelihoods, unlike peers who focus on
consumption. It boasts a long history of delivering quality, sustainable growth, and thinking in 20-
year cycles. The track record shows an impressive 15-16% CAGR over a 10-20-year period.

▪ Low attrition rates are maintained through consistent training and employee development efforts.
SUF takes pride in strong customer relations, evident in positive response from clients. However,
during COVID-19, employees experienced negative emotional reactions due to the challenges
faced by SUF's customer segment.

▪ Irrespective of the loan amount sanctioned, the responsibility for both disbursing and collecting
the loan lies with the same individual. Data and technology are employed to complement the
credit manager's decision-making process, establishing a distinctive system of checks and balances
that contributes to operational efficiency.
▪ Ensuring profitability demands strict control over operating expenses and astute risk pricing.

Yield pressure offset by upcycle

▪ The yield is under pressure due to a deliberate shift in the customer mix towards lower-yielding
segments, although this is partially offset by the MHCV upcycle.
▪ Additionally, demand originally slated for Q4 shifted to Q1FY24 because the government granted
an extra quarter for vehicle purchases following registration during phase II price hike.

▪ The spreads over the term of the next five years should be in 4-5% range.

Housing finance to shine

▪ SUF's housing finance strategy emphasizes reliable segments and avoids overextending in builder
finance. SUF prioritizes southern market expansion, diversifying sub-assets, and investing in digital
technology for productivity improvement, given the extended asset timelines.

▪ With a new management team in place and an AAA rating achieved, SUF’s housing finance plans
are poised for significant growth.

▪ SUF is already involved in LAP (loan against property), and its housing loans are categorized into
three segments based on purpose and ticket size. Small-ticket LAP is a recently initiated business in
its initial stages, with yields falling within the 14-16% range and not exceeding 20%.

Analyst annotations: At the CMP, the stock trades at 3x FY25E P/ABV. We believe SUF is the bigger beneficiary of the
underlying industry trends on MHCV and MSME cycle uptick.

Key Financials: YE NII YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 17,504 14.2 8,603 (1.7) 7,240 (35.7) 65.2 16.3 2.3 40.3 5.3
FY21 19,100 9.1 9,958 15.8 8,091 11.8 72.8 19.3 2.4 36.0 4.7
FY22 21,507 12.6 11,565 16.1 9,034 11.7 81.3 18.2 2.6 32.3 4.2
FY23 22,336 3.9 13,562 17.3 10,883 20.5 98.0 18.5 2.9 26.8 3.8

Source: Bloomberg, Company, Elara Securities Research

Analyst: Shweta Daptardar, [email protected], +91 22 6164 8559

Himanshu Dhyawala, [email protected], +91 22 4204 8661

136
Represented by:
Kanishka Chaudhary,
CFO
Suryoday Small Finance Bank
Himadri Das, Head - Bloomberg Code: SURYODAY IN, Market Cap: INR 17bn, CMP: INR 164 (as on 8 September 2023)
Investor Relations

Suryoday Small Finance Bank (SURYODAY IN), initially incorporated as Suryoday Micro Finance, was
Executive digest:
set up in October 2008, as a non-banking financial company to provide loans to women in urban and
semi-urban areas using the joint liability group (JLG) lending model. SURYODAY received a licence
from the Reserve Bank of India (RBI) in FY16 to commence operations as a small finance bank and it
started operations on January 23, 2017. As on June 30, 2023, the bank operated in 15 states and
Union Territories (UT) through 609 branches, with a strong presence in Maharashtra, Tamil Nadu and
Odisha.

Investor insight: ▪ SURYODAY’s promoter control is 20% in which Mr. Bhaskar Ramachandran holds ~5% stake,
Surendra Pai has ~12% and 3% is held by a family office

▪ In December 2022, Bhaskar sold 5% of its stake for capital requirements

▪ The bank started as MFI-JLG and currently constitutes 66% as MFI-JLG, 34% as secured retail assets
and some portion to colending to NBFC

Business momentum
▪ Inclusive finance is one-third of MFI-JLG loans; they have been provided to individual women, who
have been with the bank for at least three cycles (demonetization, and COVID-19 Waves 1& 2)

▪ In terms of JLG loans, ATS is INR ~28,000-50,000

▪ By March 2024, it may grow like the retail asset by 30-35%

▪ The bank expects to achieve exit-FY24 ROA of 2.5-3.0%

Vikas loans
▪ The Vikas loans portfolio has grown from INR 2bn to INR ~12bn in FY23 and these loans are
delivered in one hour as they are pre-approved and a push product

▪ PAR Delinquency is less than 0.5%. Vikas loans is provided to highly curated customers, 1.0mn
customers are eligible for Vikas loans out of which only 500,000 have been selected based on
credit score

▪ Vikas loan is in the range of INR 60,000-75,000, which do not form a part of JLG loans and are
unsecured

▪ Management expects the ratio to be 50:50 between JLG:Vikas loans by end-FY24

Micro home loans

▪ Micro loans are one level below affordable housing with a ticket size in the range of INR 0.5-1.0mn

▪ This portfolio provides a return of 18%. The interest subsidy program was introduced providing
relief of 1-3% on loan ticket sizes of up to INR 0.5mn
▪ These loans are disbursed post income assessment done at household levels (dairy, cattle and
sericulture)

Secured loans
▪ The bank has a secured portfolio of INR 16bn (mortgages at INR 10bn and CV at INR 6bn)

▪ The CV portfolio is majorly into refinancing and has a delinquency of INR 140mn out of total INR
6bn. It aims to increase the IRR from the CV book to 14% by FY24

137
 CSTMSE insurance for loans
▪ Under this Scheme, 15% of the pool is covered and fees are charged to the customer via processing
fees. INR 30bn has been insured out of INR 37bn.

▪ Premium of 0.75% is paid on an annual basis

Cost and margin

▪ IRR for JLG, individual and mortgage loans is 24%, 28% and 11.5% respectively. Yield on advances
is ~18% and yield on average assets is 15%

▪ Cost of funds is 6.9% and equity adjusted cost is 5.0%

Other highlights
▪ The bank has an uncovered exposure of COVID-19 is INR 400mn, and the same is not provided
for to date

▪ In Q1FY24, it made a provision of INR 420mn because of security receipts regulation by the RBI.
The bank expects to release INR 420mn over the next few quarters and then provide for uncovered
exposure in the next few quarters

▪ Apart from CGFMU, it aims at keeping INR 1.5-2.0bn of floating provisions

▪ Around 70% of the mix comes from Tamil Nadu, Maharashtra and Odisha with major contribution
from urban and semi-urban areas

▪ Karnataka and Tamil Nadu are the best performing portfolios

▪ Investments portfolio comprises ~30% of the bank’s balance sheet size. It aims reducing its
dependency on refinancing

▪ It has a planned capex of INR 200mn per year for the next six years

▪ The bank aims at building a target collection team of 1,200 from 800

▪ It has been making efforts to make its mobile applications better and increase data points collection
for loans above INR 75,000

▪ Customer base grew 20% in FY23 and the trend is expected to continue in FY24

▪ The bank has an extensive network of ~600 branches

▪ It aims to improve its leverage ratio to 5.0x from the current 4.0x

▪ Its data centers and CBS, which were earlier outsourced, are being managed in-house

▪ The bank charges processing fees of 2% and 3% for JLG and Vikas loans, respectively
▪ Opex cost is fairly high because the bank purchased the Finnacle software

Tailwinds in the microfinance space will percolate into better growth momentum for the bank. It has
Analyst annotations: changed business practices and expects past experience of asset quality metrics to not be repeated.
With operating leverage likely to play through, the bank will benefit from lower cost ratios. It expects
an exit ROA of 2.5-3.0% by FY24.

Key financials: YE Mar

PPoP
(INR bn)
YoY
(%)
NP
(INR bn)
YoY
(%)
EPS
(INR)
YoY
(%)
P/PPOP
(x)
RoAE
(%)
RoAA
(%)
P/E
(x)
P/ABV
(x)
FY20 3.1 44.2 3.1 174.1 13.3 89.3 5.8 NA NA NA NA
FY21 1.8 (40.7) 1.8 (40.7) 1.3 (90.1) 9.7 NA NA NA NA
FY22 2.6 45.8 (0.9) NA (8.8) NA 6.7 NA NA NA 1.2
FY23 3.4 27.6 0.8 NA 7.3 NA 5.2 5.0 0.9 22.3 1.1

Source: Bloomberg, Company, Elara Securities Research

Prakhar Agarwal, [email protected], +91 22 6164 8502

Analyst:
Kartik Solanki, [email protected], +91 22 4204 8604
Palak Shah, [email protected], +91 22 6164 8500

138
FMCG

139
Represented by:
Amit Kumar, MD & CEO Prataap Snacks (Not Rated)
Sumit Sharma, CFO
Bloomberg Code: DIAMOND IN, Market Cap: INR 22bn, CMP: INR 942 (as on 8 September 2023)

Executive digest: Prataap Snacks (DIAMOND IN, Not Rated), promoted by Mr. Arvind Mehta, Mr. Apoorva Kumat and
Mr. Amit Kumat, is an Indian snack food company that manufactures and markets multiple product
variants across potato chips, extruded snacks and traditional Indian savories (namkeen) under the
Yellow Diamond brand and sweet snacks under the Rich Feast brand. In FY19, it entered the Gujarat
market through the acquisition of Avadh Snacks Private. As on date, it operates through 15
manufacturing facilities, of which seven are company-owned and eight are on a contract
manufacturing basis.

Investor insight: ▪ The revenue mix of Prataap Snacks reveals that namkeen products contribute <20% to the total
revenue, while extruded snacks form ~60% of the pie.

▪ Despite facing challenges such as raw material inflation and operational inefficiency, the company
has undertaken strategic measures to address these. Operational efficiency enhancements include
changes in raw material consumption methods and improvements in factory-side operations. An
advantage in the form of reduced freight costs for namkeen products has been leveraged.

▪ DIAMOND has implemented distribution model revamp. The channel margins have been reduced
by 3-4% through the removal of the super stockage model, enabling direct stock supply to
distributors.

▪ DIAMOND currently operates in 2.2mn outlets, with Haryana and Madhya Pradesh being
significant markets. Future expansion is planned in Uttar Pradesh, Punjab, and Bihar, with
substantial investments in these regions.

▪ Eastern Uttar Pradesh has shown remarkable growth potential, with sales doubling in the past 1.5
years. The current revenue in Uttar Pradesh at INR 130mn could potentially reach INR 300-400mn
in the coming years, with Lucknow being a particularly successful market.

▪ DIAMOND has invested INR 1.06bn for capital expenditure (capex) under production linked
incentive (PLI) scheme, with payback as per the scheme forecasted at a minimum of INR 0.27bn
for the current year and INR 0.35bn for the following year.

▪ Two new facilities are set to be introduced in Jammu by Q3 and Rajkot by Q4. The Jammu facility
will cater to the north region, including Punjab, and result in cost optimization as contract
manufacturing is reduced to 25%.

▪ DIAMOND anticipates a volume growth of 15% for the upcoming quarter.

▪ The focus is on achieving double-digit EBITDA margin. Before the COVID-19 pandemic, EBITDA
margin stood at 7%, which increased to 8.5% after the pandemic and is deemed sustainable. The
company targets double-digit EBITDA margin by the next fiscal year.

▪ The sales of INR 5 packs were hit by COVID-19, as these account for 85-90% of total sales.

▪ DIAMOND's competition includes eight major players in the industry, such as Balaji and Bikaji.

▪ Advertising costs have been optimized, focusing mainly on the ‘ring’ category.

Analyst annotations: DIAMOND's growth strategy focuses on two pillars of geographical expansion in high-potential
markets with lower current market share and deeper penetration in existing markets. The company is
also shifting towards more in-house manufacturing and decentralized operations, allowing direct
distribution to distributors and saving on margins that would have gone to super stockists.

140
Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 13,938 19.1 942 6.8 469 5.1 20.0 8.0 7.0 47.1 12.7
FY21 11,711 (16.0) 631 5.4 142 (69.8) 6.0 2.3 1.9 156.0 22.5
FY22 13,966 19.3 583 4.2 168 18.7 1.2 0.4 1.4 759.7 28.6
FY23 16,529 18.4 665 4.0 203 20.9 8.5 3.1 2.6 110.7 28.2

Source: Company, Bloomberg, Elara Securities Research

Analyst: Amit Purohit, [email protected], +91 22 6164 8594

Rohit Harlikar, [email protected], +91 22 6164 8562
Vidhi Puj, [email protected], +91 22 4204 8692

141
Represented by:
L Krishnakumar, Group CFO
Tata Consumer Products
Nidhi Verma
Head of Investor Relations Bloomberg Code: TATACONS IN, Market Cap: INR 792bn, CMP: INR 852 (as on 8 September 2023)
Kaiwan Olia
Manager – Investor Relations

Executive digest: Tata Consumer Products (TATACONS IN) is a consumer products company uniting the food and
beverage interests of the Tata Group under one umbrella. The company’s portfolio includes tea, coffee,
water, ready-to-drink, salt, pulses, spices, ready-to-cook offerings, breakfast cereals, snacks and
minimeals. TATACONS is the second-largest branded tea company in the world. Its key beverage
brands include Tata Tea, Tetley, Eight O’Clock Coffee, Tata Coffee Grand, Himalayan Natural Mineral
Water, Tata Copper+ and Tata Gluco+. Its foods portfolio includes brands, such as Tata Salt, Tata
Sampann, Tata Soulfull and TataQ. In India, the company has a reach of 200mn households through
3.9mn total outlet coverage.

Investor insight: ▪ The company's current emphasis is on expanding its market reach, improving throughput, and
focusing on premiumization. Core category like tea and salt are like to grow in 5-7% while growth
portfolio 20% of India business in Q1FY24 to drive sales growth.
▪ The tea is experiencing a upward trajectory in tea volume. However, volume have yet to fully meet
medium-term expectations. Tea prices have seen a decline, as mass market tea products continue
to enter the market, premium teas will become pricier
▪ Salt has the widest distribution of about 80-90% in value and 60% in volume. The company holds
a 38% market share in salt

▪ The company currently has 1.6-1.7mn direct reach outlets for the tea as well as salt segments,
closely aligned with these numbers
▪ The Soulful brand has seen strong growth, expanding reach from 25,000 outlets during
acquisition to 200,000-300,000 currently. There are plans to further increase its presence,
potentially reaching up to 1mn outlets
▪ Indians place a high value on taste and product quality. Soulful is perceived as a healthier option
while being tasty. For instance, the recent launch of Choco Sticks offers 33% lower sugar content
and excludes maida (refined flour). Last year, the brand witnessed 100%+ growth, and this year is
expected to sustain robust growth of 50%+

▪ The Sampann business has experienced a growth rate of 30-40%, with this year seeing particularly
high growth. Branded pulses have been performing well, with modern trade (MT) contributing
significantly. There does not appear to be an affordability problem for most consumers in this
segment.
▪ The Starbucks business is scaling up rapidly with strong double-digit growth along with store
expansion of ~70 in FY23 and equal or more planned for the current year

▪ The standard drink size in India that is usually smaller than what is common in Western countries.
Recently, Starbucks introduced a smaller-sized drink priced at INR 150, with the aim of making its
beverages more accessible to a broader customer base. It has observed positive traction with this
initiative. It is actively working on strategies to further enhance accessibility for its customers. One
of the most significant changes in its strategy is the expansion of its addressable market in India

▪ Starbucks is expanding its drink offerings and focused on delivering customization to cater to
diverse preferences. Coffee consumption is no longer limited to the urban population. Younger
generation across demographics are consuming more coffee, and this trend is evident not only in
urban areas but also in Tier 2 towns

142
 ▪ NourishCo is setting ambitious growth targets with a guidance of INR 10bn in FY24 and medium-
term goal set at INR 20-30bn. Its market reach and product offerings are distinct compared to
TCPL’s core product segments (tea and salt). Currently, it is distributed across 0.65mn outlets, while
the broader mineral water universe encompasses over 3.0mn outlets, indicating room for
expansion. Additionally, NourishCo leverages the company’s MT and eCommerce channels for
some liquid products. It may consider entering the energy drinks segment, recognizing it as a
potential growth opportunity.

▪ The Gluco+ brand has a strong presence in the southern region. Moreover, Tata Copper+ is widely
distributed, and the Gluco+ brand is not far behind in terms of market presence

▪ A sizable portion of export-led revenue comes from the Joyful (Soulfull in India) and Tata Raasa
brands in the international markets. Moreover, the company sees an opportunity in the Eight
O’Clock Coffee business in the US and will continue to hold that business.

Analyst annotations: TATACONS’ new businesses (15% of India’s branded business in FY23) grew more than 50% for the
past two years. This momentum may continue to be led by distribution expansion and higher adoption
of such segments by consumers. The core portfolio of tea and salt continues its steady growth
trajectory and may gain momentum as rural picks up pace and inflation moderates. TATACONS is
focused on increasing reach of its tea business in the weaker markets of rural Tamil Nadu, East Uttar
Pradesh and parts of Andhra Pradesh.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 1,24,254 7.1 17,188 13.8 9,878 11.3 10.6 6.7 8.7 80.1 45.0
FY23 1,37,832 10.9 18,565 13.5 10,443 5.7 11.2 6.6 9.0 75.8 42.0
FY24E 1,54,252 11.9 22,785 14.8 15,049 44.1 16.2 9.0 10.6 52.6 33.8
FY25E 1,69,894 10.1 26,344 15.5 17,564 16.7 18.9 10.0 11.6 45.1 28.7

Source: Company, Elara Securities Estimate

Analyst: Amit Purohit, [email protected], +91 22 6164 8594

Rohit Harlikar, [email protected], +91 22 6164 8562
Vidhi Puj, [email protected], +91 22 4204 8692

143
Health Care

144
Represented by:
Suneeta Reddy, MD
Krishnan Akhileshwaran
Apollo Hospitals Enterprise
Group CFO Bloomberg Code: APHS IN, Market Cap: INR 717bn, CMP: INR 4,985 (as on 8 September 2023)
Sanjiv Gupta, CFO 24/7
Rajasekaran Krishnakumar
Finance Controller & Head IR

Apollo Group is a healthcare company in India with 10,000 beds across 73 hospitals, 5,000 pharmacies,
Executive digest:
300 clinics, 1,100 diagnostic centers and 200 telemedicine units. Apollo Hospitals Enterprise (APHS IN)
specializes in medical disciplines, including cardiology, neurology, oncology, and organ transplants.
APHS earns more than 50% of its revenue from the hospital business while it generates 40% of
consolidated revenue from the pharmacy business and the rest from diagnostics & retail health
businesses.

Investor insight: ▪ The company is on track to improve hospital occupancy to 70% by end-FY24 and unlock margin
by revenue and cost optimization

▪ AHL is focused on expanding the test menu to include specialty high-end testing modalities and
genomics, while recording an increased utilization of the phlebotomy network

▪ The company plans to add 2,000 beds by CY27, with 700 new beds after FY24 and is looking at
Brownfield and acquisition opportunities in Tier 1 cities. Cost per bed is expected to be in the range
of INR 15mn

▪ The company plans to add 500-600 offline stores in FY24

▪ Management is confident of achieving breakeven in the Apollo 24/7 business by end-FY24

▪ APHS management says average revenue per operating bed (ARPOB) has improved to INR 60,000
from the current INR 57,000, led by optimizing payor mix

▪ Apollo 24/7 shifted its campaigns from broad-based to more data analytics-oriented, resulting in
more active users

Management is actively working on improving margin and occupancy of new hospitals, near-term
Analyst annotations:
margin pressures to be offset by lowering discounts in the pharmacy business and by implementation
of cost optimization technique. APHS is likely to add 2,000 beds in the next 3-4 years, which will further
bolster its position in cities where it has a strong presence.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 1,46,626 38.9 21,851 14.9 7,615 748.0 52.6 15.9 20.7 94.7 33.8
FY23 1,66,125 13.3 20,496 12.3 8,191 7.6 56.6 13.9 16.8 88.1 36.0
FY24E 1,91,900 15.5 25,208 13.1 9,785 19.5 67.6 15.0 19.8 73.7 29.3
FY25E 2,15,008 12.0 34,011 15.8 15,612 59.6 107.9 22.0 29.3 46.2 21.7

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

145
Represented by:
Sunil Kumar, Joint CFO Aster DM Healthcare (Not Rated)
Hitesh Daddha
Bloomberg Code: ASTERDM IN, Market Cap: INR 171bn, CMP: INR 343 (as on 8 September 2023)
Chief IR & M&A

Executive digest: Aster DM Healthcare (ASTERDM IN) is one of the largest integrated private healthcare service providers
operating in the Gulf Cooperation Council (GCC) countries and an emerging company in India. The
healthcare brand has a strong global network in seven countries. In the GCC region, ASTERDM has its
presence primarily in the UAE and in Oman, Qatar, Saudi Arabia, Bahrain & Jordan. In India, it operates
primarily in Kerala, Karnataka, Maharashtra, Andhra Pradesh and Telangana. The company is an
emerging firm via its network of 32 hospitals, 127 clinics and 521 pharmacies as on March 31, 2023.

Investor insight: ▪ ASTERDM targets to add 1,600 beds through the organic route over next 2-3 years

▪ The payor mix of the India business is 60% cash and 40% Third party administrator (TPA),
respectively, primarily led by the Kerala region ,as it is a high cash market compared to other
Southern states

▪ ASTERDM has negligible contribution from scheme-based patients

▪ The company is not keen on venturing into the clinics business for India’s markets as it is not
covered under insurance unlike GCC and is a low ROCE business

▪ It is working on Greenfield as well as Brownfield expansion, and it is targeting to add 350 beds in
Thiruvananthapuram in three years under its Greenfield plans

▪ It is targeting regions of Kasargod, Kochi, Kannur, and Bengaluru for its Brownfield expansion and
O&M strategy

▪ Cash obtained after restructuring will be utilized for distributing dividends and settling debt
obligations

▪ Deal is expected to conclude in three months post the formal announcement

▪ ASTERDM expects to add 200 beds under the O&M model where the investment requirement for
each bed will be in the range of INR 1.5-2.0mn. This model has faster breakeven, higher ROCE but
lower EBITDA margin

Analyst annotations: The GCC business restructuring is set to provide management bandwidth to focus on India operations.
ASTERDM is tapping every expansion strategy for achieving significant share in the southern markets,
of all the strategies, O&M strategy is set to be a significant growth driver. With a payor mix skewed
toward cash and TPA, ARPOB growth has scope for improvement.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 86,520 6.4 12,577 14.5 2,767 (44.8) 6 10.3 10 56.7 17.7
FY21 86,080 (0.5) 10,624 12.3 1,473 (46.8) 3 5.2 6.8 113.3 21.0
FY22 1,02,533 19.1 14,833 14.5 5,260 257.1 10.6 16.4 12.8 32.1 15.0
FY23 1,19,329 17 15,653 13.1 4,249 (19.2) 8.5 11.3 11.5 40.0 14.2

Source: Bloomberg, Company, Elara Securities Research

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

146
Represented by:
Pramod Ghorpade, CFO ERIS Lifesciences (Not Rated)
Bloomberg Code: ERIS IN, Market Cap: INR 112bn, CMP: INR 827 (as on 8 September 2023)

Executive digest: Founded in 2007, ERIS Lifesciences (ERIS IN) stands out as the most recently established company
among the IPM Top 25. It specializes in India’s branded generics market, with focus on chronic and
acute categories. ERIS offers a spectrum of medicines, covering therapeutic areas, such as anti-diabetes,
cardiovascular, gastroenterology, dermatology, gynecology, anti-infectives, and vitamins. The
company boasts a field force comprising 2,500 medical representatives (MR), earning it a place in the
Top 30 companies in the domestic branded formulations market. It owns a WHO GMP-compliant
manufacturing facility at Guwahati in Assam, which contributes to 74% of its revenue as on FY23.

Investor insight: ▪ ERIS witnesses positive outcome from its strategic investments in acquisitions and its injectables
diabetes franchise

▪ The company anticipates robust revenue growth and nearing EBITDA breakeven in the short term

▪ It has an active pipeline consisting of 10 new combinations in the fields of diabetes, cardiology,
and neurology. Four of these combinations are currently in clinical trials and slated for launch later
this year

▪ Q1 performance of the brands acquired from Oaknet and other acquisitions look promising.
During the transition, ERIS has achieved a 75% sales retention rate and it is optimistic about
regaining 100% of sales from Q2

▪ ERIS is focused on accelerating organic growth in FY24 and aims to expand its market coverage
with focus on new launches and the derma segment
▪ The company anticipates growth will be driven by dermatology, vitamins, minerals, nutraceuticals
(VMN), and women's health segments

▪ ERIS is committed to sustain a growth rate, which is 400bp above the market average
▪ The company has set a target EBITDA margin of 35% for FY24

Analyst annotations: Revenue growth would be driven by healthy product launches in the dermatology & diabetes spaces
and enhance doctor & specialist coverage. Margin expansion will likely be driven by declining
operational losses of the Insulin venture and better capacity utilization. However, better marketing
efforts and gradual improvement in business from new launches would keep earnings growth in
check.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 10,741 9.4 3,684 34.3 2,965 2.8 21.8 25.4 27.2 37.8 32.5
FY21 12,119 12.8 4,306 35.5 3,551 19.9 26.1 27.4 29.9 31.6 27.8
FY22 13,470 11.2 4,850 36.0 4,061 14.3 29.9 25.8 26.7 27.6 24.7
FY23 16,851 25.1 5,367 31.9 3,822 -5.9 28.1 20.0 21.4 29.3 22.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

147
Represented by:
Dr Ashutosh
Raghuvanshi, MD & CEO Fortis Healthcare
Vivek Kumar Goyal, CFO Bloomberg Code: FORH IN, Market Cap: INR 256bn, CMP: INR 339 (as on 8 September 2023)
Anurag Kalra, IR
Gaurav Chugh, IR

Executive digest: Fortis Healthcare (FORH IN) – an IHH Healthcare Berhad Company – is a leading integrated healthcare
services provider in India. It is one of the largest healthcare organizations in the country with 36
healthcare facilities with 4,000 operational beds. FORH controls its diagnostics business through its
57% owned subsidiary, Agilus Diagnostics. It is among the largest private diagnostics chains. It has a
presence in 600 cities and towns, with an established strength of 415 laboratories, 8,200 direct clients
and 1,400 collection centers.

Investor insight: ▪ FORH is confident about achieving margin guidance of 18% or higher for the hospital business

▪ Medical tourism has recovered from the COVID lows and is currently 9% of top line

▪ FORH anticipates double-digit revenue contribution from international patients in FY24

▪ The company expects clarity on legal issues in the near term

▪ Management plans to add 1,400 beds in the next 2-3 years, primarily in NCR
▪ It expects average revenue per operating bed (ARPOB) to grow by 4-5% pa and aims to optimize
the payor mix
▪ FORH is actively working on cost rationalization measures and aims to reduce staff cost by at least
1% over the next two years

▪ The company is focused on improving therapy mix, expanding the oncology business, and
growing high margin specialties

Analyst annotations: FORH’s hospitals business has clocked in the highest-ever revenue-driven price increase in government
contracts. However, lower sequential occupancy remains cause for concern as COVID-related pent-up
demand might be subsiding. EBITDA margin is expected to trend upward as it is pursuing portfolio
rationalization.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 57,176 41.9 10,690 18.7 2,211 (122.0) 2.9 3.6 9.8 114.1 24.3
FY23 62,976 10.1 11,013 17.5 4,689 112.1 6.2 7.4 9.9 53.9 23.8
FY24E 69,929 11.0 12,555 18.0 5,726 22.1 7.6 7.5 10.5 44.1 20.7
FY25E 76,184 8.9 13,486 17.7 6,405 11.9 8.5 7.8 10.9 39.4 19.2

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

148
Represented by:
Sumanta Bajpayee
VP, Investor Relations
Gland Pharma
Bloomberg Code: GLAND IN, Market Cap: INR 279bn, CMP: INR 1,692 (as on 8 September 2023)

Executive digest: Gland Pharma (GLAND IN) operates with a distinctive business model, primarily functioning as a
business-to-business (B2B) firm in the pharmaceuticals sector, specializing in generic injectables. It
serves a broad international market, with a presence in 60 countries, and its main sources of revenue
are the US and India, contributing 67% and 18% of total revenue as on FY23, respectively. In the B2B
model, GLAND manufactures injectables formulations for pharmaceutical companies, including
Sagent, Apotex, Fresenius Kabi, Athenex, and others. These collaborations are non-exclusive, allowing
GLAND to excel in molecule categories through cost-effective and market-leading strategies. The
company's growth in the US market is expected to be fueled by its pending pipeline of 82 products,
and it plans to utilize its US product portfolio to enhance its presence in markets outside the US.
Notably, it is a majority-owned, with Shanghai Fosun Pharma, a prominent China-based
pharmaceutical company, holding a 58% stake, which offers strategic advantages and opportunities.

Investor insight: ▪ US competitive scenario over the past 3-4 years has changed for the worse; hence, GLAND sought
to diversity its revenue mix. China was identified as a key alternate market to the US, but language
barrier remains a big challenge despite it is China-owned

▪ GLAND's 32% of revenue as on FY23 came from own abbreviated new drug application (ANDA)
and products, which are exposed to the pricing environment while other 64% comes from
Contract Development and Manufacturing Organization (CDMO), which is structured as transfer
pricing plus profit and the rest of the business is in India, which is B2C

▪ The company has acquired Cenexi with a view of synergy, including technology (gel, bio fill and
finish) as well as for better penetration in the EU

▪ The base business, which was under pressure in FY23, is heading toward normalcy
▪ Internal challenges, such as line extensions, have been resolved and external factors are resolved

▪ GLAND did not face any penalties for failure to supply when it faced shortages of syringes and
stoppers
▪ The primary issue faced by Cenexi is on time in full (OTIF) supply, which is an important indicator
of operational performance. Currently, the global standard for OTIF is 60% and GLAND is also at
those levels while Cenexi's OTIF is less than 20%

▪ Cenexi's gross margin is 75% but EBITDA margin is 12-13% due to high employee cost at 55% of
revenue
▪ Cenexi's EBITDA margin is expected to climb to 15% in the next three years as GLAND explores
cost optimization with immediate focus on R&D moving to Hyderabad

▪ Capacity utilization in the Cenexi's plant may go to 100% by replacing five slow lines with two high
speed lines, but there will be place for three more lines, which increases capacity

▪ GLAND aims to launch 50 stock keeping units (SKU) in the US and three products in China in FY24

Analyst annotations: GLAND’s business is stabilizing after a turbulent FY23. Internal challenges, such as the line extensions,
while external factors, such as price erosion in the US, Supply chain challenges and inventory
destocking are getting resolved. FY24 is expected to be a normalized year with growth in revenue as
well as margin. Cost optimization efforts in the Cenexi business would drive further margin expansion.

149
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 44,007 27.1 15,102 34.3 10,440 16.5 73.5 20.5 23.7 23.0 16.0
FY23 36,246 (17.6) 10,248 28.3 6,562 (37.1) 50.7 11.7 12.3 33.4 23.6
FY24E 53,970 48.9 12,854 23.8 7,525 14.7 51.6 10.7 12.8 32.8 18.8
FY25E 60,228 11.6 14,654 24.3 8,748 16.3 58.6 11.0 13.3 28.9 16.5

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

150
Represented by:
Pramod Ghorpade, CFO Indoco Remedies (Not Rated)
Bloomberg Code: INDR IN, Market Cap: INR 30bn, CMP: INR 330 (as on 8 September 2023)

Executive digest: Indoco Remedies (INDR IN) is a research-focused pharmaceuticals company engaged in the
manufacturing & distribution of finished dosage forms (formulations) and active pharmaceutical
ingredients (API). It operates in domestic pharmaceuticals market and has a huge presence in 55
countries globally. INDR has a workforce of 6,000 employees, including 300 highly skilled scientists.
The company maintains nine manufacturing facilities, with six dedicated to finished dosages and three
to API. These facilities meet stringent regulatory standards, aligning with WHO-cGMP guidelines, and
have received approvals from regulatory authorities, such as the USFDA, UK-MHRA, TGA-Australia,
SAHPRA-South Africa, NDA-Uganda, TMDA-Tanzania, MOH-Ukraine, PPB-Kenya, and DPML-Ivory
Coast among others.

Investor insight: ▪ Price erosion is subsiding for INDR’s US business

▪ The US business is expected to growth 10-15% as the oral solid dosages site has cleared the USFDA
inspection

▪ The US business is profitable with a 5% EBITDA margin, including R&D cost

▪ In FY23, INDR spent INR 200mn toward facility remediation to achieve regulatory compliance
▪ INDR’s EU business is expected to grow by 13% to INR 3.9bn, driven by three product launches in
the US and tender wins in Germany

▪ INDR’s India business is expected to grow by 11-12%, outperforming the domestic pharma market
estimated growth in the high single digits
▪ The domestic acute therapies business is affected by a lack of rainfall affecting INDR and other
acute therapy-focused domestic pharma companies

▪ INDR has set a target of 17-18% EBITDA margin in FY24

Analyst annotations: INDR’s business is poised for single-digit revenue growth in FY24, driven by robust growth in the US
and the EU businesses. Margin growth would be driven by better pricing environment in the US. The
domestic business remains robust, but near-term challenges may weigh on revenue growth.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 11,066 14.4 1,232 11.1 241 NM 2.6 3.6 4.8 68.5 27.2
FY21 12,415 12.2 2,243 18.1 930 286.0 10.1 12.1 15.4 21.4 14.9
FY22 15,408 24.1 3,273 21.2 1,548 66.0 16.8 17.1 21.6 15.2 10.2
FY23 16,686 8.3 2,861 17.1 1,423 -8.0 15.4 13.8 16.0 20.6 11.7

Source: Bloomberg, Company, Elara Securities Research

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

151
Represented by:
Kunal Khanna
President of Operations
JB Chemicals & Pharmaceuticals
Bloomberg Code: JBCP IN, Market Cap: INR 215bn, CMP: INR 2,781 (as on 8 September 2023)

Executive digest: JB Chemicals & Pharmaceuticals (JBCP IN) is a leading pharmaceuticals company in India, with a focus
on the development, manufacturing, and marketing of generics and branded pharmaceuticals. The
firm has a strong presence in the domestic market and is expanding its operations in the international
markets. JBCP is present in 20 therapeutic categories and has strong dominance in gastroenterology,
cardiology, anti-infectives and other chronic & acute therapies. It operates eight manufacturing
facilities in India, which cater to 40 countries.

Investor insight: ▪ Management is monitoring its capital allocation strategy and intends not to overleverage to
achieve growth. It aims to grow organically and will look for opportunities in therapies where it
can become a dominant firm

▪ JBCP expects to achieve upper band of its guidance of 25-27%, led by suitable market conditions
and growth in the acquired portfolio
▪ The company is focused on increasing market share in probiotics, infertility, and respiratory
segments

▪ Management aims for a portfolio of 9-10 brands with INR 1.0bn sales in the next 2-3 years
▪ JBCP does not expect any threat from the recently published guidelines (now in abeyance)
regarding prescribing generics

▪ The company expects National Medical Commission (NMC) will have to address concerns about
compliance of GMP standards in facilities and qualifications of the pharmacist recommending such
medicines

▪ JBCP expects to explore inorganic opportunities in FY25

▪ The company expects to gather pace in customer acquisition for the CMO business, Management
leverages its promoter KKR reach to build connections, which is likely to show positive impact in
the long term
▪ JBCP expects to become debt-free by end-FY24

Analyst annotations: JBCP witnessed strong performance in the domestic business, driven by the base business and
acquired portfolio, The stock currently trades at 39.5x FY24E core earnings. Strong growth, improving
profitability and better cashflow justify premium valuation. Positive traction in the acquired brand is
likely to help achieve operating leverage.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 24,242 18.7 5,435 22.4 3,554 (2.2) 48.7 21.3 25.5 57.1 41.1
FY23 31,493 29.9 6,958 22.1 4,025 13.3 51.8 19.2 26.5 53.8 32.1
FY24E 36,514 15.9 9,120 25.0 5,525 37.3 71.3 22.8 25.4 39.0 24.5
FY25E 41,179 12.8 10,326 25.1 6,454 16.8 82.7 22.1 27.9 33.6 21.6

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

152
Represented by:
Jitendra Sharma, CFO Marksans Pharma (Not Rated)
Bloomberg Code: MRKS IN, Market Cap: INR 48bn, CMP: INR 106 (as on 8 September 2023)

Executive digest: Marksans Pharma (MRKS IN) is a global pharmaceuticals company headquartered at Mumbai, India. It
was founded in 1992 and has since grown to become a leading supplier of finished dosage
pharmaceutical formulations. The company has strong R&D capabilities and offers a range of products,
including anti-infectives, anti-diabetics, cardiovascular drugs, and pain relievers. MRKS has a presence
in 50 countries and is committed to providing high quality healthcare products to patients globally.

Investor insight: ▪ MRKS has 15 molecules in the US market and it is distributed using private label store brands. The
company has tie-ups with Walmart among others

▪ Competition is Perrigo, which is the largest private label firm in the US and the EU

▪ Capacity utilization may go up to 80-85% from the current 75-80% in the existing facilities

▪ The Teva facility will provide headroom for growth and is expected to be adequate for the next
three years of revenue growth and MRKS will look to add capacity post that
▪ Currently, low revenue from Teva Facility is attributed to implementation of a quality system and
site validation may lead to six months of delay

▪ MRKS currently has 5-10% market share in the US and post full commercialization of the Teva
facility, it is expected to go up to 15%

▪ MRKS has set a target to double revenue and margin in the next 3-4 years. It would achieve this
while keeping financial leverage low

Analyst annotations: MRKS is poised to post strong revenue growth, driven by the Teva facility acquisition, which will give it
headroom for growth. The company has set a target of 15% market share in the US private label
market. Margin growth would be driven by higher operating leverage.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 11,342 13 1,923 17 1.208 50 3 21.9 25.4 35.9 21.9
FY21 13,762 21 3,396 24.7 2.385 97 5.8 36.7 44.7 18.2 12.4
FY22 14,908 8 2,589 17.4 1,846 -23 4.1 20.4 22.8 26 16.3
FY23 18,521 24 3,393 18.3 2,663 44 5.9 21.8 21.6 18 12.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

153
Represented by:
Puneet Maheshwari Shalby
Sr Manager, Corp Strategy
Bloomberg Code: SHALBY IN, Market Cap: INR 28bn, CMP: INR 255 (as on 8 September 2023)

Executive digest: Shalby (SHALBY IN) is engaged in the healthcare delivery space in India. It operates a chain of multi-
specialty hospitals across the country. Its business is to offer tertiary and quaternary healthcare services
to patients in areas of specialization, such as orthopedics, complex joint replacements, cardiology,
neurology, oncology, and renal transplants. Apart from the hospital business, SHALBY also operates in
manufacturing knee and hip implants. The company operates across 12 cities in seven states with total
capacity of 2,000 beds through its franchise owned shalby managed (FOSM) and franchise owned
shalby owned (FOSO) models.

Investor insight: ▪ Management expects the existing hospital business to double in the next 2-3 years (without
Mumbai and Nashik expansion)

▪ SHALBY targets USD 100mn sales from the implants division in the next five years with a margin
in the range of 22-25%
▪ The company eyes average revenue per operating bed (ARPOB) growth of 5-10% for the next 2-
3 years, primarily led by product mix

▪ SHALBY targets to add 50 Shalby orthopedic centre of excellence (SOCE) in the next 3-4 years,
translating into addition of 1,200 beds over existing 2,000 beds, and 8-9 SOCE are expected to be
commercialized in FY24 and the rest in the next two years

▪ Management anticipates 50% revenue growth in the implants division in FY24

▪ Mumbai Hospital (Asha Parekh Hospital Trust) needs a capex of INR 1.6-1.7bn, resulting in an
additional 175 beds. The Nashik region is expected to commence by Q1FY25 and will need capex
of INR 300-350mn

▪ Management is upbeat on the potential of medical tourism in India, It has attracted medical tourists
from Bangladesh. Revenue from international patients was INR 100mn in FY23

Analyst annotations: The company has been consistently growing in the double digits in surgical counts on a sequential
basis; this is expected to drive higher ARPOB growth, In Q1, it reported an occupancy rate of 50%,
which signifies scope for improvement, For the implants business, SHALBY is actively looking for new
geographies and is at the approval stage in various countries for the launch of its implant products.
This is expected to be a key catalyst for future growth.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 6,989 62.2 1,199 17.2 586 38.1 5.4 7.0 8.7 47.1 23.2
FY23 8,049 15.2 1,367 17.0 677 15.6 6.3 7.7 8.4 40.7 20.3
FY24E 9,318 15.8 1,548 16.6 715 5.7 6.6 7.7 9.3 38.5 18.0
FY25E 10,605 13.8 1,840 17.4 886 23.8 8.2 9.0 11.3 31.1 15.1

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

154
Represented by:
Abhishek Sharma
VP, Head of IR
Sun Pharmaceutical
Bloomberg Code: SUNP IN, Market Cap: INR 2,712bn, CMP: INR 1,130 (as on 8 September 2023)

Executive digest: Sun Pharmaceutical (SUNP IN) is the fourth-largest specialty generics pharmaceuticals company with
global revenue of USD 4.5bn as on FY23. Supported by 40 manufacturing facilities, it provides high-
quality, affordable medicines, trusted by healthcare professionals and patients, to more than 100
countries. SUNP manufactures and markets a basket of pharmaceutical formulations, covering a
spectrum of chronic and acute therapies. It includes generics, branded generics, specialty, complex or
difficult-to-make technology-intensive products, over-the-counter (OTC), antiretrovirals (ARV), active
pharmaceutical ingredients (API) and intermediates. In the US, it is among the Top 10 generics
pharmaceutical companies and ranked second by prescriptions in the generics dermatology market.

Investor insight: ▪ SUNP's specialty portfolio is at an inflection point with Cequa, Winlevi, and Ilumya as key products.
These products do not require additional investment and the specialty portfolio margin is expected
to grow as a result
▪ The additional investment if needed for the specialty portfolio would be for geographical
expansion and additional indications

▪ Higher R&D spend will be on account of R&D toward new products and additional indications in
the specialty portfolio

▪ Usually, generics substitution in chronic therapies is lower than acute therapies

▪ Consumer health is a focus area for SUNP, and it is still in the learning phase for that business.
SUNP is taking strides to grow the business by line expansion for Volini and other consumer brands
▪ Trade generics are not a focus area

▪ Loss of gliptins to National list of essential medicines (NLEM) should come in the current quarter
(NLEM contributes 15% of revenue as on FY23 but growth will continue from Q3FY24
▪ SUNP is adding more sites to replace non-performing clinical sites and using extra enrolments at
existing successful sites, which will remove bottlenecks
▪ While the Emerging Markets revenue growth is subdued in INR terms, growth is healthy in local
currency terms due to currency depreciation. In fact, SUNP has added 200 medical representatives
(MR) in FY23, taking the total to 2,400

Analyst annotations: The global specialty business is expected to exhibit strong growth, led by Ilumya, Cequa and Winlevi.
The domestic business may start to witness growth from H2 once NLEM price impact starts to subside.
EBITDA margin may see expansion as the specialty business margin starts to grow.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 3,86,545 15.4 1,02,438 26.5 68,246 6.4 28.4 15.7 15.3 34.9 25.7
FY23 4,38,857 13.5 1,17,729 26.8 81,816 19.9 34.1 16.9 17.7 31.4 22.3
FY24E 4,80,795 9.6 1,27,691 26.6 84,797 3.6 35.3 15.2 15.1 30.2 20.6
FY25E 5,27,828 9.8 1,48,243 28.1 1,01,787 20.0 42.4 16.3 17.6 25.6 17.7

Source: Company, Elara Securities Estimate

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

155
Represented by:
Pratik Hire Thyrocare Technologies (Not Rated)
Head of Strategy Investor
Arun G Kaarthi Bloomberg Code: THYROCAR IN, Market Cap: INR 3bn, CMP: INR 570 (as on 8 September 2023)
Manager of Strategy

Executive digest: Thyrocare Technologies (THYROCAR IN) is involved in providing quality diagnostic services at
affordable cost to patients, laboratories and hospitals in India. The company offers a range of diagnostic
tests, including thyroid, lipid profile, liver & kidney function, and cancer screening. It also offers
preventive care packages. THYROCAR operates through one central processing lab (CPC) at Navi
Mumbai and has an active presence in 4,600 pin codes in India.

Investor insight: ▪ THYROCAR recently launched a testing product, Jaanch, focused on investigating sickness testing,
which is showing a monthly sales of INR 7mn. The company has added heart-related test in this
package

▪ Currently, 60-70% of tests contribute around 80% of revenue as on FY23

▪ The company saw QoQ deceleration given increased competition

▪ It has implemented pay for performance pricing structure, which has resulted in increased synergy
within its franchisee networks striving for higher volume

▪ The company expects to operationalize the African Union market by end-FY24

▪ Pre-COVID margin stood at 40%, but since then margin has come off to 30%, led by the decline in
growth and setting up of new labs; the number of labs has increased from 11 to 30, due to which
rentals and logistical cost has increased

▪ Management expects steady improvement in margin, led by improved efficiency of new machines,
exit from low-margin government contracts and tight controls on overhead
▪ Management is confident of sustaining 30% margin in FY24

▪ THYROCAR expects capex of INR 400mn for new machines in FY24 and no capex for expansion

▪ Management targets B2G revenue contribution of 5% in FY24

▪ The company has lost B2G tenders recently to peers, but continues to bid for fresh tenders and
expects to bridge the gap in the near term

Analyst annotations: Revenue growth is likely to be driven by the new pricing structure adopted for the franchisee model,
which would drive volume gains. Moderation in the competition from eCommerce platforms is set to
provide stability. Management has taken initiatives to improve operational efficiency, which is expected
to partially offset margin decline post COVID.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 4,332 7.5 1,724 39.8 882 11.4 17.9 21.8 32.1 31.7 16.6
FY21 4,946 14.2 1,713 34.6 1,119 19.3 21.4 30.9 38.2 26.6 16.7
FY22 5,889 19.1 2,349 39.9 1,761 55.6 33.2 41.2 47.0 17.1 12.2
FY23 5,267 -10.6 1,201 22.8 644 -63.5 12.1 12.2 15.4 46.8 23.8

Source: Bloomberg, Company, Elara Securities Research

Analyst: Dr Bino Pathiparampil, [email protected], +91 22 6164 8689

Gaurang Sakare, [email protected], +91 22 4204 8618
Heet Van, [email protected], +91 22 6164 8545

156
Hotels & Real Estate

157
Represented by:
Sanjay Sethi, MD & CEO Chalet Hotels
Ruchi Rudra
Assistant GM, IR and Bloomberg Code: CHALET IN, Market Cap: INR 116bn, CMP: INR 567 (as on 8 September 2023)
Growth Strategy

Executive digest: Chalet Hotels (CHALET IN), part of the K Raheja Group, is a developer, owner, asset manager and
operator of high-end hotels and commercial properties. CHALET operates in key metros or major
holiday destinations, such as Mumbai, Hyderabad, Bengaluru, Pune and Lonavala. It currently has
~2,800 room keys in its portfolio of 8-9 operational hotels and a commercial property. It caters to
luxury-upper upscale and upscale hotel segments. Most of its hotels are in strategic locations with
high barriers to entry as well as high density business districts of metros.

Investor insight: ▪ Supply growth continues to be limited: Supply growth is expected to increase by 4-5% pa for the
next four years. New hotel opportunities are drying up in big cities, which is leading to brand
signing reducing from 200 rooms per hotel to 100. Available assets for management contract are
also dwindling. On unit economics, residential and commercial real estate is more remunerative
than setting up a hotel at Mumbai
▪ ARR growth to be in the double digits: Limited supply growth amid healthy demand would drive
double-digit ARR growth in the next 2-3 years. Demand is resilient even at soaring prices for
business travel. The Mumbai market with 60% corporate currently has seen a 38% price increase
YoY, due to strong demand. The average room rate (ARR) in top domestic cities is still significantly
lower than overseas peers of Paris and Singapore
▪ Room additions to drive growth: CHALET has 970 rooms under development. It had a portfolio
gap in North India, which it has filled through a new hotel it will construct at T3 at the Delhi
Airport; the two new convention centers at Delhi would drive demand for hotels in the city.
Additionally, CHALET is looking for a property in Goa, but it is not available

Analyst annotations: CHALET’s strong promoter pedigree – the Raheja Group – brings operational expertise and financial
flexibility. And tie-ups with global hospitality brands, such as Marriott, Novotel, assure continued high
occupancy and healthy ARR.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY EPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 5,078 77.8 985 19.4 (705) (46.3) (3.4) (5.3) (0.3) (87.0) 16.9
FY23 11,285 122.2 4,528 40.1 1,436 (303.7) 7.0 9.3 5.3 52.0 23.8
FY24E 16,797 48.9 7,373 43.9 3,202 123.1 15.6 18.2 9.5 27.0 19.6
FY25E 21,679 29.1 9,728 44.9 5,029 57.1 24.5 22.1 12.6 17.2 14.6

Source: Company, Elara Securities Estimate

Analyst: Prashant Biyani, [email protected], +91 22 6164 8581

158
Represented by:
Anand Kumar, Head IR Macrotech Developers (Not Rated)
Chintan Parikh
Finance Manager Bloomberg Code: LODHA IN, Market Cap: INR 742bn, CMP: INR 769 (as on 8 September 2023)

Executive digest: Macrotech Developers (LODHA IN), formerly known as Lodha Developers, has been actively involved
in the real estate industry since 1986. Initially, the company focused on developing affordable housing
projects in the suburbs of Mumbai and gradually expanded its operations to other segments and
regions within the Mumbai Metropolitan Region (MMR), Pune and Bengaluru.

Investor insight: ▪ LODHA aims to achieve a sustainable pre-sales growth of 20% in its residential business while
maintaining control over debt levels. Since its IPO in FY22, it has added INR 450bn in business
development

▪ The company’s expansion strategy includes covering all micro-markets within the Mumbai
Metropolitan Region (MMR), Pune, and entering the Bengaluru market in FY24. After establishing
themselves at Bengaluru, it will explore other potential markets, such as the National Capital
Region (NCR)
▪ LODHA follows a market entry approach that begins with a "Seed Phase," where it launches a
limited number of projects through Joint Development Agreements (JDA) to gain a deep
understanding of the market. In the subsequent "Scale-Up Phase," it launches more aggressively
▪ The company has set a net debt ceiling at the lower of 1.0x of operating cashflow (OCF) or 0.5x
of equity. FY24 is expected to generate a cashflow of INR 60bn out of which INR 8bn will be paid
toward interest cost. Out of the rest, 50% will be used toward business development opportunities
and 40-50% will be utilized toward debt repayment
▪ The company has a commercial office and retail ready assets, which have the capacity to generate
INR 2.5bn of annuity income

▪ In the warehousing segment, LODHA has a JV with Morgan Stanley to develop 1.9mn sqft across
72 acres and JV with Bain Capital & Ivanhoe Cambridge (an arm of CDPQ) to develop 3.0mn sqft
across 110 acres over the course of three years. Currently, it has 5.7mn sqft under development
area out of which 1.4mn sqft is under construction. It is also planning to construct the second-
largest National Distribution Center (NDC) in Asia for Skechers, with rentals expected to
commence in the second half of the fiscal year
▪ Under facilities management, currently it handles 60,000 units and by end-FY24, it should reach
100,000 units. The facilities management business should make INR 1bn of EBITDA by FY26E

▪ LODHA targets INR 5bn of net annual income by FY26 and INR 15bn by FY31 from its annuity
portfolio

Analyst annotations: The company continues to focus on strong business development and faster turnaround. Its strategy
of being present across price points and different geographies is working out well. The robust launch
pipeline and healthy sales velocity shows good operational visibility,

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 124,425 4.5 19,072 15.3 7,275 (55.6) 18.38 17.34 5 41.9 42.7
FY21 54,486 (56.2) 13,720 25.2 402 (94.5) 1.0 0.9 3.6 762.0 59.4
FY22 92,332 69.5 21,247 23.0 1,195 197.5 26.3 1.4 0.7 29.3 38.3
FY23 94,704 2.6 20,662 21.8 4,029 237.2 10.1 3.9 3.4 76.2 39.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Rupesh Sankhe, [email protected], +91 22 6164 8518

Tanvi Tambat, [email protected], +91 22 6164 8537

159
Represented by:
Vimal Agarwal, CFO Mahindra Lifespace
Sumit Kasat, Head IR
Bloomberg Code: MLIFE IN, Market Cap: INR 88bn, CMP: INR 573 (as on 8 September 2023)

Executive digest: Mahindra Lifespace (MLIFE IN) is the real estate arm of the Mahindra Group. Its residential portfolio
comprises mid-premium residential projects with pan-India presence. Apart from its operations in the
residential segment, MLIFE also has land parcels at Chennai, Jaipur, Ahmedabad, and Pune, where it
is developing industrial parks, residential and social infrastructure.

Investor insight: ▪ MLIFE has revised sales guidance for FY25, increasing it from INR 25bn to INR 30bn. It aims for
fivefold growth in its business over the next five years, with sales guidance in the range of INR 80-
100bn for FY28

▪ The primary focus will continue to be on Mumbai, Pune, and Bengaluru markets. Currently, MLIFE
holds a market share of 0.5% in the Mumbai and Pune markets, but it aspires to capture 2-3% of
these markets in the upcoming years

▪ According to management, the way forward are redevelopment projects in Mumbai. It is actively
seeking projects with a gross development value (GDV) of around INR 10bn. Its recent entry into
the redevelopment space has already secured projects at Malad and Santacruz, with revenue
potential of INR 8.5bn and INR 5.0bn, respectively. These projects are likely to be launched by
Q1FY25

▪ MLIFE is shifting its target segment from affordable and mid-premium to mid-premium and
premium. It has narrowed its affordable segment, referred to as "happinest"

▪ The company had acquired a 9.2-acre land parcel from its parent company, Mahindra & Mahindra,
for INR 3.75bn. The project associated with this land has a GDV of INR 25bn, with the first phase,
boasting a GDV of INR 12bn and set to launch in December 2023

▪ Due to the new Integrated Industrial Township (IITT) Policy, MLIFE was able to nearly double Floor
Space Index (FSI) for its Thane Project. Consequently, the project's GDV has surged. The project is
planned to comprise 50% commercial and 50% residential spaces, with an expected launch within
the next 4-6 quarters
▪ Both projects will be positioned in the mid-premium and premium segments. Currently, its ongoing
and forthcoming projects have a combined GDV of INR 80bn, with redevelopment projects
accounting for INR 13.5bn. Additionally, it has unsold finished inventory valued at INR 550mn

Analyst annotations: MLIFE has several legs to its growth story. Management expects to generate ~INR 41bn of pre-tax cash
flows in the next 4-5 years from these projects. It has a robust pipeline of 7.6mn sqft of forthcoming
launches and is geared to seize mega business development opportunities, which are key to building
a sustainable long-term growth pipeline.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 3,936 136.7 (895) (22.7) 1,545 (315.3) 3.7 3.4 (2.1) 153.6 (99.6)
FY23 6,066 54.1 (1,101) (18.2) 1,014 (34.4) 2.2 1.9 (1.7) 263.4 (82.1)
FY24E 8,968 47.8 1,464 16.3 3,519 247.0 22.8 17.8 3.3 25.2 61.7
FY25E 12,019 34.0 2,300 19.1 5,020 42.7 32.5 20.8 4.4 17.6 38.4

Source: Company, Elara Securities Estimate

Analyst: Rupesh Sankhe, [email protected], +91 22 6164 8518

Tanvi Tambat, [email protected], +91 22 6164 8537

160
Represented by:
Bhavesh Gada, IR
Madhurima Kane, IR
The Phoenix Mills (Not Rated)
Bloomberg Code: PHNX IN, Market Cap: INR 329bn, CMP: INR 1,843 (as on 8 September 2023)

The Phoenix Mills (PHNX IN) is one of the India’s leading developer and operator of retail-led, mixed-
Executive digest:
use assets. Its diverse portfolio encompasses real estate assets across retail, hospitality, commercial
offices and residential segments. The successful completion across segments pan-India is a testament
to its track record.

Investor insight: ▪ Consumption has witnessed a CAGR of 14% during FY13-23. There has been 20% like-to-like
growth in consumption post COVID. Consumption stood at INR 25,745mn in Q1FY24,
demonstrating YoY growth of 18%

▪ Fashion & accessories and electronics heavily contributed to consumption in FY23 and continued
this trend in Q1FY24. FEC & multiplex are expected to pick up from Q2FY24 with the release of
major movies

▪ In February, it entered Ahmedabad with Phoenix Palladium Ahmedabad. Trading occupancy has
ramped up from 43% in March to 68% in July; it is expected to reach 85% by end of September
2023 and 92% by March 2024
▪ Currently, leased occupancy across all operational malls stood at 97% as on August 2023

▪ PHNX opened the Phoenix Mall of the Millennium at Wakad, Pune last week, which has received
a good response. The next project in the pipeline is the Phoenix Mall of Asia at Hebbal in
Bengaluru, which will open in the next couple of months

▪ Currently, the company has a gross leasable area of 11mn sqft across 13 operational retail malls in
eight cities. It targets to increase gross leasable area to 14mn sqft by CY27. Two under-construction
retail malls at Kolkata & Surat and expansion at the Phoenix Palladium Mumbai & Phoenix
MarketCity Bengaluru should bring in additional 3mn sqft by CY27
▪ The priority cities are Jaipur, Chandigarh, NCR, Navi Mumbai, Hyderabad, and Thane

▪ In its office segment, PHNX has 2mn sqft of net leasable area. It has Millennium Towers at Wakad,
Pune and the Phoenix Mall of Asia at Hebbal in Bengaluru in under-construction assets, which are
expected to be operations in FY25 and FY24, respectively

▪ In its residential portfolio, the company has two projects: One Bangalore West and Kessaku. While
Kessaku has received OC for the entire project, One Bangalore West has received part OC and
some part in under construction & under Planning. It has an upcoming residential project at
Alipore where it has won auction for 5.5-acre prime land parcel

▪ In Sohna, NCR, it has acquired 33-acre land parcel for the warehousing project

Analyst annotations: With a healthy ramp-up in trading density and occupancy levels across its new and existing malls, along
with a surge in social events, there has been significant growth. The company shows a growth
trajectory, with positive momentum in consumption and the launch of upcoming projects.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 18,431 (2.3) 9,737 52.8 3,314 (21.3) 22 17.84 12.5 26.1 13.7
FY21 10,082 (45.3) 4,957 49.2 398 (88.0) 3 4.08 4.2 231.6 36.3
FY22 14,493 43.8 7,345 50.7 2,153 441.0 13 1.32 3.1 82.6 32.2
FY23 26,383 82.0 15,189 57.6 9,113 323.3 74 9.32 7.3 17.4 18.8

Source: Bloomberg, Company, Elara Securities Research

Analyst: Rupesh Sankhe, [email protected], +91 22 6164 8518

Tanvi Tambat, [email protected], +91 22 6164 8537

161
Infrastructure & Logistics

162
Represented by:
Charanjit Singh
Head of ESG & IR
Adani Ports & SEZ
Bloomberg Code: ADSEZ IN, Market Cap: INR 1,750bn, CMP: INR 825 (as on 8 September 2023)

Executive digest: Founded in 1998, Adani Ports & Special Economic Zone (ADSEZ IN) operates across three verticals,
namely ports, logistics and SEZ. As on FY23, it is the largest private sector commercial port operator in
India. It accounts for nearly one-fourth of India’s total port capacity, with 12 domestic ports with
operating capacity of 558mn tonne, which increased to 580mn tonne post the acquisition of Karaikal
port across Gujarat, Maharashtra, Goa, Kerala, Andhra Pradesh, Tamil Nadu, and Odisha. Apart from
this, the company acquired one port in Israel, which handles 56% of country’s cargo in CY21. ADSEZ,
through its subsidiary, Adani Logistics, operates 11 multi-modal logistics parks (MMLP), 93 rakes, agri
silo capacity of 1.1mn tonne, and Grade A warehousing space of 1.6mn sqft. The company has the
largest notified SEZ in India based out on 12,000+ hectares.

Investor insight: ▪ Aims to become the largest marine service operator: During FY23, the company acquired a 98.5%
stake in Ocean Sparkle (OSL) for INR 15bn. With this acquisition, ADSEZ became the eighth-largest
marine service provider. As on FY23, the marine service business had a revenue of INR 25bn, with
an EBITDA margin of 50% and has 111 tugs. Each tug has a life of 25 years and is given out on an
annuity-based contract in the range of 5-10 years (average tenure of all contracts is 7-8 years). The
cost of each tug is INR 500-600mn for an imported tug whereas it is INR 400-500mn for a domestic
one and has a breakeven period of 7-8 years. Management will continue to add more tugs and it
plans to bid for more contracts in the Middle East
▪ Logistics on track to gain leadership: As on FY23, Adani Logistics (ALL) reported a revenue of INR
17.4bn and an EBITDA margin of 27.9%. In the warehousing segment (average realization of INR
20/sqft/month with an EBITDA margin of 90%), it has 1.6mn sqft of operational space and ~5.0mn
sqft is under construction currently. It plans to become the No 1 firm with an operational space of
60mn sqft (to add 10mn sqft/year in the next 4-5 years). In the agri silo segment (EBITDA margin
of 65-75%), the company has received contracts of 4.0mn sqft vs 1.1mn sqft of current operational
capacity. In the container train segment, ALL is the largest private container operator with a market
share of 12-13% (CONCOR’s market share is 50% and Gateway Distriparks’ share is 6-7%)
▪ Vision 2030: In the FY23 annual report, management has shared Vision 2030. By CY30, the
company wants to become the world’s largest port utility company and increase cargo volume to
~1bn tonne (339mn tonne in FY23). To achieve this, it will raise existing capacity and may bid for
new port concession, which will come during FY28-30, and increase international presence with
a focus on Asia and the African Union. It also plans to double marine services revenue (OSL +
Adani Harbour Service) at INR 25bn in FY23

Analyst annotations: Despite Cyclone Biparjoy, port volume stood at 170mn tonne, up 12% YoY, in August 2023, translating
into an annualized volume of 400mn tonne for FY24 vs guidance of 370-390mn tonne (vs our
estimates of 398mn tonne). With such robust performance, we expect a consolidated revenue and
EBITDA CAGR of 12% each and an adjusted PAT CAGR of 17% over FY23-25E.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 1,71,188 36.4 1,03,965 60.7 70,362 59.7 33.3 19.4 11.6 30.2 20.1
FY23 2,08,519 21.8 1,28,335 61.5 82,389 17.1 38.1 18.8 11.0 33.6 17.2
FY24E 2,35,730 13.0 1,42,848 60.6 88,504 7.4 41.0 18.2 13.1 20.1 15.3
FY25E 2,62,118 11.2 1,60,985 61.4 1,12,374 27.0 52.0 19.8 14.1 15.9 13.1

Source: Company, Elara Securities Estimate

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

163
Represented by:
Paresh Mehta, CFO Ashoka Buildcon
Bloomberg Code: ASBL IN, Market Cap: INR 32bn, CMP: INR 114 (as on 8 September 2023)

Executive digest: Ashoka Buildcon (ASBL IN) is an integrated infrastructure company, and it is present in roads & bridges,
power T&D, railways, buildings, sewage treatment plant, and city gas distribution. It has worked in 22
States in India and four countries like Maldives, Benin, Guyana, and Bangladesh. As on FY23, the
company has built 14,000km of highways, 50,000km of power lines, 225km of overhead electrification
and 10mn sqft of buildings constructed. As on Q1FY24, orderbook and the book-to-bill ratio stood at
~INR 169bn and 2.6x, respectively. Nearly 92% of orderbook is from roads at 43%, power at 36%, and
buildings at 13%.

▪ Healthy order pipeline: The bid pipeline is healthy across sectors. In roads, total pipeline is INR
Investor insight:
650bn as of today, and, out of this, the company will bid for projects worth INR 250bn (expects a
success rate of 4-5%) and prefers Engineering, Procurement and Construction (EPC) and hybrid
annuity mode (HAM) assets. In the power sector, it will bid for projects worth INR 100bn in 3-4
states. In the railway sector, it will focus on electrification, the Kavach and station redevelopment.
On the other hand, it sees huge opportunity in countries, such as Benin, Guyana, and other African
Union nations. However, management will stick to projects funded by the EXIM bank. For FY24, it
expects an order inflow of INR 60-70bn (it has already received projects worth INR 23bn in
Q1FY24)

▪ Asset monetization underway: During FY23, ASBL announced the sale of Chennai ORR (a 50%
stake) and Jaora Naygaon (a 74% stake) road projects to the National Investment and
Infrastructure Fund for INR 6.9bn each. Both deals have received a no objection certificate (NOC)
from lenders but it is yet to receive approval from the awarding authority targeted by CY23.
Management expects ASBL share of INR 8.5bn from both deals. In FY23, the company also
announced that it is selling its CGD business for INR 2.6bn (ASBL’s share) to Mahanagar Gas. The
transaction is likely to conclude by FY25. Also, there are plans afoot to sell 11 HAM assets in the
next 18-24 months (seven operational and four under construction), with a total equity investment
requirement of INR 11bn (it has already invested INR 9.3bn until Q1FY24). The share purchase
agreement is likely to be signed by Q2FY24. Even if we assume 1x P/B for these HAM assets, the
company may receive INR 11bn in the next 18-24 months. Apart from this, management plans to
sell five build-operate-toll (BOT) assets valued at INR 13.4bn in the previous deal.

▪ SBI Macquarie may get an exit: SBI Macquarie first invested in ASBL in CY12. As on Q1FY24, it owns
34% of Ashoka Concession (66%-owned by ASBL). The company needs to pay SBI Macquarie
about INR 12bn (principal) + 8% interest pa. It may receive INR 8.5bn from asset monetization in
FY24 (Chennai ORR & Jaora Naygaon deals) and another INR 2.6bn in FY25 (the CGD business
divestment). Proceeds will be used to give an exit to SBI Macquarie. If HAM assets go through at
1x P/B, then ASBL may receive another INR 11bn, which should ensure a complete exit to SBI
Macquarie

Analyst annotations: For FY24, management has set a target revenue growth of 15% YoY, with an EBITDA margin of 8.5%
due to execution of lower-margin project mix and order inflows of INR 60-70bn. It says EBITDA margin
will reach the double-digit mark by Q1FY25. We expect a revenue CAGR of 13% and an EBITDA CAGR
of 12% during FY23-25E. Asset monetization of five BOT and 11 HAM is a key monitorable.
YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 46,446 21.7 5,557 12.0 4,542 12.4 16.2 15.9 16.9 4.3 6.5
FY23 63,723 37.2 5,337 8.4 3,121 (31.3) 11.1 10.3 13.2 3.3 7.5
FY24E 72,020 13.0 5,762 8.0 3,190 2.2 11.4 9.0 11.6 2.9 7.3
FY25E 81,708 13.5 6,741 8.2 3,793 18.9 13.5 9.8 12.5 2.6 6.0

Note: standalone numbers, Source: Company, Elara Securities Estimate

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

164
Represented by:
Pirojshaw Sarkari, MD & CEO
of GESCPL
GATI
Anish Mathew, CFO Bloomberg Code: GTIC IN, Market Cap: INR 20bn, CMP: INR 151 (as on 8 September 2023)

Executive digest: Founded in 1989, GATI (GTIC IN) is an express distribution and supply chain management company,
spanning pan-India, covering >19,800 pin-codes, operating in >1,900 scheduled routes, and covering
735 out of 739 districts. In FY20, Allcargo Logistics acquired a controlling stake in GATI. It operates the
express distribution business through its subsidiary, Gati Express & Supply Chain Pvt (GESCPL, formerly
known as Gati Kintetsu Express), which is a joint venture between Gati (70%) and Allcargo Logistics
(30%). As of FY23, GATI had >5,000 trucks, ~700 offices, 31 hubs and ~4mn sqft of warehousing space.

▪ Operational performance improving: Per management, legacy issues with certain clients have
Investor insight: been almost resolved. Thus, the debtor book should be better from Q2FY24. Due to the legacy
issues, GTIC had to take provision for expected credit loss of INR 240mn in FY23. Also, in July-23,
the monthly volumes increased 22% YoY and 8% MoM to 111,000 tonnes. For YTDFY24 (April-July
23), the average monthly volume stood at 101,000tonnes (+9.2% YoY). This should improve going
ahead as GTIC opens a new hub in Bengaluru and given the upcoming festive season.

▪ Balancing customer mix is the key: As of Q1FY24, client mix (as a percentage of revenue) for Key
Enterprise Accounts (KEA)/MSMEs/Retail stood at 63%/19%/18% (versus 58%/22%/20% in
Q1FY23), respectively. In the medium term, the management targets to have a client mix of
50%/30%/20% from KEA/MSME/Retail. Thus, the management has taken various initiatives such
as tying up with SME chambers of Commerce and increasing the franchisee base around various
industrial clusters, etc. The yield of Retail and MSME customers is 40-80% higher than that of KEA
customer. But KEA volumes are much higher than that of retail and MSME. Price hikes are easily
effected for retail customers and MSME customers (monthly revenue potential of <INR 0.1mn),
whereas hikes are difficult for MSME customers (monthly revenue potential of INR 0.1mn) and KEA
customers (it may even result in reduction of pricing as contracts come up for renewal).

▪ Infrastructure + Technology to improve efficiency: GTIC is setting up eight mega hubs. Out of these
eight hubs, it has commissioned five (one in FY22, three in FY23, and one in FY24) and may
commission the remaining three hubs by H1FY25 (one in FY24 and two in H1FY25). These new
hubs help in reducing the turnaround time (TAT) from four hours+ to less than three hours,
improves the productivity per head from 5.7tonnes to 8tonnes+. On the other hand, GTIC
announced partnership with Tech Mahindra to revamp GATI Enterprise Management System
(GEMS 2.0), with a new UI/UX design (last update 20 years ago) and may be ready in the next 18-
24 months. Technology improvement may bring in efficiency in terms of better return load
management (thus, paring overall logistics costs). Also, technology + infrastructure helps in value
migration of customers from unorganized to organized players.

Analyst annotations: With Allcargo’s acquisition (cross-selling of services), infrastructure development (commissioned five
out of eight mega hubs) and digital transformation (GEMS 2.0, e-docket), GTIC seems to be gearing up
to capture future demand growth. However, the ramp-up of these initiatives has been slow. We expect
a revenue growth of 14% in FY24E.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key Financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 14,900 13.4 344 2.3 (32) (302.8) (0.2) (0.6) 1.5 NA 62.9
FY23 17,232 15.7 700 4.1 (102) 223.0 (0.8) (1.7) 3.3 NA 31.3
FY24E 19,704 14.3 1,112 5.6 326 (418.5) 2.5 5.1 8.4 60.1 19.4
FY25E 22,591 14.7 1,501 6.6 510 56.4 3.9 7.3 10.5 38.4 14.1

Source: Company, Elara Securities Estimate

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

165
Represented by:
Anjali Kumar,
GM, Corporate finance & IR GE Shipping (Not Rated)
Apurva Barbhaya Bloomberg Code: GESCO IN, Market Cap: INR 121bn, CMP: INR 825 (as on 8 September 2023)
Asst GM, Corporate Finance
and IR

Executive digest: Founded in 1948 by Sheth brothers and the Bhiwandiwalla family, GE Shipping (GESCO IN) is one of
the largest private sector shipping service providers, with a presence in the international maritime
industry. The company has two main businesses: Shipping (85% of FY23 consolidated revenue) and
offshore (15% of FY23 consolidated revenue). The shipping business engages in transporting crude
oil, petroleum products, gas, and dry bulk commodities whereas the offshore business services oil
companies in carrying exploration and production activities through its subsidiary, Greatship (India).
As on Q1FY24, GESCO has 42 vessels (28 tankers and 14 dry bulk carriers) aggregating 3.3mn DWT.

Investor insight: ▪ Shipbuilding orderbook at an all-time low: As on Q1FY24, the shipbuilding orderbook as a
percentage of fleet stood at the lowest level. For bulk, product and crude tankers, it stood at 7.4%,
9.5% and 3.7%, respectively, vs a 10-year average in the range of 15-18% for each category. The
current wait time for ships is more than two years. Orderbook is at historical low due to changes
in regulations, which will be in effect from 2024 (major changes will be mandatory in CY30), lower
shipyard capacity since CY08 and existing yards are filled with container ship & LPG ship orders.
With constraints on new capacity addition, any spike in demand for commodities would increase
the freight rates

▪ Making the best use of opportunity: During Q1FY24, average time charter yield (TCY) was down
50% YoY to USD 13,608/day. This was due to COVID-related congestion in FY23, stoppage of grain
exports from Ukraine, which led to lower cargo volume. Because of this, prices of dry bulk carriers
have come off by 10-15% QoQ. If dry bulk asset (ship) prices continue to fall, then management
may add a ship in the dry bulk segment. On the other hand, the crude tanker and very large gas
carriers (VLGC) ship market was strong in FY23 (asset prices of crude carriers increased 30-100%
and VLGC increased 25%). As a result, the company sold two crude carrier ships (one in FY23 &
one in Q1FY24) and one gas carrier in FY23

▪ Q1FY24 update: In Q1FY24, average TCY (USD/day) for crude, product & LPG carriers increased
by 85% YoY to USD 53,344, 29% YoY to USD 33,.142 and 10% YoY to USD 28,860, respectively. In
Q1FY24, seaborne crude and product trade grew 7% YoY and 4% YoY, respectively, whereas crude
& product fleet supply grew by 3.6% YoY and 2.5% YoY, respectively. As a result, asset prices under
both categories remain firm since CY08. In the dry bulk segment, the ton-mile increased 2.5% YoY
whereas fleet supply grew 3% YoY. China’s iron and coal imports grew by 5% YoY and 90% YoY,
respectively, partly offset by the halt in grain exports from Ukraine (withdrawal of Russia from the
grain deal). In the VLGC segment, spot earnings were 65% higher YoY at USD 75,981/day. China’s
LPG imports was up 30% YoY and long haul imports from the US was up 50% YoY. On the other
hand, there was a severe drought near the Panama Canal, resulting in water levels falling to 10-
year lows. As a result, the US-Asia cargoes moved via the Cape of Good Hope (higher tonne miles).
The asset prices of LP carriers were at an all-time high

Analyst annotations: Standalone NAV, as on Q1FY24, increased 36% YoY to INR 995 and consolidated NAV rose 50% YoY
to INR 1,204 and share price to consolidated NAV at 0.7x.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 36,569 4.3 11,663 31.9 1,051 NA 7.1 3.0 4.2 14.8 4.2
FY21 33,020 9.7 16,995 51.5 5,789 450.7 39.3 12.7 9.8 5.0 3.4
FY22 34,720 5.1 15,478 44.6 5,194 -10.3 35.4 8.0 6.6 8.0 3.8
FY23 56,602 63 31,276 55.3 23,783 357.9 166.6 28.1 20.9 3.6 2.4
Source: Bloomberg, Company, Elara Securities Research

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

166
Represented by:
Rahul Shukla Hindustan Construction Company (Not Rated)
Investor Relations
Bloomberg Code: HCC IN, Market Cap: INR 42bn, CMP: INR 27 (as on 8 September 2023)

Executive digest: Hindustan Construction Company (HCC IN) was incorporated in 1926 by Seth Walchand Hirachand.
The company’s core business comprises engineering and construction (E&C) for large projects across
sectors, such as power (hydro, nuclear & thermal), transportation (roads, bridges, metros &ports), water
(irrigation & water supply) and industrial projects. To date, HCC has constructed 26% of India’s
hydropower capacity, 60% of nuclear power generation capacity, 4,306km of roads & expressways,
and 360km of complex tunnelling. As on Q1FY24, orderbook stood at INR 136bn with a book-to-bill of
2.5x. Transport, hydro, water, nuclear and special contributed 50%, 26%, 7% & 17% of total orderbook,
respectively.

Investor insight: ▪ Debt resolution underway: As on FY23, consolidated debt stood at INR 53bn vs INR 18bn in FY22.
As a part of the debt resolution plan, INR 29bn has been transferred to Prolific Resolution (SPV),
which is backed by arbitration awards & claims worth INR 65bn. Apart from this, HCC expects the
bank account status to upgrade to standard by April-May 2024. For FY24, it has a debt repayment
obligation of INR 4.0bn (INR 3.1bn in FY23). Liquidity in the business is targeted to be met through
monetization of foreign step-down subsidiary, Steiner AG and BOT receivable with a combined
potential of INR 10bn, land parcels worth INR 5.5bn, realization of arbitration award (total claim &
arbitration award of INR 55bn, and may opt for Vaad Se Vishwas scheme, fundraising via rights
issue and operating cashflow

▪ Special purpose vehicle for debt: As part of debt resolution, at end-FY23, the company transferred
debt worth INR 29bn against arbitration awards & claims of INR 65bn (2.2x of debt) to SPV, a 100%
subsidiary. The company is looking for an external investor for a 51% stake in the SPV, which is
likely to be finalized by end-Q2FY24. Also, debt repayment of the SPV will be back ended, starting
from FY27 with annual payouts
▪ Healthy order pipeline: For FY23, the company placed bids worth INR 96bn and it won projects
worth INR 37bn. For FY24, it plans to bid for projects worth INR 250-300bn in sectors, such as
urban infrastructure, hydro power, pump storage, railway tunnels, metro & nuclear power sectors,
and it expects an order inflow of INR 60-70bn. In Q1FY24, HCC placed bids for projects worth INR
20bn. The receipt of bank guarantees for new projects is not cause for concern

▪ FY24 guidance: For FY24, management expects positive revenue growth YoY, an EBITDA margin
of 12-13%, and working capital days to sustain at 137 days as on FY23, due to big retention money

Analyst annotations: With the debt resolution nearing conclusion and asset monetization progressing, we feel the company
will shift focus on its core business. Order inflow and account upgradation are key monitorable

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 36,446 (20.8) 4,651 12.8 (1,687) NA (1.1) (13.3) 6.9 NA 8.2
FY21 25,897 (29.0) 2,996 11.6 (5,664) NA (3.7) (63.3) (0.4) NA 16.2
FY22 46,663 80.2 7,889 16.9 (1,531) NA (1.0) (28.4) 14.6 NA 3.6
FY23 52,220 11.9 7,124 13.6 2,534 NA 1.7 42.6 38.0 8.2 5.0

Note: standalone numbers; Source: Bloomberg, Company, Elara Securities Research

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

167
Represented by:
Harish Barai
Joint GM, IR and Accounts
Larsen & Toubro
Bloomberg Code: LT IN, Market Cap: 4,079, CMP: 2,902 (as on 8 September 2023)

Founded in 1938, Larsen & Toubro (LT IN) is a major multinational in engineering, construction,
Executive digest:
manufacturing, technology, and financial services. The company addresses critical needs in key sectors,
such as hydrocarbon, infrastructure, power, process industries, and defense. As a professionally
managed group, its customer-focused approach and conforming to global standards have enabled LT
to sustain leadership in its major lines of business for more than 80 years. LT has GDR listed on the LSE
and the LuxSE. Orderbook, as on 30 June 2023, stood at INR 4.1trn, with a book-to-bill visibility of 3.0x
and average execution cycle of 30 months. Around 91% of orderbook is from infrastructure at 73%
and energy segment at 18%. On the other hand, domestic and international mix is 71% and 29%,
respectively, as on FY23.

▪ Management believes its performance is better than expectations in terms of working capital,
Investor insight:
orderbook and asset turnover as it has reached the midpoint of its five-year strategy plan. Work is
underway on margin improvement, increasing ROE and execution ramp-up

▪ Order prospects for 9M are robust at INR 10tn, up 34% YoY, led by infrastructure at INR 5.8tn and
3.0x jump in hydrocarbons at INR 3.4tn, led by large orders in the finalization stage. Capex
tailwinds are positive and management expects the traction to continue

▪ In the domestic market, nearly INR 850bn of orders are from State governments. Out of this, 55%
is multilateral agency-funded, 30% from States where we want to be selectively present and the
rest from other States
▪ Labor churns happen 4x in a year. The company has learnt to deal with the issue and retains
adequate buffer strength

▪ Margin in the infrastructure segment took a hit in the past due to COVID, followed by a 70-80%
increase in material prices. This led to breach of margin of safety in project margin. Current
competitive scenario is also high. However, with softening in prices and old fixed-price contracts
nearing completion, margin is expected to improve
▪ Focus remains on green hydrogen

As the company marches toward Lakshya-26, a refined goal with clarity on new business segments
Analyst annotations:
and portfolio, we believe it is well poised to capture growth in new infrastructure investment areas,
such as green energy, hi-tech manufacturing, digital education, and B2B. The new projects pipeline
prospects look robust as we enter into the General Elections of CY24. Guidance for FY24 has been
sustained at 12-15% revenue growth, 10-12% order inflow growth, 16-18% net working capital cycle
and a 9% EBITDA margin.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE Core P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 1,565,212 15.1 182,046 11.6 85,496 23.9 60.9 10.8 7.9 43.0 27.1
FY23 1,833,407 17.1 207,533 11.3 106,150 24.2 75.5 12.4 9.1 34.6 23.4
FY24E 2,086,246 13.8 231,569 11.1 113,019 6.5 80.9 12.1 9.6 32.8 20.9
FY24E 2,374,987 13.8 273,898 11.5 139,768 23.7 100.6 13.7 10.4 26.3 17.5

Source: Company, Elara Securities Estimate

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

168
Represented by:
Kavita Shirvaika, CFO
Rahul Agarwal Patel Engineering (Not Rated)
Head of Strategic Finance
Aditya Bajaj
Bloomberg Code: PEC IN, Market Cap: INR 41bn, CMP: INR 56 (as on 8 September 2023)
Investor Relations

Executive digest: Incorporated in 1949, Patel Engineering (PEC IN) is a construction company specializing in hydro
power generation and irrigation segments. Apart from this, it undertakes projects in urban
infrastructure and transportation segment. As on FY23, it has completed more than 300 projects and
has presence in 15 states, constructed 87 dams, 300km of tunnel and 1,200km of roads. As on Q1FY24,
orderbook and the book-to-bill ratio stood at INR 200bn (including L1) and 5x, respectively. Around
94% of orderbook is from hydroelectric at 61%, irrigation at 21% and tunnel at 12%.

Investor insight: ▪ Order pipeline: According to management, the current order pipeline is strong and will be
awarded over the next few years. The pipeline includes projects worth INR 2tn in the hydropower
segment (27GW capacity addition), INR 900bn in the irrigation sector, INR 1.0-1.5tn in Jal Jeevan
Mission, pump storage projects worth INR 500bn, and tunneling projects worth INR 1tn. As a
result, management expects an orderbook CAGR of 10-15% and a revenue CAGR of 15-20% over
the next few years

▪ Arbitration: As on FY23, the company has received arbitration worth INR 12bn (out of total claims
and arbitration of INR 43bn) in its favor, which will be realized in the next 3-4 years. In FY22 and
FY23, it realized arbitration claims worth INR 700-800mn and INR 1.5bn, respectively. For few
arbitration claims, PEC may participate in the government’s Vaad se Vishwas scheme – 2. Under
this scheme, the arbitration award winner is eligible to receive 65-85% of the amount awarded as
a one-time settlement offer.

▪ Debt reduction: In FY23, management reduced consolidated debt by INR 5bn through
monetization of non-core assets, including arbitration claims of INR 2.0-2.3bn, internal accruals
and right issue proceeds. As a result, consolidated debt-to-equity ratio reduced from 0.9x to 0.6x.
In June, PEC’s credit rating stood at BBB+ (vs B+ in March 2021). Management plans to reduce
debt further by INR 6bn in the next three years (INR 2bn/year) via internal accruals and land
monetization (acquisition cost of INR 6bn)
▪ Increased competition: Around 82% of the current orderbook is from hydropower and irrigation
projects. According to management, there is increased competition in the sector. Some key
competitors are Larsen & Toubro, Afcons Infrastructure, Megha Engineering, and HCC

Analyst annotations: Strong orderbook provides healthy revenue visibility for the next 3-4 years. Also, with debt reduction
and monetization of non-core assets, management would focus on strengthening core business.
Realization of arbitration claims and order inflows are key monitorable.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 22,545 9.1 1,012 4.5 362 (73.4) 1.2 1.5 4.6 6.9 20.9
FY21 17,118 (24.1) 1,689 9.9 (1,387) NA (2.9) (5.5) (2.0) NA 14.1
FY22 29,236 70.8 4,575 15.7 569 NA 1.1 2.3 6.9 21.2 6.6
FY23 37,489 28.2 5,405 14.4 1,546 171.9 3.0 6.0 10.7 5.0 4.7

Note standalone numbers, Source: Bloomberg, Company, Elara Securities Research

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

169
Represented by:
PS Patel
Chairman, MD & CEO
PSP Projects
Sagar Patel, Executive Director Bloomberg Code: PSPPL IN, Market Cap: INR 30bn, CMP: INR 819 (as on 8 September 2023)

Executive digest: Incorporated in 2008, PSP Projects (PSPPL IN) is an EPC company present across industries such as
industrial, institutional, commercial, and residential, hotels and hospitality, hospitals, and high-profile
government projects. It provides services across construction value chain, such as business
development tendering, engineering and design, procurement, construction, MEP services,
operations, and maintenance. As of FY23, PSPPL completed 205 projects for >133 public and private
customers and 47 projects were under construction. As of Q1FY24, it had an orderbook of ~INR 53bn
with a book-to-bill ratio of 2.5x.

Investor insight: ▪ Orderbook: For Q1FY24, the order inflow stood at INR 7.6bn (INR 34bn in FY23). The current order
pipeline consists of redevelopment of Kalupur Railway Station in Ahmedabad (INR 26bn), New
Delhi railway station (INR 47bn), third package of Dharoi Dam tourism project (two packages
worth INR 8-9bn) and UP Vidhan Sabha project (INR 30bn). Apart from this, the management is
seeing huge opportunities in medical infrastructure (hospitals and colleges) and educational
institutions such as IITs, airports, etc.

▪ Labor issues: Labor availability has become a big issue for construction companies and labor costs
form 20-25% of revenue. Some primary reasons are development projects in East India, which has
led to labor migration from West India to East India (near to their home base of Uttar Pradesh,
Jharkhand, etc.), higher wages (leads to increase in trips to respective home towns) and next
generation of current laborers many not become laborers. To mitigate this issue, PSPPL has started
with weekly payments of wages, ensuring hygienic conditions, increasing the use of pre-cast
facility (reduces labor usage by 40%), technological advancement such as use of fiber steel, etc.
Despite these solutions, the management still foresees labor availability as a big risk and if not
accounted well, it can lead to a margin contraction of 100-200bps.
▪ Pre-cast facilities: PSPPL launched its first phase of pre-cast facility (1mn sqft commissioned out of
the total capacity of 3mn sqft) for a total cost of INR 1.1bn. For FY23, revenue from this facility was
INR 800mn, which, per management, may reach INR 2-2.5bn in FY24 (order backlog of ~INR 2bn
in Q1FY24) as the usage of pre-cast expands to industrial segment such as warehousing from
building and infrastructure segment. Per management, this segment has a revenue potential of
INR 10bn in the next 4-5 years as it helps in faster turnaround time and reduces labor requirement.

▪ Succession planning: The current Managing Director/Chairman, Mr. PS Patel, has a daughter (Ms.
Pooja Patel) and a son (Mr. Sagar Patel) who have been inducted into the Board of Directors since
2015 and 2019, respectively. Ms. Pooja oversees raw material procurement, sub-contractor
dealings, project planning (including the management of project billing). On the other hand, Mr.
Sagar Patel oversees the pre-cast business and the billing process (including reconciliation), etc. As
of Q1FY24, Mr. Sagar/Ms. Pooja hold 5.6%/2.8% of PSPPL's total shares.

Analyst annotations: For FY24, the management reiterated its guidance of 20-25% YoY growth in topline, INR 30bn+ of
order inflows (of which INR 7.6bn has already been received) and an 11-13% EBITDA margin.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key Financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 17,488 40.9 2,565 14.7 1,624 94.4 45.1 26.6 35.0 18.2 11.1
FY23 19,266 10.2 2,250 11.7 1,330 (18.1) 36.9 17.9 24.5 22.2 12.7
FY24E 23,442 21.7 2,702 11.5 1,604 20.6 44.6 18.4 24.8 18.4 10.7
FY25E 28,309 20.8 3,277 11.6 1,969 22.8 54.7 19.1 25.4 15.0 9.0

Source: Company, Elara Securities Estimate

Ankita Shah, [email protected], +91 22 6164 8516

Analyst:
Ash Shah, [email protected], +91 22 6164 8500

170
Represented by:
Vijaya Gupta, CFO
RHI Magnesita (Not Rated)
Bloomberg Code: RHIM IN, Market Cap: INR 159bn, CMP: INR 768 (as on 8 September 2023)

Executive digest: RHI Magnesita India (RHIM IN) is the supplier of high-grade refractory products, systems and solutions,
which are critical for industrial high-temperature processes exceeding 1,200 degrees Celsius in a range
of industries, such as steel, cement, non-ferrous metals, and glass. It is part of RHI Magnesita Group (a
market leader with a share of 15% globally). As on FY23, the company has a market share of 30% in
India, nine manufacturing plants (post-merger with Dalmia Refractories), sales volume of 329,000
tonne, total capacity of 525,000 tonne and the steel division’s share in revenue stood at 88% vs 93%
in FY22.

Investor insight: ▪ Strong parent: RHIM is a part of the RHI Magnesita Group. The parent is a leader with a global
market share of 15% (30% excluding China). Currently, the Group has 47 production sites, 12 raw
material sites, shipping to 100 countries, and five R&D centers. As on Q1FY24, it owns a 55% stake
in RHIM. As on FY23, RHIM paid royalty of ~INR 3bn (1.1% of FY23 sales) to the Group and it should
remain at 1.2-1.3% of total revenue. The actual royalty expense is 3.25% of revenue on products
manufactured using patented technology

▪ Acquisition: In FY23, RHIM acquired Dalmia Bharat Refractories (DBRL) for INR 17.7bn and Hi-Tech
Chemicals for INR 8.8bn. With the DBRL acquisition, the company has access to the non-steel
sector, three mines in India, five manufacturing plants and MSME customers whereas with the Hi-
tech acquisition, it has access to higher margin products and one manufacturing plant. Also, with
these acquisitions, RHIM plans to reduce its reliance on imported products at 20-25% currently. As
on Q1FY24, DBRL’s capacity utilization improved to 54% vs 51% in Q4FY23 and below 50% before
the acquisition, with an EBITDA margin at 11.7%, up 150bp QoQ, whereas Hi-Tech capacity
utilization stood at 54% vs 51% in Q4FY23, margin stood at 20%, up 420bp QoQ
▪ Outlook: Despite the decline in prices (passing the drop in raw material prices), for FY24,
management expects a revenue of INR 40bn with an EBITDA margins of 14-15%. In the medium
term, it will focus on improving capacity utilization, which will first be used to fulfil domestic
demand and then excess will be exported to group companies around the world. This will ensure
top-line growth, in line with the growth rate of refractories industries (i.e., 1.5x of steel production
growth rate). Also, management will spend INR 3bn on refurbishment of DBRL plants over the
next 3-4 years

Analyst annotations: With the recent acquisition, RHIM like its parent has become a market leader in India with a share of
30% as on FY23. With India being the second-largest steel producer (as on CY22) and 60mn tonne of
capacity addition in the medium term, RHIM will benefit from it. Ramp-up of the recent acquisition and
planned capex outlay are key monitorable

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 13,876 85.5 2,139 15.4 1,359 51.3 8.4 25.3 34.4 91.0 57.6
FY21 13,704 (1.2) 2,085 15.2 1,366 0.5 8.5 18.2 23.3 90.5 58.8
FY22 19,951 45.6 3,838 19.2 2,690 96.9 16.7 29.4 36.7 46.0 32.2
FY23 27,263 36.6 3,599 13.2 -4,657 NA (24.8) (23.8) 10.6 NA 43.6

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

171
Represented by:
Ashish Tiwari, Group CFO
Transport Corporation of India (Not Rated)
Bloomberg Code: TRPC IN, Market Cap: INR 63bn, CMP: INR 815 (as on 8 September 2023)

Executive digest: Incorporated in 1958, Transport Corporation of India (TRPC IN) is an integrated multimodal logistics
and supply chain solutions provider. As of FY23, TRPC had four business divisions – Freight, Supply
Chain Solutions, Seaways and Energy Division. As a percentage of FY23 revenue, Freight/Supply
chain/Seaways/Energy contributed 49%/35%/15%/1% to total revenue. On the operational front,
TRPC has 1,000+ offices, six coastal cargo ships, 10,000 trucks under operations, 650 liquid containers,
8,500 general purpose containers, 14mn sqft of warehousing, and three Automobile Freight Trains.

Investor insight: ▪ Freight division: Despite the share of LTL improving marginally from 35% in Q4FY23 to 36% in
Q1FY24, EBITDA margin declined by 110bps QoQ to 3.7% due to a change in lane mix and
product mix. For FY24, the management expects margins to improve 20-30bps YoY and stay in
4.5-5% range. Based on geography, West Region volumes > North Region volumes > South Region
volumes > East region volumes. Also, with the commissioning of WDFC (from Sanand to Dadri),
the management is seeing a lot of traffic shift from roads to rail. However, this may not affect the
freight division as it is present in road and rail movement (owns three freight trains and will buy
one more in FY24).
▪ Supply chain solutions: Around 75% of the customers are from the auto sector, whereas 25% are
from consumer-facing industries such as FMCG, White goods, Chemical companies, etc. No single
customer contributes >6-7% to supply chain segment’s revenues. Most customers have three-year
or five-year contracts and 90% of the customers are there since the past 10 years.

▪ Seaways: Despite the freight rates declining by 10-15% YoY, the management expects flat revenue
growth YoY for this division. This is due to the lower number of dry docks (one in FY24 versus three
in FY23) and the existing capacity is being fully utilized. Also, the management expects EBITDA
margin to remain flat YoY. On the capacity addition side, the management may either place a new
order for a smaller ship or buy a large ship in the second-hand market and this decision may likely
be taken by Q4FY24. Around 25% of the capacity is on long-term contract basis whereas 75% is
on spot basis.

▪ Industry update: Under the automobile segment, passenger vehicle is seeing very good demand
(higher pent-up demand), tractor segment has been flat but may improve from Q2FY24, two-
wheeler demand (except for EV segment) is low due to weakness in rural demand, and may
improve during the festival season. Farm equipment and construction equipment is seeing good
demand due to infrastructure spending. On the other hand, consumer-facing segments should
see good demand as rural market revives and given the upcoming festive season.
▪ JV performance: For its JV with Concor, the management expects single-digit growth in FY24. For
Transystem (JV with Toyota), for FY24, it expects a revenue of INR 10bn and EBITDA margin of
15% as Toyota makes India its manufacturing hub.

Analyst annotations: For FY24, the management expects revenue and profit growth of 10-15% YoY. The key factor to watch
for may be demand in upcoming festive season and ship addition in Q4FY24

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 27,178 (1.3) 2,405 8.9 1,530 4.9 18.6 14.9 12.3 43.8 27.7
FY21 28,024 3.1 2,612 9.3 1,635 6.8 19.6 13.7 13.0 41.7 24.9
FY22 32,567 16.2 4,087 12.6 2,928 79.1 38.1 22.5 20.5 21.4 15.3
FY23 37,826 16.1 4,240 11.2 3,205 9.5 41.7 20.5 19.4 19.5 14.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ankita Shah, [email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

172
Represented by:
Sunil Nalavadi, CFO VRL Logistics
Bloomberg Code: VRLL IN, Market Cap: INR 62bn, CMP: INR 706 (as on 8 September 2023)

Founded in 1976 by Dr Vijay Sankeshwar, VRL Logistics (VRLL IN) is a pan-India logistics and transport
Executive digest:
company across 25 States & four union territories. It currently is one of the largest fleet owners of
commercial vehicles. During FY23, VRLL divested its non-core businesses: the bus segment sale of INR
2.3bn, wind power at INR 528mn, and transportation of passengers by air (divested in Q1FY24 for INR
170mn). With this, management will focus only on the goods transport segment. As on FY23, volume
stood at 3.9mn tonne, up 21% YoY, 49 hubs (nine owned), 1,126 branches, and 5,671 owned vehicles
with total capacity of 82,657 tonne.

Investor insight: ▪ Huge market potential: VRLL is among the largest surface logistics companies in India but has a
mere ~1% market share and 6-7% share in the organized space as on FY23. Hence, the potential
is huge. According to management, India’s logistics sector was USD 250bn in CY21, which will
grow at a 10.5% CAGR to USD 380bn by CY25. Currently, the share of the unorganized sector is
90%, which is reducing as volume shifts to organized firms due to increased compliance. VRLL has
a pan-India presence, with a client base of 0.8mn unique customers.

▪ Government initiatives to bolster the sector: To drive sector growth and reduce logistical cost as a
percentage of GDP from 13-14% to 8-10%, the government has undertaken various initiatives,
such as the PLI scheme and Aatmanirbhar Bharat, which have the potential to increase
manufacturing sector contribution to GDP from 18% in FY23 to 25-30% by CY25, GST eInvoicing
mandate is to be reduced to INR 50mn from August 2023, and building infrastructure, such as
roads, ports, railways, and airports, which reduces operational inefficiency and improves
connectivity.
▪ Focus on goods transport capacity addition: With the completion of divestment of all non-core
businesses, management will focus on the high growth GT segment. During FY23, the company
added 184 branches, which led to a 5% YoY increase in volume vs a 21% YoY rise in overall volume,
taking total branch count to 1,126 across 25 States and four Union Territories. On the other hand,
it added 855 vehicles with total capacity addition of 11,600 tonne on a net basis. The company
plans to add 800-1,000 vehicles per year over the next two years with capex of INR 4.7-5.0bn/year
and will add 25-30 branches/quarter and 100-120 branches on an annualized basis.

Analyst annotations: Post divestment of the non-core businesses, a good demand environment, healthy balance sheet and
return ratios, we are positive on the company’s growth prospects. We expect a revenue CAGR of 17%,
an EBITDA CAGR of 22% and a PAT CAGR of 25% during FY23-25E.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 21,485 22.6 3,745 17.4 1,562 246.5 17.7 25.0 22.0 38.9 17.0
FY23 26,278 22.3 4,017 15.3 1,661 6.4 18.8 20.4 17.8 19.2 15.8
FY24E 30,829 17.3 4,902 15.9 2,182 31.3 24.9 19.9 18.9 28.2 13.0
FY25E 36,119 17.2 5,943 16.5 2,594 18.9 29.7 19.1 19.3 23.7 10.7

Source: Company, Elara Securities Estimate

Analyst: Ankita Shah,[email protected], +91 22 6164 8516

Ash Shah, [email protected], +91 22 6164 8500

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IT Services, Internet, Staffing & Telecom

174
Represented by:
Kapil Bhutani, CFO
Karish Manchanda
Affle India
Associate Director of IR Bloomberg Code: AFFLE IN, Market Cap: INR 154bn, CMP: INR 1159 (as on 8 September 2023)
Strategy & Corporate
Communications

Executive digest: Affle India (AFFLE IN) is a global technology company with a proprietary consumer intelligence
platform that delivers consumer recommendations and conversions through relevant mobile
advertising. The platform aims to enhance returns on marketing investment through contextual mobile
ad and by reducing digital ad fraud. The company powers integrated consumer journey for marketers
to drive high ROI, and measurable outcome-led advertising across global connected devices.

Investor insight: ▪ AFFLE has welcomed data privacy and is committed to avoid misusing client data

▪ The new, upcoming Data Privacy Laws in India will be advantageous to firms which abide by data
protection rules

▪ The rules will eliminate non-compliant companies, thereby leading to consolidation in the industry

▪ Firms, such as Google, also will have to abide by the same data protection laws
▪ Apple has entered the ad-tech business and is sharing data with AFFLE in an encrypted format,
thereby giving AFFLE an entry into the iOS ecosystem
▪ The Data Protection Law does not prohibit the use of data but the way user data is utilized

▪ AFFLE has received multiple data compliance certifications, including compliance with Singapore
data protection laws three times in the past four years. Furthermore, the General Data Protection
Regulation (GDPR) has been in force in the EU for the past three years, and Affle has been
compliant with them

▪ In June 2023, Developed Markets witnessed the biggest pain but is recently experiencing pickup
in growth

▪ The gaming industry is going through a mild slowdown post the GST regulations impact
uncertainty. By mid-October, AFFLE will be able to ascertain whether spending cuts by gaming
firms are structural in nature once the evaluation process is complete
▪ June 2023 witnessed the bottoming of the business slowdown from Developed Markets for
AFFLE, with the business reverting to being stable over July-August
▪ The company is optimizing data procurement processes to minimize data cost

▪ Connected TV will be a key source for first-party data for AFFLE in the coming years

▪ Increased competition is unlikely to increase in India’s ad-tech industry as advertisers will not be
able to efficiently optimize ad spend if they have to place bids on multiple platforms

▪ AFFLE participates across stages of a user’s journey right from acquisition to increased
engagement while helping customers transition from offline to online. Around 90% of revenue
comes from the acquisition and retargeting of business

▪ YouAppi focuses on directing customers in the gaming business to complete payment, which they
had left incomplete. The gaming industry is among the largest spenders on digital advertisements

▪ The Jamp acquisition has gotten off to a slow start with the slowdown in Developed Markets’ end-
user industries, such as fintech

▪ Jamp and YouAppi complement each other with overlapping end customers, particularly from the
gaming industry. The former primarily is engaged in customer acquisition. The synergy from both
businesses will be largely evident from Q4FY24 or Q1FY25

▪ The fintech industry vertical in India is largely stable

▪ AFFLE is renegotiating contracts with customers, which have cut ad budgets, particularly in the
Developed Markets

175
 ▪ On a long-term basis, target revenue CAGR of 25% remains intact despite quarterly fluctuations.
Cost optimization and sustaining margin remain the top priorities in the near to medium term.

Analyst annotations: We expect Developed Markets revenue to make a comeback in Q2 with the contribution expected to
reach 30-35% post the YouAppi integration. Growth in the Emerging Markets (EM) has been in line
despite a volatile ad environment. Revenue of EM, including India, grew 20% YoY in Q1. We expect
EM growth to increase in the upcoming quarters, backed by 1) the festival season, and 2) cooling off
of inflationary pressures. Traction in verticals, such as food tech, eCommerce, gaming, fintech, and
entertainment remain growth drivers for EM as well as India; connected TV also could be a large
opportunity in the medium term for programmatic ad spend.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 14,340 32.6 2,888 20.1 2,462 14.3 18.5 18.6 20.2 62.7 52.7
FY24E 19,102 33.2 3,935 20.6 3,106 26.3 23.4 19.2 21.8 49.6 38.3
FY25E 24,673 29.2 5,310 21.5 4,113 32.5 30.9 20.8 24.5 37.5 27.1
FY26E 30,866 25.1 6,760 21.9 5,377 30.8 40.5 21.9 26.0 28.6 20.6

Source: Company, Elara Securities Estimate

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

176
Represented by:
Vikas Jadhav
Head of IR
Coforge
Bloomberg Code: COFORGE IN, Market Cap: INR 339bn, CMP: INR 5,546 (as on 8 September 2023)

Executive digest: Coforge (COFORGE IN) is a leading global IT solutions company with a strong presence in India. A
focus on select industries, a detailed understanding of the underlying processes of those industries and
partnerships with leading platforms provides it a distinct perspective. The company was formerly
known as NIIT Technologies and was incorporated in April 2003 when NIIT (NIIT) spun off its software
solutions business (excluding knowledge solutions) into a separate legal entity.

Investor insight: ▪ The company aims to reach USD 2bn in revenue, with USD 450mn from the existing business, USD
250mn from partnerships, USD 150mn from acquisitions, and the remaining USD 150mn from
filling gaps in the business

▪ Factors that will lead to better-than-industry growth include: 1) sales and delivery team from Tier I
companies with revenue exceeding USD 5bn), 2) an aggressive incentive structure, and 3) the
recruitment of domain experts
▪ Incremental growth stems from proactive initiatives, including engaging with customers to secure
cost-efficient and incremental deals. Over the past six months, clients have cautiously renewed
their interest in technology again, bringing new deals in the market
▪ The traction in securing deals remains strong. Segments showing traction include insurance in the
US, travel-related business in both the US and the UK, and the public sector in the UK. Although
large banks have seen a slowdown, the situation is deteriorating

▪ Revenue breakdown: USD 330mn from the banking and financial services (BFS) space, USD
230mn from the insurance vertical, USD 190mn from travel, USD 80mn from the public sector
(primarily in the UK and Australia), with the rest from the medical, healthcare, and retail verticals

▪ Revenue composition of USD 100mn from the product portfolio includes travel tech products for
clients. The others include USD 125mn from automation, primarily the Pega System and Appian,
USD 230mn from data and integration with partners, such as Duck Creek, Salesforce, and ERP
software, USD 190mn from Cloud infrastructure, and USD 100mn from business process services
(BPS), primarily transaction processing for the BFS vertical

▪ Recruitment plans include minimal lateral hiring but significant campus hiring, with 1,000-1,500
freshers already offered positions compared to the past year's 400-500

▪ The company expects gross margin expansion of 100bp next year as cost of employee is reducing
with cooling off of supply pressures
▪ On the client side, initially COFORGE dealt with 64 accounts, but it currently focuses on 16 key
accounts. John Speight has been designated as Chief Customer Success to focus solely on these
16 key accounts while new CEO Mohit Joshi will oversee delivery

▪ The company's hunters and farmers are primarily from Tier-I companies, bringing a different
approach that generates more sales. Starting from April 1, it has restructured this, moving vertical
heads to a horizontal structure to make deals more attractive. There are six key horizontals

▪ The onsite-offshore mix aims for an optimal balance, with 55% being the target compared to the
current level of 51%

▪ COFORGE currently operates at six nearshore centers as well, for leveraging the time difference
for customer comfort

▪ The EU presence is primarily in the UK, with long-standing relationships, such as British Airways
for nearly 25 years, and clients in Germany, Scandinavia, and the US for insurance
▪ Expansion plans include focusing on the western parts of the US and in Belgium, with additional
expansion in two more countries in the EU

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Analyst annotations: COFORGE promoter Baring PE has been offloading its stake in tranches. This has led to investors
worrying about the future leadership of the company. Baring PE had taken the company in CY19 and
held a 70% stake then. It has been offloading stake since then. The recent ones being 3.5% stake
offload in May and a 9.8% stake offload in February. Hence, this move is an expected one and ends an
overhang on the stock. The focus will solely be on fundamentals. We prefer COFORGE, given: 1)
improving executable orderbook, 2) steady large deal wins, 3) consistent revenue growth, and 4)
recovery in the insurance vertical.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR bn) (%) (INR bn) Margin (%) (INR bn) (%) (INR) (%) (%) (x) (x)
FY23 80.4 25.4 14.1 17.5 6.9 1.3 113.9 22.5 39.4 48.7 20.8
FY24E 93.4 16.2 16.5 17.6 10.0 44.1 164.1 27.8 40.4 33.8 17.5
FY25E 106.9 14.5 20.3 18.9 13.0 29.5 212.5 30.3 43.5 26.1 14.0
FY26E 124.1 16.0 23.5 18.9 15.2 17.4 249.5 30.1 42.9 22.2 11.8

Source: Company, Elara Securities Estimate

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

178
Represented by:
Srinivasan Nadadhur
CFO
eClerx
Bloomberg Code: ECLX IN, Market Cap: INR 82bn, CMP: INR 1,710 (as on 8 September 2023)

Executive digest: eClerx (ECLEX IN) is a global leader in data-driven business process outsourcing, known for its expertise
in data analytics and management. With a strong international presence, the company offers round-
the-clock support across time zones. Their adaptability, quality focus, and innovation have made it a
trusted partner across industries, enabling organizations to leverage data for strategic advantage.

Investor insight: ▪ Demand outlook: Demand remains under pressure due to spending cuts in the discretionary
business. Sequential improvement is expected after Q2. ECLX posted a revenue decline due to
budget cuts and project delays, especially in large client accounts. The company anticipates client-
specific challenges in the upcoming quarters and is focused on strengthening its Top 10 accounts.
Clarity is expected in Q3, coinciding with the budgeting cycle of US clients

▪ FY24 outlook: Management sees a rebound in Q2FY24 based on the current pipeline, with overall
growth anticipated in H2FY24. The pipeline remains promising, particularly in the BFSI sector,
where opportunities are seen in regulations, customer experience, and lifecycle management.
Market opportunities exist in B2B verticals, retail, luxury, telecom, and financial markets, with a
focus on gaining market share and providing cost-effective solutions.

▪ Digital business and discretionary spend cut: The digital business has been experiencing
headwinds, and there is uncertainty about discretionary demand (30% of revenue). However, the
BSFI and customer operations segments appear to be promising

▪ Growth strategy: New CEO Kapil Jain will focus on reviving organic growth. For inorganic growth,
the company is considering investments in digital, creatives, analytics, and non-cable, and telecom
areas within customer operations
▪ genAI: AI is being deployed, primarily in customer operations, with benefits observed in headcount
reduction and adjacent opportunities with clients. Gen AI initiatives are ongoing, with several pilot
projects. Focus is on unit economics, client ownership of data, and contextual knowledge
▪ Building genAI capabilities: ECLX currently emphasizes efforts on gAI (global Artificial Intelligence)
with 32 proof of concepts (PoC). It does not see any short to medium term contractionary impact
from gAI. Around 10% of revenue is derived from technology-driven services, and gAI is expected
to enhance capabilities of tools and platforms

▪ Contextual knowledge and data engineering are essential factors, preventing clients from
switching as clients own the data while the software is public

Analyst annotations: Kapil Jain's appointment as Group CEO marks the transition from a promoter-led to a professionally
managed entity as ECLX prepares to scale up and envisions USD 1bn revenue milestone. (Jain was
instrumental in Infosys BPO's similar scale-up from ~USD 300mn to USD 1.5bn). Such transitions have
been turnaround events for peers, such as Persistent Systems and Coforge, ushering in the new growth
path under professional management. We prefer ECLX for its business expansion under the new
leadership, strong margin profile and business offerings.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 26,479 16.9 7,439 28.1 4,890 13.9 98.4 28.5 36.7 18 11
FY24E 28,521 4.2 8,038 28.2 5,089 4.1 102.5 26.5 34.6 17 10
FY25E 31,989 11.5 9,651 30.2 6,172 21.3 134.0 28.5 36.8 14 8
FY26E 36,008 13.3 10,997 30.5 7,110 15.2 143.2 29.1 37.2 12 7

Source: Company, Elara Securities Estimate

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

179
Represented by:
Vijay Raj Jain, Group CFO Himachal Futuristic Communication (HFCL) (Not Rated)
Amit Agarwal
Head of IR Bloomberg Code: HMFC IN, Market Cap: INR 108.6bn, CMP: INR 76 (as on 8 September 2023)

Executive digest: Himachal Futuristic Communication or HFCL (HMFC IN) is a telecommunications and IT solutions
provider with a strong domestic presence. HMFC is a prominent firm in telecommunications,
specializing in the provision of innovative solutions for telecommunication infrastructure, optical fiber
cables & communication services to defense and railways. It has strategically evolved from being solely
a telecommunications equipment manufacturer to a comprehensive solutions provider in the industry.

Investor insight: ▪ Industry demand outlook: The global optical fiber market is projected to reach USD 250bn while
the domestic market is estimated at USD 10bn during FY23-28
▪ Exports opportunity: In FY23, exports revenue has reached INR 8.17bn, constituting ~17% of total
sales. The company aims to achieve exports revenue in the range of INR 13-15bn in FY24.
Company will be expanding business to North and Central America, the EU, and the MEA.
▪ Capacity expansion: HMFC is increasing its optical fiber cable (OFC) capacity from 25mn fkm to
35mn fkm by FY25 alongside raising optic fiber (OF) production from 10mn fkm to 25mn fkm. The
planned INR 9bn capex covers OF and OFC capacity expansion, new facilities for telecom products,
and ongoing R&D. Of this, INR 3bn is allocated to optical fiber capex, with an expected additional
INR 1.5bn annual revenue post expansion. The company has secured INR 6.5bn incentives under
the PLI scheme. This phased expansion aims to bolster competitiveness, reduce operating cost,
thereby driving margin and profitability growth

▪ Product offerings: HMFC is expanding its telecom product offerings to increase product revenue.
It aims to launch 5G products during Q2FY24-Q1FY25, targeting INR 8-10bn in revenue by FY25.
HMFC has participated in tenders for night vision devices, expecting higher revenue next year.
Defense revenue is projected to be INR 8-10bn over the next 4-5 years, improving the working
capital cycle

▪ Margin: EBITDA margin is projected to be in the range of 14-15%. EBITDA margin for telecom
products are 35-40% while net margin is likely to fall within the range of 15-20%

▪ Orderbook: Of orderbook totaling more than INR 70bn, 70% comprises EPC contracts while the
remaining 30% is attributed to product orders. Product orders are consistently received, and there
is an expectation of an increased share of product orders

▪ Optical fiber orderbook: Optical fiber contracts account for 10% of total INR 70bn orderbook. The
company is eligible for government PLI incentives amounting to INR 6.5bn. Optical fiber
production is operating at ~100% capacity with continued 24/7 operations

▪ Defense opportunity: In the defense sector, the company has participated in tenders for night
vision devices and anticipates higher revenue starting from next year. Defense revenue is expected
to be in the range of INR 8-10bn in the next 4-5 years. The defense budget stands at INR 2.5tn,
with ~40% allocated for capital acquisition, offering opportunities in indigenously developed
defense electronics

▪ The company is launching 5G fixed wireless customer-permitting equipment, 5G small cells, and
routers. The addressable market for these products is estimated to reach USD 550bn by FY28, with
a revenue target of INR 8-10bn by FY25 in these segments

▪ Price hike in optical fiber: The average fiber price is USD 4 per fiber km. The recommendation of
imposing an anti-dumping duty would result in an increase of USD 0.5 per fiber km, constituting
a 10-12% price hike

▪ Partnership: The company has technology partnerships with Qualcomm, Microsoft, Wipro, and
others, with plans to launch 5G products in FY24

180
Analyst annotations: HMFC’s technology partnerships give them a head start in 5G and telecom. It expects exports revenue
to grow 1.5x. After telecom products and optical fiber capex, it expects additional revenue of INR 8-
10bn and INR 1.5bn pa. The company's primary priorities are strong exports, expanding capacity,
diversifying product range, and leveraging a solid client base, including Jio, Airtel and Tata for future
growth.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 38,389 (19.1) 5,000 13.0 2,272 3.3 1.8 15.3 13.1 5 3.8
FY21 44,230 15.2 5,381 12.2 2,390 5.2 1.9 13.7 14.5 13 7.7
FY22 47,271 6.9 6,573 13.9 3,131 31.0 2.4 13.7 14.1 33 17.3
FY23 47,433 0.3 6,112 12.9 3,010 (3.8) 2.2 10.3 11.3 28 15.1

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

181
Represented by:
Venkat Ramana
CEO, India & Southeast Asia Intellect Design Arena (Not Rated)
TV Sinha, Head of Strategy
Bloomberg Code: INDA IN, Market Cap: INR 98bn, CMP: INR 725 (as on 8 September 2023)
Vasudha Subramanian, CFO

Executive digest: Intellect Design Arena (INDA IN) provides software products to retail, corporate banking, insurance &
treasury. INDA is transitioning from a product to a platform company. It generates 55% of revenue
from the Developed Markets and the rest from Emerging Markets. Recently, it posted a margin
turnaround from 5.0% in FY20 to 25.1% in FY22.

Investor insight: ▪ Focus on demand: Management is focused only on product companies. YoY growth in the
product segment is 20%. There is no dearth of demand from advanced industries. There are delays
in the contract signoff process. There is demand from the underwriting space in the US. And there
is huge demand in core banking, liquidity, and eCommerce sectors

▪ Central banks as clients: The RBI is a notable client. The company offers specialized products for
central banks. It has been implementing it for other countries too. The presence is majorly with
African Continent’s central banks and the EU central banks

▪ Strategy: Its goal is to transition from a products- to a platform-based approach with emphasis on
headless design, which is customizable. Corporate banking offerings were initiated with large
banks, such as JP Morgan Chase and later on the smaller banks. However, its core banking journey
began with smaller banks and it is progressing toward larger ones. The company predominantly
promotes term licenses because they offer the potential for upselling, unlike perpetual licenses,
which provide a stable but fixed annual amount with no room for upselling.

▪ FY24 outlook: EBITDA margin target is 20% for FY24. Major demand geographies include Canada,
the US, and the EU. EU banks are mostly on legacy. There is huge opportunity there

▪ New offerings: Emac.ai, iCredit 360 are the AI offerings. iCredit360 is a multipurpose credit risk
platform. The company offers decisive AI, setting it apart from generative AI

Analyst annotations: INDA has niche capability and platforms in the BFSI domain. It continuously launches AI-based
products in the financials sector, due to strong demand. The company will continue to perform well in
the near term, given the demand scenario.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 13,469 (7.1) 857 6.4 62 (93.0) 0.5 1.6 2.5 1,576.0 114.5
FY21 14,975 11.2 3,608 24.1 2,594 4,057.0 19.3 21.6 19.7 38.0 27.2
FY22 18,782 25.4 4,732 25.2 3,413 32.0 24.6 21.8 21.5 29.0 20.7
FY23 22,313 18.8 4,257 19.1 2,656 (22.0) 19.1 13.8 13.8 38.0 23.0

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

182
Represented by:
Sunil Phansalkar
Head of IR
KPIT Technologies (Not Rated)
Bloomberg Code: KPITTECH IN, Market Cap: INR 315bn, CMP: INR 1,165 (as on 8 September 2023)

Executive digest: KPIT Technologies (KPITTECH IN) is a worldwide technology firm which offers software solutions to
propel mobility toward an autonomous, clean, intelligent, and interconnected future. With a global
team of 6,000 dedicated to embedded software, AI, and digital solutions, KPITTECH empowers clients
to expedite the adoption of innovative mobility technologies. Operating from development hubs in
the EU, the US, Japan, China, Thailand, and India, the company collaborates with industry leaders to
remain at the forefront of mobility's transformative ecosystem.

Investor insight: ▪ Demand outlook: Strong demand visibility in mobility tech (electrification, autonomy &
connectivity) with a healthy pipeline from T25 strategic clients. The company expects 27-30%
revenue growth in FY24, front-loaded in H1FY24 despite global economic challenges

▪ OEM spending: OEM will spend USD 40bn every year over the next 5-7 years to make this
transformation. So, that is really the condition of the industry that we face today
▪ Margin outlook: It aims for an EBITDA margin of 19-20% in FY24 by focusing on rate improvement,
better gross margin, and optimizing workforce composition for growth

▪ ZF Partnership for middleware solution: The company is expanding its growth horizons through
a recent partnership with ZF, forming a JV named "Qorix" dedicated to middleware solutions.
Qorix will leverage KPITTECH’s IPs and ZF's product expertise to develop open, scalable automotive
middleware for the mobility sector. Both partners are contributing cash (EUR 10mn by KPITTECH
and EUR 22mn by ZF) and assets & IP. It has already begun engaging with OEM clients, Tier-1
suppliers, and tech firms. The JV will create ready-to-use middleware solutions, reducing OEM time-
to-market and driving revenue growth through integration, testing, and validation over the next
3-4 years
▪ Rise in outsourcing to India firms: India remains an appealing destination for its cost-effective skilled
workforce, benefiting from increased client sourcing. Geopolitical factors are redirecting some
spending from Eastern Europe, especially Ukraine & Russia and China. Core tasks are managed in-
house, while non-core activities are outsourced

▪ Portfolio of services: The company has a strong portfolio such as 1) strategic projects in
autonomous driving, body electronics, and diagnostics, 2) strategic initiatives in the electric
powertrain field, 3) projects involving middleware, architecture consulting, and 4) electric
powertrain & strategic partnerships in vehicular engineering and connected technologies
▪ Commercial vehicular segment: Robust growth in commercial vehicles is expected as KPITTECH’s
penetration of services there is less than that in passenger cars. Therefore, while both are likely to
deliver growth, commercial vehicles might grow faster in FY24. The company has key marquee
clients, such as Paccar and John Deere

▪ Strategic T25 clients: The company's primary focus is on T25 clients, pursuing significant multi-year
projects. Positive medium-term prospects are reflected in the robust deal pipeline from strategic
clients. Management envisions doubling revenue from strategic clients in the next 3-4 years and
anticipates strong growth in FY24, due to continued client investments in key programs.

Analyst annotations: We expect KPITTECH to post the fastest revenue growth among pure-play engineering R&D domestic
firms, such as L&T Technologies, Tata Elxsi and Cyient over FY23-25 . This would be led by niche focus
toward the fastest growing industry (the automotive vertical), which should continue to invest in R&D
on EV, autonomous and connected verticals.

183
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 21,562 - 2,954 13.7 1,465 - 5.3 14.6 14.3 10 3
FY21 20,357 (5.6) 3,045 15.0 1,464 0.0 5.4 13.0 12.4 32 14
FY22 24,324 19.5 4,385 18.0 2,762 88.7 10.1 22.0 20.3 60 35
FY23 33,650 38.3 5,981 17.8 3,792 37.3 14.0 25.6 23.0 66 41

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

184
Represented by:
Arun Kumar Gupta, CFO Newgen Software Technologies (Not Rated)
Deepti Chugh
Investor Relations Bloomberg Code: NEWGEN IN, Market Cap: INR 62bn, CMP: INR 890 (as on 8 September 2023)

Executive digest: Newgen Software Technologies (NEWGEN IN), a technology company in the BFSI sector, has a strong
presence in the Emerging Markets and is strategically entering mature markets. Globally, successful
enterprises rely on NEWGEN’s industry-recognized low code application platform to develop and
deploy complex, content-driven, and customer-engaging business applications on the Cloud. It offers
onboarding to service requests, lending to underwriting, and for more use cases across industries.
Unlike many domestic tech firms, the company remains a product-centric company. It targets business
process owners and employs a diverse channel strategy. In summary, NEWGEN is an innovative firm
with a global outlook, committed to its product-oriented identity.

Investor insight: ▪ Business profile: NEWGEN is a product-oriented company specializing in IT solutions. It primarily
serves the BFSI sector, catering to 300 customers in Emerging Markets like India, the Middle East,
African Union, and the APAC region. It is currently expanding into more mature markets. The
company generates 25-30% of its revenue from the US market and aims to increase its presence
in Developed Markets. It serves top clients, such as ICICI, Citi Bank, and Wealthcare, with contracts
in the range of INR 5-300mn

▪ Differentiation: The company distinguishes itself from other domestic product companies that
often transition into services-oriented companies due to custom demand, and it is committed to
maintaining its identity as a product firm

▪ Strong demand outlook: NEWGEN currently faces no significant growth headwinds as the digital
transformation sector continues to experience healthy expansion. The company aims to achieve a
growth rate of 20% or more in FY24 while retaining a PAT margin in the range of 17-18%

▪ Business process management services: The company specializes in business process

management, offering analytics to measure employee efficiency and branch performance.
Approximately 10% of its annual sales are allocated to research and development, which is
currently expensed and focused on enhancing its BFSI offerings. It allocates 20-22% of its
investment in sales and the rest in R&D

▪ Product business: Around 20-22% of its revenue comes from its product segment, another 20-22%
from the application transformation services (ATS) agency and 10% from support services.
NEWGEN's ATS annual maintenance contract (AMC) is on a perpetual contract basis and is
renewed annually
▪ While it does not operate in the core banking sector, the company plays a role in customer
acquisition for banks. Its platform is highly flexible, focused on content creation and extraction,
making it easier to implement

▪ Sales strategy: Its sales personnel target business process owners rather than CIO and the sales
cycle can take 8-10 months to pitch to process owners in sectors, such as grievance management
and eGovernance

▪ Go-to-market strategy: The company adopts a go-to-market (GTM) strategy with a 20% channel
split, involving local partners and global system integrators (GSI). NEWGEN implements its
solutions through GSI, especially in markets where direct entry is challenging, and this approach
usually yields higher margin

▪ Subscription model: It also offers subscription-based models in addition to traditional licensing.

NEWGEN's strategy involves expanding in Emerging Markets and, for the long term, entering into
the mature markets

▪ Significant pool of workforce: NEWGEN has a significant workforce, including 300 in sales and
marketing, a presales team, 2,000-2,500 in delivery, 300 in session marketing, with total headcount
of 3,900-4,000 employees

185
 ▪ DSO: The company aims to reduce its days sales outstanding (DSO) to 100 from its current 120-
140, addressing issues, such as currency fluctuations

Analyst annotations: Based on strong demand for digital transformation and the company’s transition-related initiatives –
diversifying the sales channel and pricing model (toward Saas & subscription), and foraying into
Developed Markets (the US, the UK and Australia). We like NEWGEN, given: 1) the shift in revenue
model towards SaaS & subscription, 2) creating additional sales channel using global system
integrators, 3) scaling up in Developed Markets, and 4) clearer organization structure. Further, we
expect margins to stabilize ~25% after factoring in operating leverage and return of travel and
branding & promotional expenses.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 6,817 6.4 1,046 15.3 727 -28.9 11 13.9 13.4 10 7
FY21 6,726 -1.1 1,919 28.5 1,265 74.0 18 20.8 19.1 16 10
FY22 7,790 15.8 1.820 23.4 1,642 29.8 24 22.2 21.9 20 18
FY23 9,740 25.0 2,122 21.8 1,763 7.4 25 19.7 19.4 18 15

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

186
Represented by:
Kapil Saurabh
Head of IR and M&A
NIIT Learning Systems (Not Rated)
Bloomberg Code: NIIT IN, Market Cap: INR 11.1bn, CMP: INR 82 (as on 8 September 2023)

Executive digest: The NIIT Group is a leading digital talent development organization and a leading provider of
managed training services that is engaged in building skilled human capital and enhancing workforce
talent worldwide. Set up in 1981 to help the nascent IT industry overcome its human resource
challenges, NIIT Group ranks among the world's leading training organizations owing to its vast and
comprehensive array of talent development programs with a footprint in 30 countries. The group
comprises NIIT (NIIT) and NIIT Learning Systems (NIIT IN).

Investor insight: ▪ NIIT is dedicated to the corporate learning sector where focus is on training and outsourcing. This
business has evolved significantly, with training extending beyond traditional classroom settings.
The company's clientele consists of global Fortune 500 companies that are based in the US and
the EU

▪ NIIT runs training as a managed service for customers in companies in various geographies and
does content development, training delivery, sourcing, consulting, and implementing technology.
Initially, NIIT was a custom content development company. Post pivoting to managed services, the
company has achieved customer stickiness
▪ Global companies allocate 1% of sales revenue and 3-4% of its payroll budget for training and
development of employees and clients. The overall expenditure on training and development in
the global market amounts to USD 400bn pa. Unlike technology services, which are commonly
outsourced, the penetration of outsourced training services remains relatively low at less than 5%,
equivalent to USD 10bn. Specialized firms, such as NIIT, play a significant role in providing training
on a global scale. They focus on improving efficiency of training programs by reducing training
duration, thereby lowering associated cost for clients
▪ The company's presence does not encompass the entire USD 400bn training market.
Approximately one-third of this market pertains to technology, leadership, sales training, learning
management systems (LMS), diploma or postgraduate programs, and areas where the company
does not operate. NIIT primarily targets the remaining two-thirds of the market where clients
usually allocate funds for specific processes and solutions. Traditionally, these clients have
managed such training in-house

▪ The client's in-house department is responsible for creating learning content, drawing upon its
domain expertise. NIIT's team of learning experts then transforms this content into instructional
material. Subsequently, this material is delivered online, often in the form of videos or
presentations. The process follows a sequence, starting with content creation, followed by content
delivery, and then administration-related to conduct the training, which includes measuring the
return on investment (ROI) or assessing outcomes of the training. Additionally, the company is
engaged in vendor management as part of its services

▪ In the US, banks have incurred sizeable fines of USD 800mn as a consequence of compliance
issues. Many fines could have been prevented with more effective employee training and clearer
instructions. High quality training programs can play a pivotal role in helping companies avoid
such costly compliance violations, and NIIT is actively capitalizing on this opportunity to provide
training solutions to organizations

▪ NIIT engages in projects with customers with the condition that they commit to a period of 3-5
years. Philips was the company's inaugural customer, and it took NIIT five years to accumulate a
total of 10 customers. By CY18, this number had grown to 40, and as on 2023, NIIT has 80. Each
customer generates USD 2.5mn in revenue, and these contracts usually span a minimum of three
years, with some extending to five years. Importantly, NIIT has maintained a 100% renewal rate
for the past three years, reflecting the satisfaction and loyalty of its client base

187
 ▪ NIIT previously held a stake in NIIT Tech, and the company has experienced accelerated growth
since the divestment of NIIT Tech in CY19. During this period, margin has expanded. Currently, the
key operational parameters stand at a 15% growth rate and a 15% margin. The company believes
there is potential to further enhance performance, targeting a 20% growth rate with a 20% margin

▪ In many companies, training operations are often decentralized. However, in case of Philips, there
was an effort to centralize training services at the company's headquarters. As part of this initiative,
NIIT managed the training services from its base at Gurgaon, India. Philips entrusted NIIT with the
training administration module for operations spanning 80 different countries, showcasing the
company's capabilities in handling training on a global scale

▪ Among its various verticals, the most significant one for NIIT is training and delivery services,
accounting for 35% of the revenue. NIIT has embraced the use of artificial intelligence (AI) to
develop simulations and is working on creating advanced AI simulations for its customers.
Importantly, the development of training and delivery content is not tied to the number of new
hires or employees but is adaptable to specific training needs of each client. While servicing
technology clients, NIIT frequently educates customers of its clients
▪ Other than tech and telecom, most other sectors have a large component of compliance and NIIT
wants to capture that. The sales cycle varies from three months to two years

▪ To grow revenue at 20% YoY, NIIT needs to keep adding more customers and keep servicing
existing ones. New clients contribute 5-6% of total revenue. The original go to market (GTM) were
large industry events, which have now shifted to reference. It has not lost a client in the past several
years (while renewing). It has only lost clients due to the client being acquired

▪ Regarding inorganic expansion, NIIT is not looking to buy revenue but capabilities. The company
does not have a lot of presence in France & Germany; it is looking to buy companies with strong
connects there. While considering M&A, the main parameters are capabilities, industry verticals
and geography. NIIT will look for companies to acquire in the range of USD 20-30mn (mid to high
single digits in terms of EBITDA) and wants to acquire one such company every 12-18 months.

Analyst annotations: NIIT is well placed in the underpenetrated learning & development industry wherein only 25% of
Fortune 500 firms have outsourced L&D. The company has started on a transformation track, with
improved margin and revenue growth; thus, it is expected to deliver accelerated and sustainable
robust performance in the upcoming years, which will command much better earnings.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 8,892 2.8 850 9.6 13,579 1,278.0 84.3 112.8 98.0 1.0 5.7
FY21 9,597 7.9 1,612 16.8 1,099 (92.0) 7.7 9.1 8.8 10.7 3.0
FY22 2,506 (73.9) 446 17.8 78 (93.0) 0.6 14.3 14.2 143.9 10.8
FY23 3,413 36.2 (36) (1.1) (121) (255.0) (0.9) 0.3 0.7 (91.1) (133.8)

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687

188
Represented by:
Saurabh Dwivedi
Head of Corporate
Persistent Systems
development and IR Bloomberg Code: PSYS IN, Market Cap: INR 447bn, CMP: INR 5,959 (as on 8 September 2023)
Harit Shah
Sr Manager of IR

Executive digest: Persistent Systems (PSYS IN) is a global services and solutions company delivering digital engineering
and enterprise modernization. The company is a leader among Tier-II IT services firms with industry-
leading growth incorporated in May 1990. It delivered 35.3% YoY in FY23 with USD 1.036bn on the
back of 12 quarters of industry-leading sequential growth. EBITDA margin lies in the range of 17-18%.

Investor insight: ▪ Revenue mix resilience: ISV (Independent Software Vendor) and healthcare verticals collectively
constitute 67% of the revenue mix, and exhibit notable resilience compared to the BFSI vertical

▪ Growth momentum and deal dynamics: The professional services segment (PSYS) is expected to
sustain growth momentum of 2-4% QoQ in the near term. While the pipeline remains robust, there
has been a delay in deal conversion attributed to slower decision-making processes. However, the
already signed deals are progressing as per plan

▪ M&A strategy and valuation focus: The company is actively evaluating potential M&A targets to
enhance capabilities in key areas, such as generative AI, customer experience, cyber security, and
cloud services. It is noteworthy it places a strong emphasis on reasonable valuation as a critical
criterion in the evaluation of potential M&A targets
▪ Strong base of Top 50 customers: PSYS’ Top 50 customers are based on robust relationships, and
various clients are expected to play a leading role in advancing growth during different quarters.
Its clients are consistently crossing significant revenue thresholds. In the latest quarter, an
additional customer moved into revenue range of USD 20-30mn, progressing from a lower
revenue bracket. The total number of customers in the USD 5-10mn revenue range has increased
to 21 in Q1FY24 from 17 in Q4FY23. Furthermore, the overall count of customers with revenue
exceeding USD 5mn has risen to 38 in Q1FY24 compared to 34 in the previous quarter and 26 in
Q1FY23

Analyst annotations: PSYS has been on a growth upgrade journey post CEO Sandeep Kalra taking over the company in May
2019. We like PSYS based on: 1) growth leadership led by robust deal pipeline, and 2) client mining.
However, a slow Q1 and uncertain macro have led to caution for subsequent quarters, due to the
slowdown in deal ramp-ups. However, it remains steady in terms of growth among peers.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 83,506 35.3 15,192 18.2 9,211.4 33.4 123.2 23.2 24.1 48.4 29.6
FY24E 96,208 13.0 17,260 17.9 11,991.4 30.2 160.4 24.7 28.3 37.1 25.6
FY25E 1,08,325 12.5 20,864 19.3 15,001.6 25.1 200.7 25.0 34.2 29.7 20.7
FY26E 1,24,372 14.8 23,958 19.3 17,612.4 17.4 235.6 24.1 38.6 25.3 17.5

Source: Company, Elara Securities Estimate

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

189
Represented by:
Guruprasad Srinivasan,
Group CEO
Quess Corp (Not Rated)
Kamal Pal Hoda, CFO Bloomberg Code: QUESS IN, Market Cap: INR 63bn, CMP: INR 427 (as on 8 September 2023)
Lohit Bhatai, President -
Workforce Management

Executive digest: Quess Corp (QUESS IN, Not Rated) operates in three segments: a) Workforce Management (WFM), b)
Operating Asset Management (OAM) and c) Global Technology Solutions. Quess provides a host of
technology-enabled staffing and managed outsourcing services across processes such as sales &
marketing, customer care, after-sales service, back-office operations, telecom operations,
manufacturing operations, facilities and security management, HR & F&A operations, IT & mobility
services, etc. Quess has team of ~500,000 across India, North America, South America and South-East
Asia in all the segments. Quess serves 3,000+ clients worldwide. Established in 2007 and
headquartered in Bengaluru, Quess today has an unmatched geographic presence and scale with >96
offices across India, South East Asia, North America and the Middle East, backed by technology
intensity and domain specialization to create exceptional service experiences.

Investor insight: ▪ General staffing expansion: Quess maintains its leadership in the general staffing sector, driven
not just by its substantial size of 380,000 associates but also remarkable growth rate. To illustrate,
in FY23, the Indian Staffing Federation, consisting of 115 member companies, added a total of
177,000 general staffing associates, with Quess accounting for 55,000 of them.

▪ General staffing pricing: Quess has maintained a consistent gross mark-up of ~INR 700 per
associate per month, with its general staffing EBITDA hovering at ~INR 450. This indicates a
conversion rate of ~65% from gross margin to EBITDA.

▪ Consolidation in general staffing industry: The management underscored that when selecting
staffing partners for mid to large clients, the primary considerations include on-balance sheet size,
current headcount, geographic reach, office network, the number of recruiters, and, of course,
pricing considerations.
▪ IT staffing: The management noted that although hiring has significantly decreased compared
with FY23, margins have now returned to normal levels.
▪ North America: Quess's recent entry into the North American market requires additional
investments, making break-even unlikely in H1FY24. However, the management expressed
confidence in achieving break-even in H2FY24.
▪ Targeting break-even in Foundit (Monster) by Q4FY24E: Quess is relying on increased revenue to
help Foundit reach break-even by Q4FY24.

Analyst annotations: Quess may likely grapple with the slowdown in the IT sector and cash burn in emerging businesses.
On the positive side, segments such as BFSI and Manufacturing are holding up. The US staffing
businesses are expected to break-even in Q4FY24E.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 1,09,915 25.6 6,578 41.5 (4,447) (273.0) (30.0) (17.8) (9.1) - 5.0
FY21 1,08,369 (1.4) 4,581 (30.4) 579 113.0 4.0 2.5 3.3 181.0 23.0
FY22 1,36,918 26.3 6,235 36.1 2,412 316.5 16.0 10.1 9.1 41.0 16.0
FY23 1,71,584 25.3 5,857 (6.1) 2,245 (6.9) 15.0 9.0 8.5 25.0 9.0

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

190
Represented by:
Rajiv Sharma (Head-IR) Tata Communications (Not Rated)
Bloomberg Code: TCOM IN, Market Cap: INR 537bn, CMP: INR 1884 (as on 8 September 2023)

Executive digest: Tata Communications (TCOM IN, Not Rated) empowers global enterprises, including 300 Fortune-500
companies, in their journey towards digital transformation. Its network carries ~30% of the world's
internet traffic, connecting businesses to 60% of the globe’s leading cloud providers. It holds a
significant role in India's internet history, contributing to the country's digital evolution over the past
25 years.

In 2020, it introduced the 'Secure Connected Digital Experience' (SCDx) initiative. This proposition is
designed to meet increasing global demand for new operational approaches. It encompasses a rise in
remote work, heightened security concerns, a shift to digital commerce, and a greater emphasis on
contactless experiences. SCDx aims to assist companies currently relying on temporary solutions by
providing comprehensive, secure, enterprise-level digital solutions that not only address current
challenges but also remain sustainable for the long term.

▪ Key growth drivers: The market opportunity is estimated at USD 100bn outside of India and USD
Investor insight:
3bn within India. The growth trajectory will be primarily steered by various platforms, namely: a)
Cloud, edge, and security, b) next-generation connectivity, c) NetFoundry, MOVE, and IoT. Each
platform exhibits significant potential for substantial market size expansion, with a projected CAGR
ranging from 15% to 25% in the next 4-5 years.

▪ About Kaleyra: Kaleyra is a global group providing mobile communication services to financial
institutions, e-commerce players, OTTs, software companies, logistics enablers, healthcare
providers, retailers and other large organizations worldwide.

▪ Kaleyra and Tata Communication – Better together: The acquisition of Kaleyra is intended to
bolster scale. Kaleyra specializes in Communication Platform as a Service (CPaaS), which involves a
learning curve for integration and understanding. Kaleyra lacks presence in the Asia-Pacific (APAC)
region, where Tata communications can provide a foothold.
There are opportunities to upsell between Tata Communications and Kaleyra. Kaleyra is expected
to achieve near-term break-even. Tata Communications is relatively new to the Communication
Platform as a Service (CPaaS) space, while Kaleyra primarily serves MSMEs, whereas Tata
Communications caters to larger clients, which makes both complimentary.
▪ Outlook: The aspiration is to achieve an EBITDA margin of 23-25%, but there will be a period of
lower margins during the integration process. TCOM projects FY24 margin at ~22%. In the past
four quarters, there has been consistent growth, especially in international markets, with focus on
upselling within India.

Analyst annotations: The company's strategic growth plan, concentrated approach, and enhancements in data segment
margins have led to a revaluation of its prospects. Although delays in deal closures have impacted revenue,
the demand outlook remains strong in the medium to long term, with initial signs of a gradual recovery.
Moreover, the company's consistent performance and enhanced cash flow generation, coupled with
potential deleveraging and improved return ratios, augur well for its future. Additionally, if the targeted
M&A opportunities materialize, the company could benefit from further growth opportunities.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 170,680 3.3 32,890 19.3 1,612 (160.0) (9.4) NM 10.6 (200.9) 18.4
FY21 1,71,001 0.2 42,606 24.9 12,395 669.0 5.7 1,133.6 20.7 332.9 14.2
FY22 1,67,247 (2.2) 42,267 25.3 14,524 17.0 43.5 159.3 26.5 43.3 14.3
FY23 1,78,383 6.7 43,183 24.2 17,184 18.0 51.0 114.0 26.6 37.0 14.0

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

191
Represented by:
Kedar Shirali
VP and Global Head, IR
Tata Consultancy Services
Bloomberg Code: TCS IN, Market Cap: INR 12,600bn, CMP: INR 3,445 (as on 8 September 2023)

Executive digest: TCS (TCS IN) is the largest IT services company in India with 615,318 employees and annual revenue
crossing USD 25bn with an EBIT margin of ~25% over last three years. It has a large array of products
and platforms catering to major verticals. The company has the best-in-class margin performance, with
the highest and most consistent EBIT margin, the industry’s lowest attrition, and excellent cloud
capabilities. BFSI is its largest vertical.

Investor insight: ▪ Deal wins going through uncertainty: Discretionary projects are facing cancellations, delays, and
increased scrutiny across accounts, leading to sequential revenue weakness. Cancellations are
ongoing, causing uncertainty. Vendor consolidation is happening, focusing on optimizing output
and improving quality, particularly in the application and infrastructure layers of the supply chain.
Revenue weakness stems from older projects, with no concentration of issues in newer projects

▪ Mixed vertical outlook: The banking, financial services, and insurance (BFSI) sector is adversely
affected as is the telecom industry. However, life sciences and manufacturing sectors are better
off. TCS is not exposed to fintech, and retail spending is weak, thereby contributing to revenue
weakness
▪ Cloud as a pocket of strength: Cloud projects remain stable and are not being canceled.
Hyperscalers are dominating the Cloud space through heavy investments in AI and acquisitions.
TCS has been promoting AI adoption in enterprises for seven years, including ignio-AIops

▪ GCC work is not IT services cup of tea: The global capability centers (GCC) market is not the primary
target of IT services, as it mostly involves proprietary, core R&D, and compliance-related work.
Compliance work cannot be outsourced due to regulatory restrictions

▪ Generative AI to have net positive impact: GenAI is not expected to have a deflationary impact on
the IT services industry. GenAI is at the peak of its hype, with experimentation in various fields. It is
being used in legal projects and as a programming assistant. It will not replace individuals, and its
impact is democratized as companies have access to similar code generators

Analyst annotations: We like TCS for its efficient margin management, superior platform capabilities, bagging industry
leading deals, deep Cloud expertise, extensive contextual knowledge, and industry’s lowest attrition.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR bn) (%) (INR bn) Margin (%) (INR bn) (%) (INR) (%) (%) (x) (x)
FY23 2,255 17.6 593 26.3 423.0 10.0 115.2 46.9 46.7 30.0 21.4
FY24E 2,405 6.7 653 27.2 470.9 11.4 128.3 44.9 44.1 27.0 19.3
FY25E 2,491 3.6 682 27.4 485.2 3.1 132.3 36.4 39.6 26.2 18.2
FY26E 2,686 7.8 736 27.4 530.4 9.3 144.6 32.4 38.4 23.9 18.0

Source: Company, Elara Securities Estimate

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

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Represented by:
Ramani Dathi, CFO
Kunal Tharad
Teamlease Services (Not Rated)
AVP-Corporate finance Bloomberg Code: TEAM IN, Market Cap: INR 44.7bn, CMP: INR 2660 (as on 8 September 2023)

Executive digest: TeamLease Services (TEAM IN) is a prominent HR services provider that delivers an array of solutions
to more than 3,500 employers, addressing their recruitment, productivity, and scalability challenges.
As a Fortune India 500 company, it is publicly listed on the NSE and BSE, and throughout its 22-year
history, it has successfully employed 2.0mn. Recognized as one of India's most rapidly expanding
employers, TEAM is also the operator of India's inaugural Vocational University and the country's
swiftest-growing PPP National Employability through Apprenticeship Program (NETAP). The company
extends its solutions to a diverse clientele, encompassing large, medium, and small enterprises across
the three core pillars of employment with a workforce of 240,000, employability (supporting 550,000
students), and facilitating business operations with ease by serving more than 1,000 employers.

▪ General staffing looking robust: General staffing is the core business segment. It has added net
Investor insight: ~13,000 headcount in Q1FY24, taking the total billable headcount to ~237,000. Staffing revenue
grew 8% QoQ and 18% YoY. Margin has bottomed after the wage hikes in Q1FY24

▪ Government initiatives coming to the aid: The government's initiatives, such as the PLI scheme and
Make in India, have created momentum for the creation of new job possibilities in all industries.
▪ Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): It is expected to generate new jobs and
encourage employers to support formal employment. Other sectors, such as hospitality and
tourism, FMCG, healthcare & pharmaceuticals, renewables, automobile companies with an electric
vehicle presence, oil & energy, and infrastructure-related sectors, such as steel and engineering
and chemicals, are likely to drive white collar employment
▪ India’s staffing business operating on thin margin: Margin or India’s staffing business is low to mid
single digits while for other countries it is in the range of 10-12%. India is a price-sensitive market
and is largely unorganized at 95%. The global employment industry is also facing significant
challenges due to overlapping crises in recent years. Labor regulations in India are complex and
vary between States and the Centre
▪ Manufacturing demand pickup slows: Demand in manufacturing has been slower than expected,
and discussions are ongoing with manufacturing firms looking to hire 30,000-40,000 employees.
Land availability is a major issue in this sector

Analyst annotations: The demand environment for contract-based employment remains robust with corporate houses
Analyst annotations: finding it favorable for seamless operations at lower levels, saving time, efforts and cost. TEAM will be
the biggest beneficiary of it and remains in a sweet spot.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
Key financials:
FY20 50,613 18.0 952 1.9 350 (64.0) 20.5 6.3 15.4 129.8 43.5
FY21 48,091 (5.0) 985 2.1 735 110.0 43.0 12.6 15.2 61.9 42.0
FY22 63,519 32.1 1,424 2.2 360 (51.0) 21.1 5.7 16.5 126.2 29.1
FY23 77,238 21.6 1,225 1.6 1,065 196.0 62.3 14.8 14.7 42.7 33.8

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

193
Represented by:
Bhairvi Selarka, Head IR Tech Mahindra
Bloomberg Code: TECHM IN, Market Cap: INR 1,230bn, CMP: INR 1261 (as on 8 September 2023)

Executive digest: Part of Mahindra Group, Tech Mahindra (TECHM IN), founded in 1945, offers innovative and customer-
centric digital experience. The company is focused on leveraging next-generation technologies,
including 5G, blockchain, quantum computing, cybersecurity, and AI to enable end-to-end digital
transformation for global customers. TECHM has niche capability in the telecom vertical (~40% of total
revenue) with most of its businesses coming in from its 5G for the enterprise suite of solutions.

Investor insight: ▪ Demand recovery will not be sharp; portfolio rationalization ongoing: Accounts worth USD
60mn were pruned in Q2. Although Q1 was probably the bottom, weakness continues in telecom.
H2FY24 hopefully will be better than H1. The company is anticipating a 150bp margin expansion
QoQ in Q2FY24. Around 75% of wage hikes were conducted in Q1 while 25% of wage hikes will
be in Q2. It does not have a significant bench (due to hiring freeze over the past 12-15 months)
will help in margin recovery. There are no significant deal wins for Q2 recovery. Content
moderation AI projects were held up in Q1 but are now in the base and not expected to add
incremental revenue in Q2. Around 14% growth will not happen in FY24

▪ BPO business: The voice business makes up 7% of the BPO business. Other components include
chatbot, content moderation, and retail work during Q3, which is the festival season (Black Friday
sales), surge in AI-related work, and network services also are included in BPO.

▪ New CEO and strategy update: New CEO Mohit Joshi will probably articulate the strategy after
six months, probably. ESOP have been assigned to him. Tweaking subcontractors, managing
headcount, and addressing structural gaps will be part of the new strategy.

▪ One-offs mar Q1 performance: Q1 had an one-time impact from bankruptcy of one client and
wage hike (75% of total). The remaining wage hikes will take place in Q2. The second quarter will
see better performance

▪ Legal subsidiaries: It has 120-130 legal subsidiary companies. Around 75 subsidiaries are through
LCC (Lightbridge Communications Corporation) acquisition only.

Analyst annotations: TECHM has strong prowess in the communications vertical. Given the 5G upgrade cycle across the
globe, we are upbeat on its growth prospects, likely operating margin improvement and consistent
deal win momentum.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 5,32,902 19.4 80,287 15.1 48,569 9.1 55 17.7 16.3 22.5 18.6
FY24E 5,32,026 (0.2) 74,142 13.9 41,207 8.0 48 14.1 14.3 25.6 20.1
FY25E 5,61,837 5.6 93,607 16.7 57,172 10.5 67 17.6 17.4 18.4 15.9
FY26E 6,09,317 8.5 1,02,812 16.9 63,848 10.8 74 17.5 22.7 16.5 14.5

Source: Company, Elara Securities Estimate

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

194
Represented by:
Sachin Zute, CFO Zensar Technologies (Not Rated)
Hardik Sangani
Bloomberg Code: ZENT IN, Market Cap: INR127 bn, CMP: INR 558 (as on 8 September 2023)
Head of IR

Zensar Technologies (ZENT IN) is a leading company specializing in experience, engineering, and
Executive digest:
technology solutions. It is involved in the conceptualization, construction, and management of digital
products for clients within the hi-tech engineering, banking and financial services, insurance,
manufacturing, and consumer services sectors, all of which are part of the Forbes Global 2000. Its
expertise spans five key areas: experience services, advanced engineering services, data engineering
and analytics, foundation services, and application services. It utilizes top-tier platforms to empower its
clients, enabling them to stay competitive, adaptable, and innovative as it navigates the everchanging
landscape of opportunities and challenges. ZENT has 60 technology partners, including industry
leaders, such as Oracle, Salesforce, SAP, Guidewire, Automation Anywhere, Adobe, and UiPath. As a
member of the RPG Group, a conglomerate with a total revenue of USD 4.4bn, it is headquartered at
Pune, India. Its diverse team of 10,500 employees, representing 50 nationalities, operates from more
than 30 locations spanning North America, the UK & the EU, and South Africa.
Investor insight: ▪ Sales strategy transformation: The company has established a potent sales engine by deploying a
dedicated team in the high growth markets. This move has intensified efforts to acquire new clients
and maximize the potential of existing relationships. Notably, an updated incentive structure has
been implemented to drive performance
▪ Expanding service portfolio and market reach: Over the past two years, the company has
successfully introduced new service lines, poised to expand the total addressable market (TAM) as
demand conditions improve. Notably, multi-service line agreements, enhanced customer
experiences, and robust analytics offerings have gained significant traction. ZENT is accelerating
its go-to-market (GTM) strategy and actively forging alliances, including partnerships with
hyperscale technology providers, to drive growth

▪ Demand landscape: Currently, the demand landscape exhibits stability with no discernible ground-
level shifts. Short-term projects are experiencing delays amid sluggish decision-making processes.
Macroeconomic factors have placed stress on high-tech and consumer services demand while the
BFSI sector maintains resilience, bolstered by recent strategic acquisitions
▪ Margin details: The company reiterated its mid-teens EBITDA margin target in the near term.
Employee pyramid and cost optimization initiatives offer operating margin leverage. ZENT has
rolled out wage hike effective 1 July for all employees

▪ Generative AI: Generative AI remains an experimental technology with uncertain returns, further
compounded by the client's current system readiness limitations that hinder its adoption

The company may face difficulty in the medium term, primarily due to the deteriorating global
Analyst annotations:
economic situation and unfavorable conditions in key economies. Moreover, the stock is currently
trading at 18x FY25E projected earnings, which is in line with similar small-cap companies. We
believe growth prospects are already reflected in its current stock price.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 41,817 5.4 5,096 12.2 2,577 (16.0) 11.3 13.1 12.1 49.5 23.0
FY21 37,814 (9.6) 6,868 18.2 2,894 12.0 12.7 13.5 12.1 43.9 17.0
FY22 42,438 12.2 6,096 14.4 4,045 40.0 17.8 16.6 15.5 31.5 19.0
FY23 48,482 14.2 5,136 10.6 3,101 (23.0) 13.6 11.6 11.1 41.0 23.0

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ruchi Mukhija, [email protected], +91 22 6164 8583

Seema Nayak, [email protected], +91 22 4204 8687
Vaibhav Chechani, [email protected], +91 22 4204 8682

195
Media

196
Represented by:
Ashish Kanakia, CEO Cineline India (Not Rated)
Bloomberg Code: CNLI IN, Market Cap: INR 4bn, CMP: INR 122 (as on 8 September 2023)

Executive digest: Cineline India (CNLI IN), a part of the Kanakia Group, is a prominent entertainment company in India.
The firm is currently operating in the film exhibition and gaming businesses. It runs one of the largest
film exhibition chains in the country with 25 properties with 74 screens out of which 32 are in tax-free
locations.

Investor insight: ▪ CNLI sold the cinema business in CY12 of 150 screens. It restarted the cinema business post COVID
and is primarily focused on South and North India after taking back 23 leased screens from PVR in
March 2022

▪ It is concentrated in South and North India. Mumbai screens need renovation

▪ The company has added 70 screens this year

▪ The audience is unpredictable with Gadar 2 doing well. The movie collected INR 1bn in box office
from fourth to fifth weeks
▪ Globally, people are moving back to theatres from OTT. OTT apps are becoming ad-based models

▪ It has the largest presence in West and North India with 61 operational screens
▪ The company is looking to dispose of the hotel business by FY24-end depending on price with
168 keys. If the hotel sells at INR 3.25bn and debt of INR 1,120mn will get paid off and the rest will
be utilized cautiously

▪ Language-based share of movies screened - 60% Hindi, 35% regional and 5% English
▪ The company is planning for a 40% portfolio in South India. In South India, there is a cap on ticket
prices, and hence there is more occupancy. Food prices are at par with the rest of India

▪ Screens would be 75-80 by FY24-end. On a yearly basis, CNLI plans to add 20-30 screens. It wants
to reach 30% screen from South India in the next 2-3 years.

▪ India has fewer screens than the rest of the world with PVR being the first preference and Inox
being second (prior to COVID)
▪ Around 85% of India does not have a multiplex. India today has 3,000 screens vs China’s 80,000
with the highest admits to a screen in India

▪ Annual increase in screens across the country would be 500, out of which 220 would be
undertaken by PVR Inox

▪ CNLI also plans to come up with a revenue share model with developers in new malls
▪ It would have to invest INR 700-800mn to make 30 screens or INR 27mn per screen, which is less
or at par with PVR per screen capex of INR 30mn

▪ Pre-COVID, fixed rental basis theatre worked and post COVID, there is revenue share model in
many screens

▪ Under some circumstances, CNLI also has convinced developers to invest in theatres. This scenario
only occurs where there is less footfall in malls. Around 10-15% capex would come from
developers. And revenue share would be 18-19% at the most. Maintenance is over and above at
3-4%

▪ Rental income was INR 120mn from 23 screens from PVR in March 2022
▪ Revenue from film distribution is 52% in Week 1, 47%, 42% and 30% for the subsequent weeks.

▪ F&B revenue will likely rise sharply from the upcoming year

▪ The ongoing Hollywood strike would not hamper much as box office share is less

197
 ▪ Jawan could do INR 700mn on Day 1 in box office collections with so much advanced booking
▪ The company has a dynamic pricing model where ticket prices closer to show timing could be
higher than in earlier bookings. Average ticket price (ATP) could grow at 3-5% max

▪ The company can post a 15-20% EBITDA margin after paying for rentals depending on operating
leverage. ROCE was 14-15% as on Q1FY24
▪ Capex investment is INR 275-300mn in FY24. Capex would be sourced through internal accruals,
sale of hotel and debt

▪ Occupancy at 18-19% would be needed to reach EBITDA breakeven for 61 screens

▪ An IRR of 14-15% is at industry level at ROCE.

▪ Movies, such as Jailer and Gadar 2, are price insensitive. The company had special approvals to sell
Jailer tickets at higher price in South India
▪ Across India, 150-200mn watch movies. Unique participant number would be less because of
fewer screens

▪ The company has posted a 15% ROCE on 25% occupancy on a blended basis

▪ In Q1FY24, the company had a 30% occupancy rate

▪ BookMyShow (BMS) pays interest-free advanced ticket and convenience fee for the next three
years, which is released every 6-8 months. Convenience fee is 50% share between BMS and CNLI.
Online ticket share would be around 60-65%

▪ PVR has a deal to share 75% share in convenience fee without advance fee

Analyst annotations: CNLI revenue grew 98% YoY and 29% QoQ to INR 386.2mn in Q1FY24, led by strong growth in net
box office collections, up 105% YoY, coupled with high growth in net F&B collections, up 155% YoY.
Overall EBITDA stood at INR 45mn whereas EBITDA margin was at 11.7%, down 2,190bp YoY. CNLI
reported a loss of INR 47mn vs a loss of INR 69.2mn in Q1FY23.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 257 5.9 169 65.7 76 (22.5) 2.7 6.5 7.9 6.9 13.2
FY21 286 11.3 120 42.0 48 (37.2) 1.7 3.9 5.0 18.4 32.7
FY22 450 57.5 114 25.2 (355) (840.3) (12.2) (30.1) (3.2) (10.0) 70.8
FY23 1,406 212.3 249 17.7 17 (104.7) 0.5 1.3 5.4 230.7 25.2

Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

198
Represented by:
Sanjay Mani DB Corp (Not Rated)
National Head of
DB Connect at DB Corp Bloomberg Code: DBCL IN, Market Cap: INR 393.7bn, CMP: INR 222 (as on 8 September 2023)
Prasoon Pandey
Head of IR

Executive digest: DB Corp (DBCL IN) is India’s largest media conglomerate with a presence across print, radio and digital.
It is the only media conglomerate that enjoys a leadership position in several states & multiple
languages and it is either a clear leader or a formidable firm in all major markets.

Investor insight: ▪ Newsprint media has grown 1.5x of GDP historically

▪ Traditional categories, such as education, healthcare, jewelry, and government have been
advertising strongly, thereby contributing in double-digits to ad revenue

▪ Auto also has reported robust ad growth of 25-30% and is near to pre-COVID levels

▪ Unlike television and radio broadcasting, which is highly dependent on ad revenue from the
FMCG category, which contributes ~40% of ad revenue, print media’s ad revenue is diversified
across sectors

▪ In Tier II cities, reading newspapers is still a widespread habit

▪ DBCL has the largest editorial teams in the country among newspapers with average age of a
journalist at 35 years. This is in stark contrast to global newspapers, such as the Washington Post
and New York Times where journalists are around 55 years old on average based on DBCL’s survey

▪ Brands are reluctant to partner with politically affiliated newspapers

▪ 4-5% revenue growth in circulation in FY24 is expected

▪ In smaller towns and tier II &III cities, circulation has reverted to pre-COVID levels
▪ The company generated INR 12mn in revenue from digital subscription per month. Only the
ePaper is behind the paywall

▪ The mobile app has been launched in 60% of markets with no ads being shown
▪ Around 6,000-7,000 news stories (national, hyperlocal, or international) are uploaded daily on the
app,
▪ DBCL plans to initiate a metered paywall wherein a limited number of stories will be available for
readers to read for free. Beyond that number, a fee will have to be paid

▪ The digital business will incur an annual expenditure of ~INR 400mn, primarily on workforce
(~500 journalists and 100-200 software engineers & developers)

▪ It has no plans to increase pricing from the INR149 annual fee at present

▪ The app has 15mn monthly active users (MAU)

▪ The digital business is expected to contribute ~15-20% of DBCL revenue in the next 3-5 years with
an EBITDA margin of 75-80%

▪ Balance sheet strength of INR 7bn as on FY23 will be a differentiator for the company vs other
regional firms as it will be in a more favorable position to invest in growth avenues on a sustained
basis

▪ DBCL generates INR 3-4bn in free cashflow every year

▪ Newsprint cost is under control with prices falling to USD 530 per metric ton from USD 950 a year
ago. This will likely aid in bolstering EBITDA margin to 25%

▪ Russia is a key supplier of newsprint as freight cost is low and quality of newsprint is high
▪ But the company does not depend on a handful of newsprint suppliers; they have a diversified
network of suppliers from countries, such as the Netherlands, Belgium, and Austria

199
 ▪ Around 65-70% of newsprint is procured from India. Imported newsprint is used in the printing of
the first page, owing to higher strength and whiteness of the paper manufactured

▪ Domestic suppliers are strategically located in different states to reduce freight cost to the
manufacturing plant. Domestic newsprint prices are ~15% lower than imported newsprint

▪ Circulation is expected to increase with an advertising rate hike also planned

▪ Most festivals this year are in Q3; thus, 35-40% of revenue will arise from festivals and Q3 State
elections also being scheduled

▪ Focus would be on growing share of wallet during the upcoming festival season
▪ During past election period, government advertising had reached 18% of ad revenue with fixed
rates

▪ Google has started paying DBCL for news content for the past 2-3 quarters, with total amount
expected to reach USD 5mn on an annual basis

▪ With growing circulation volume in the past few quarters, an advertising rate hike is going to be
undertaken in the upcoming quarters

Analyst annotations: DBCL revenue grew 12% YoY and 4% QoQ to INR 5,542mn in Q1FY24, led by growth in advertising
revenue driven by education, real estate, government, jewellery, and health sectors, which continue
to use print as their preferred medium to advertise. Overall EBITDA stood at INR 1,165mn whereas
EBITDA margin was at 21%, up 700bp YoY, led by cost optimization measures coupled with declining
newsprint prices over the past 4-6 quarters while continuing to invest in digital initiatives. DBCL
reported a PAT of INR 788mn, up 154% YoY, led by a decrease in finance cost, flat YoY but down 12%
QoQ, and an increase in Other Income, up 267% YoY and 42% QoQ.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 21,871 (9.3) 4,841 22.1 2,750 0.4 15.7 15.7 15.0 5.1 3.3
FY21 14,759 (32.5) 3,048 20.7 1,414 (48.6) 8.0 8.1 7.7 11.1 5.0
FY22 17,289 17.1 3,069 17.8 1,426 0.8 8.1 7.7 7.5 10.5 3.9
FY23 20,765 20.1 3,283 15.8 1,691 18.6 9.5 8.8 8.7 10.2 5.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

200
Represented by:
SL Narayanan Group
CFO
Sun TV Network
Bloomberg Code: SUNTV IN, Market Cap: INR 244bn, CMP: INR 620 (as on 8 September 2023)

Executive digest: Sun TV Network (SUNTV IN) is engaged in producing and broadcasting satellite television and radio
software programming in the regional languages of South India. The company currently operates 33
televisions in four South Indian languages, predominantly to viewers in South India and abroad. The
other major satellite channels are Surya TV, Gemini TV and Udaya TV.
Investor insight: ▪ Local advertisers have started advertising in huge numbers on SUNTV channels, which is
bolstering TV ad revenue. Local advertisers are contributing 20-25% of total ad revenue currently.
Mid-single digit ad growth in advertising revenue is expected in FY25

▪ Strong performance of Jailer has bolstered the movie business. Another movie is coming up
starring Dhanush in January 2024. The company aims to produce two movies a year. It does not
like to experiment with movies and only aims to collaborate with reputed directors & actors

▪ Regarding Sun NXT, the company will continue to treat the platform as yet another method of
distribution. Management has stayed away from investing in exclusive content. Until the Group
sees a complete business case, it will not invest money in Sun NXT
▪ SUNTV has always been known for its high payout ratio. The company decides whether to
preserve cash for any merger & acquisition and then goes for dividend payout

▪ The company thinks if there is a good amount of liquidity, it becomes easy to negotiate with
companies while going for merger & acquisition

▪ IPL is a good way for unlocking value. The company is enjoying the benefits of high media rights
income. The average occupancy of stadium while SRH team plays at home ground is 80%
▪ The company has planned no major capex. If any opportunity were to arise for a merger &
acquisition, the company would be open to it. M&A will be mostly in the broadcasting sector
(media content related assets)

▪ SUNTV has never chased ratings at the cost of profitability. The company wants to build something
which is sustainable. Price hike in pay TV could increase PAT by 6-8%
▪ Currently, there is no cost for Sun NXT and the major purpose of the platform is only to bolster
revenue through the sale of content to large telcos. Organically recruited customers are a fraction
of monthly active users (MAU). Every telco is doubling its minimum guarantee as the user base is
rising. Revenue from large broadband companies and telcos is increasing and it gets counted in
pay TV revenue. As the user base goes up, the company expects more revenue from the telcos

Analyst annotations: SUNTV posted a deceleration of 1.2% YoY in ad growth in Q1. We expect ad growth momentum to
spike in H2, led by the festival season and launches. But growth may only be in mid to high single digits
YoY, due to: 1) ad spend moving to sports, backed by the Cricket World Cup and 2) inflationary strain
persisting for some commodities. Subscription revenue growth may be in the range of 6-7% YoY in
FY24E, as the full impact of price hikes due to NTO 3.0 may start to come in Q2. Higher IPL revenue at
INR 5.1bn, up 116% YoY, due to media rights renewal, was largely as we had expected. As per
management, the digital business, SunNXT, may see no major fresh investments, which may keep
EBITDA margin in a narrow band of 63.5-64.0% in the medium term.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 36,613 6.2 23,492 64.2 16,745 5.6 42.5 19.4 16.8 14.6 10.2
FY24E 42,401 15.8 27,115 64.0 20,024 19.6 50.8 20.9 19.8 12.2 8.0
FY25E 43,453 2.5 27,593 63.5 20,468 2.2 51.9 19.2 18.0 11.9 7.4
FY26E 45,398 4.5 28,805 63.5 21,402 4.6 54.3 18.1 17.0 11.4 6.6

Source: Company, Elara Securities Estimate

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

201
Represented by:
Sushant Dalmia
Chief Financial Officer
Tips Industries (Not Rated)
Bloomberg Code: TPS IN, Market Cap: INR 409bn, CMP: INR 318 (as on 8 September 2023)

Executive digest: Tips Industries (TPS IN) is one of India’s largest entertainment companies with a presence in music, film
production, film distribution and artist management. The company has developed a collection of
albums, which encompasses songs in most Indian languages. Apart from movie songs, it also includes
devotional songs, Indian pop, ghazals, instrumental, folk music and jokes.

Investor insight: ▪ The company faced hiccups due to piracy during 2003-06 when the whole industry suffered. The
industry came back through ring back tones. Overall industry is INR 80,000mn out of which INR
50,000mn is music labels. Then digitalization started with YouTube, Spotify and Ganna

▪ The real booster shot was data consumption rates going down. That has been the main driver for
the industry. In the past two years, it has doubled revenue to INR 1,870mn and reported 40% PAT
margin

▪ It has no debt on books and total cash on books is INR 1,170mn. TPS is a cash-positive company.
In FY23, ROCE was 60% and ROIC was 300%

▪ A unique thing about the company is writing off content soon without amortizing it

▪ TPS expects revenue to grow this year by 30%, PAT should grow by the same margin. Ideally, the
company would like to double total revenue in three years

▪ Around 75% of revenue comes from digital, which includes YouTube and Spotify while the rest
comes from TV and public performances. Two years ago, it demerged the films business

▪ TPS partnered with Warner and has given it distribution rights. Recently, it entered a deal with
Sony Publishing. All global publishing licenses will be published through them. It will receive
royalty from 200 global countries from Q4

▪ The company has 65% of the market for the 90s content. It has recreated a few songs as well
which were trending. In terms of streaming, YouTube contributes 45-50% of revenue, and it sees
healthy growth there
▪ There are 700mn smartphone customers in India and only 200mn listen to music. Data
consumption per month is 25GB. The company does not see a challenge in terms of digital

▪ It has distributors who take rights for a label for one year and then distribute it elsewhere.
Currently, this is 5% of total revenue

▪ TPS is not under any pressure to sell content cheap. As the company gets terms right, it will be
present on all platforms.
▪ In YouTube, long video is always revenue-sharing and short is a fixed-price contract. Consumption
is high in terms of short videos. Traction with Spotify is good

▪ Subscription is still at the nascent stage, which is showing good growth. There are 4-5mn
subscribers in the industry. Per stream, one can earn 2.5-3.0x revenue in subscription compared to
advertising. Ad monetization is a driver, but higher volume is key

▪ Every year, the company gets 10-15 hit songs (every year, 30-35 songs do well in the industry). The
company buys the content upfront and gives one short payment. Last year, it invested INR 600mn.
The entire basket when consolidated (other movies and own recreated songs) will have a payback
period of 4-5 years. TPS has good relationships with producers who provide good songs. It also
has an in-house production company, which makes songs. It started investing in content in Punjabi
and Tamil as well

▪ Last year, TPS added 890-900 songs. This year, the volume may be less. The company wanted to
have more songs since it was building channels. This year, it plans to focus on quality

▪ In terms of market share by revenue, the company moved from 3% from FY18 to 8% in FY23

202
 ▪ Zee Entertainment has 7,000-8,000 songs in its catalogue. It is the same figure with Sony. TPS has
30,000 songs in its catalogue. Around 80-85% of revenue would be through this catalogue

Analyst annotations: TPS reported a 54% rise in revenue at INR 526mn in Q1FY24 vs INR 342mn in Q1FY23. Expenses stood
at INR 176mn vs INR 118mn in the previous fiscal. EBITDA registered a 56% jump to INR 350mn vs INR
224mn in Q1FY23. EBITDA margin was at 66.6% vs 65.6% a year ago. Net profit rose 58% to INR
271mn. PAT margin stood at 51.5% vs 50.2% in Q1FY23.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 910 0.0 (20) (2.2) 113 0.0 0.8 14.0 26.2 12.0 (55.5)
FY21 905 (0.5) 552 60.9 431 281.6 3.4 47.9 47.4 14.2 10.2
FY22 1,356 49.8 862 63.6 641 48.8 5.0 63.4 62.2 43.9 32.2
FY23 1,868 37.8 1,019 54.6 764 19.1 5.9 64.2 62.3 24.7 17.4

Source: Bloomberg, Elara Securities Research

Analyst: Karan Taurani, karan.taurani @elaracapital.com, +91 22 6164 8513

Rounak Ray, [email protected], +91 22 4204 8684

203
Metals & Mining

204
Represented by:
Subir Sen
Head Investor Relations
Hindalco Industries
Sucheta Roy Bloomberg Code: HNDL IN, Market Cap: INR 1,070bn, CMP: INR 476 (as on 8 September 2023)
Investor Relations

Executive digest: Hindalco Industries (HNDL IN), established in 1958, is a part of the Aditya Birla Group. It is India’s
leading manufacturer of aluminium and copper with current capacity of ~1.3mn tonne and ~0.4mn
tonne, respectively. Apart from India operations, it has a global presence through its US subsidiary,
Novelis. It has a rolling capacity of ~4.1mn tonne and is the world’s largest producer of flat rolled
products.
Investor insight:
▪ As per management, Novelis has witnessed a gradual recovery in the past two quarters after a
subdued Q3FY23. It expects Novelis’ EBITDA to improve to USD 500mn by end-FY24.

▪ Capex work for greenfield rolling and recycling mill at US-based Bay Minette is on track and post
completion of this project, Novelis’ rolling capacity may rise from the current 4.1mn tonne to 4.7mn
tonne by FY26. Further, with debottlenecking projects, this may rise to ~5mn tonne in the next
three years.

▪ Novelis’ other key ongoing growth projects are: 1) 65,000 tonne hot mill debottlenecking and
automotive upgrades at Oswego in the US, 2) 50,000 tonne rolling debottlenecking project at
Yeongju in South Korea and 3) 70,000 tonne rolling debottlenecking project at Pinda in Brazil. All
these capacities are expected to commence operation in FY24.

▪ FY24 annual capex guidance for Novelis is USD 1.6-1.9bn, of which USD 300mn may be
maintenance capex (for India business, it is ~INR 45-50bn).

▪ HNDL consumes ~16mn tonne of coal, of which ~12mn tonne is linkage coal availed from Coal
India, 2mn tonne is from the two operating mines and the balance is imported or secured through
e-auction.

▪ HNDL’s Jharkhand-based Chakla coal mine, with a capacity of 4.5mn tonne, is expected to be
commissioned by FY26. Meanwhile, regulatory approvals are pending for the Odisha-based
Meenakshi coal mine, which has a capacity of 10-12mn tonne. However, the management expects
the recently acquired Odisha-based Meenakshi West coal mine, with a capacity of 7-8mn tonne,
to become operational within the next three years. HNDL’s captive coal capacity may reach +20mn
tonne once all these mines become operational.

▪ The Chakla and Meenakshi coal blocks are commercial mines, and related cost is lower than
linkage coal cost. HNDL might surrender Kathautia and Gare Palma coal blocks in the future as the
royalty cost is higher.

We believe Novelis’ profit is set to improve as the peak of destocking is behind. For India operations, the
Analyst annotations:
margin of copper business may improve as Q1FY24 margin was hit by maintenance. The margin for
domestic aluminium business may be bolstered by a dip in coal prices. Thus, HNDL is well placed to post
further improvement going ahead. Also, gradual completion of growth capex and continued focus on
strengthening value-added products and backward integration bode well.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 2,232,020 14.4 226,660 10.2 100,683 (27.0) 45.4 11.6 10.2 10.5 6.3
FY24E 2,098,865 (6.0) 264,227 12.6 132,365 31.5 59.6 13.5 12.1 8.0 5.5
FY25E 2,236,889 6.6 282,829 12.6 142,036 7.3 64.0 13.4 12.4 7.4 5.3
FY26E 2,358,379 5.4 293,878 12.5 146,178 2.9 65.8 12.6 12.0 7.2 5.1

Source: Company, Elara Securities Estimate

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

205
Represented by:
Rajeev Goyal, VP,
Corporate Finance &
Jindal SAW (Not Rated)
Treasury Bloomberg Code: JSAW IN, Market Cap: INR 119bn, CMP: INR 371 (as on 8 September 2023)

Executive digest: Jindal SAW (JSAW IN), a part of the OP Jindal Group, commenced operations in 1984. Its diversified
product portfolio includes longitudinal submerged arc welded (LSAW) pipes, helical submerged arc
welded (HSAW) pipes, ductile iron (DI) pipes, and seamless pipes and tubes made of carbon, alloy, and
stainless steel. Its diverse product range caters to various industries and applications, showing its
capability in serving different market segments.

Investor insight: ▪ JSAW derives most of its revenue from the water sector, accounting for 70-75% of its total revenue.
This is followed by the oil & gas sector, which contributes 20-25% of revenue, and the rest comes
from the industrial sector and other sources.

▪ Orderbook remains range-bound at ~USD 1.4bn for the past two quarters. As on 11 August 2023,
total orderbook stood at ~USD 1.4bn, which consists of USD 1,391mn for iron & steel pipes and
USD 7mn for pellets, with ~34% orderbook accounting for the global markets.

▪ Standalone net debt rose from ~INR 30.6bn as on end-Q4FY23 to ~INR 44bn as on end-Q1FY24,
largely on account of Sathavahana Ispat acquisition and higher working capital requirement.

▪ Management believes the government’s sustained emphasis on the water sector will play a key
role in driving demand for JSAW’s pipes. Also, expected stability in oil prices and healthy exports
outlook augur well for demand in the oil & gas sector.

▪ JSAW is unlikely to incur any significant capex in the near term. Instead, its focus will be on
debottlenecking and rationalization of existing capacity.

▪ Management says any positive cashflow, resulting from a favorable outcome in the NTPC case is
likely to be utilized for improving JSAW’s balance sheet, with primary focus on working capital
management.

▪ Abu Dhabi-based subsidiary performance was weak in FY23. However, there has been a recovery
in its performance during Q1FY24 and management expects further improvement.

▪ JSAW is likely to expand its pellet capacity from the current 1.5mn tonne to 1.7mn tonne.

Analyst annotations: We believe strong domestic demand, driven by the government’s focus on the water segment, is
expected to be a positive trigger. Simultaneously, improved prospects for the oil & gas industry, along
with access to a healthy export orderbook, are likely to support the future performance of JSAW.

Revenue YoY EBITDA EBITDA PAT YoY EPS RoE RoCE

Key financials: Y/E March
(INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%)
FY20 116,270 (4.0) 15,110 13.0 5,548 (34.7) 17.4 8.5 12.0

FY21 106,498 (8.4) 12,414 11.7 3,188 (42.5) 10.0 4.6 11.2

FY22 132,949 24.8 14,020 10.5 4,117 29.1 13.0 5.7 12.2

FY23 178,412 34.2 16,653 9.3 6,324 53.6 19.9 8.3 14.4

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

206
Represented by:
Shreya Sharma
Head, Investor Relations
Jindal Stainless (Not Rated)
Bloomberg Code: JDSL IN, Market Cap: INR 405bn, CMP: INR 492 (as on 8 September 2023)

Executive digest: Jindal Stainless (JDSL IN) with a current capacity of ~3mn tonne is the leading stainless steel producer
of India. It has two plants at Hisar in Haryana and at Jajpur in Odisha.

Investor insight: ▪ JDSL with industry-leading stainless steel capacity of ~3mn tonne enjoys ~50% market share in
India.

▪ Over the years, stainless steel demand has shifted from the significant use in utensils to other
sectors, such as automobiles, railways, and transport (ART), architecture, building and construction
(ABC), process industries and other areas.

▪ Stainless steel is available in 200 series, 300 series and 400 series with ~50% demand for 300 series
and the rest is for 200 series and 400 series.

▪ As per management, one coach of train consumes 9-10 tonne of stainless steel while one coach
of Vande Bharat train consumes 14-15 tonne of stainless steel. Thus, there is huge demand
potential from the Railways considering upgradation of coaches, and addition of Vande Bharat
trains, metros, and wagons.

▪ Its plants are well equipped to produce any series in any proportion based on market dynamics,
which helps the company to cater to markets more efficiently.

▪ Margin of different series’ products depends on end-user applications. Management says products
which have direct competition with imported products usually earn a lower margin. JDSL’s 20-
25% of domestic sales come from this low-margin segment.

▪ Earlier, JDSL was primarily dependent on the US- and EU-based stainless steel scrap with ~70%
imports from these regions. However, it is targeting to import scrap from nearby countries or
procure domestically. This has not only helped JDSL to reduce freight cost but also improve
operational flexibility.

▪ As per management, acquisition of a 49% stake in Indonesia-based New Yanking will offer raw
materials security for operations, as it will have a stake in the business of Nickel pig iron.

▪ Management says JDSL has witnessed improvement in performance on the back of 1) focus on
process improvement, 2) supply chain rationalization, 3) modern equipment for wider
applications, and 4) improving demand from high-margin segments.

▪ JDSL has an option to increase capacity in Odisha from the current 2.1mn tonne to ~3.2mn tonne.
However, Brownfield expansion at its Haryana-based plant is unlikely due to land availability
constraints.

We believe JDSL with industry-leading capacity and access to diversified product categories is well
Analyst annotations:
positioned to tap healthy demand. Further, its continued focus on improving raw materials security
and cost optimization efforts bode well for performance.

Key financials: Y/E March

Revenue YoY EBITDA EBITDA PAT YoY EPS RoE RoCE
(INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%)
FY20 127,584 (4.8) 11,366 8.9 713 (49.9) 1.5 2.7 12.1
FY21 121,248 (5.0) 14,242 11.7 4,192 487.8 8.6 14.2 19.5
FY22 211,138 74.1 29,871 14.1 18,813 348.7 37.8 44.8 44.8
FY23 356,970 69.1 35,861 10.0 21,145 12.4 25.7 24.7 30.7

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

207
Represented by:
Vishal Chandak
Head Investor Relations
Jindal Steel and Power
Bloomberg Code: JSP IN, Market Cap: INR 712bn, CMP: INR 698 (as on 8 September 2023)

Executive digest: Jindal Steel and Power (JSP IN), promoted as Orbit Steel by the late OP Jindal in 1979, is a leading
domestic steelmaker with current capacity of 9.6mn tonne.

Investor insight: ▪ The management believes the expected fall in China’s steel production in H2CY23 coupled with
any stimulus announced by the Chinese government may be the key drivers for the global
commodity market and may lead to stabilization in prices.

▪ According to the management, JSP's current product mix consists of ~67% long steel and ~33%
flat steel. However, following the completion of ongoing expansion projects, the share of flat steel
is expected to rise to 70-75%, while it may fall to 25-30% for long steel.

▪ As per management, for an integrated player, it is suitable to have a higher share of flat steel in
the business if it is a primary steelmaker. On the other hand, long steel is seen as primarily suitable
for secondary steelmakers.

▪ The management expects access to captive coal to lead to several benefits such as: 1) lower
procurement cost, 2) decline in logistics cost due to use of conveyor belts for coal supply, 3)
increased hot metal and DRI production with utilization level of coal gasifier reaching ~100% and
4) access to government concessions of 50% in revenue share for promotion of coal gasification.

▪ The addition of pellet capacity may not only help JSP improve its margin but also provide additional
revenue opportunities as JSP may consider selling additional pellet in the open market.

▪ According to the management, JSP's Angul plant in Odisha has substantial land parcels available.
Thus, if JSP decides, it has room to expand its crude steel capacity to 27mn tonne at this location.

▪ JSP’s current net debt-EBITDA stands at ~0.7x and it aims to maintain net debt-EBITDA below 1.5x
across the commodity cycle.

▪ JSP may continue to export a few premium products such as plates due to high-margin nature of
such products. However, JSP’s key focus would be to maximize sales in the domestic market.

Analyst annotations: While weak steel price remains a drag for near-term margin, multiple levers such as expected benefits
from the fall in iron ore as well as coal prices, access to captive iron ore and recent commissioning of
Odisha-based Angul pellet plant should help JSP keep a check on margin. Also, rising share of captive
coal consumption post gradual start of own coal mines and phase-wise completion of announced
capacity expansion augur well for future performance.

Key Financials: Y/E

March
Revenue
(INR mn)
YoY
(%)
EBITDA
(INR mn)
EBITDA
Margin (%)
Adj PAT
(INR mn)
YoY
(%)
Fully DEPS
(INR)
RoE
(%)
RoCE
(%)
P/E
(x)
EV/EBITDA
(x)
FY23 527,112 3.2 96,999 18.4 39,452 (55.3) 39.3 10.6 11.3 17.8 7.8

FY24E 558,299 5.9 109,213 19.6 57,836 46.6 57.5 13.9 13.4 12.1 7.0

FY25E 626,213 12.2 134,321 21.4 78,180 35.2 77.8 16.1 15.6 9.0 5.5

FY26E 712,312 13.7 153,377 21.5 87,959 12.5 87.5 15.5 15.4 8.0 4.3

Source: Company, Elara Securities Estimate

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

208
Represented by:
Ashwin Bajaj
Group Head, Investor
JSW Steel
Relations Bloomberg Code: JSTL IN, Market Cap: INR 1,972bn, CMP: INR 816 (as on 8 September 2023)
Urvil Bhatt
DGM, Investor Relations

Executive digest: JSW Steel (JSTL IN), incorporated in 1982, is part of the JSW Group. Today, it is one of India’s largest
steelmakers with domestic steelmaking capacity of ~28mn tonne as of end-FY23. Its plants are located
in Karnataka, Maharashtra, Tamil Nadu, Odisha, and Chhattisgarh.

Investor insight: ▪ JSTL is in the process of augmenting its domestic steelmaking capacity from ~28mn tonne to
~37mn tonne by FY25, with: 1) 7.0mn tonne expansion at Vijayanagar (Karnataka), 2) 1.5mn
tonne expansion at Bhushan Power and Steel (BPSL) and 3) 0.3mn tonne expansion through de-
bottlenecking at Jindal Ispat Special Products (JISPL).

▪ Beyond 37mn tonne, JSTL is expected to augment its capacity to 50mn tonne by FY31, primarily
through brownfield expansion of ~5mn tonne each at BPSL, Dolvi (Maharashtra) and Vijayanagar
(Karnataka).

▪ Apart from this, JSTL also has the option to set up greenfield electric arc furnace (EAF) plant at
Kadapa (Andhra Pradesh) of 1.0-3.0mn tonne capacity and greenfield expansion of ~13mn tonne
capacity at Jagatsinghpur (Odisha).

▪ As per the management, China-based steel mills have been experiencing negative margins for the
past few months and this may continue to strain mills’ near-term profitability. Further, China is
expected to witness steel production cut going ahead, with potentially sharper cuts expected
during the winter season.

▪ Impact of coking coal price movement comes with a two months lag. Thus, the management
expects the benefit of lower coking coal prices to be visible in Q2FY24, and coal consumption costs
to be lower by USD 45-50 per tonne.

▪ JSTL’s export share should remain in the range of ~12-15% with major focus on exporting value-
added products.

▪ JSTL has won six iron ore blocks in recent auctions – two each in Karnataka, Goa and Maharashtra.
Mines situated in Karnataka and Goa are set to commence operations soon, but Maharashtra-
based mines may take time to start operations.

▪ JSTL is setting up a slurry pipeline in Odisha to supply iron ore from its captive mines to the port in
Odisha.

Analyst annotations: We believe better demand, utilization ramp-up and inventory reduction may enable JSTL to post
healthy volume growth in Q2FY24 despite monsoon-induced constraints. Further, capacity
augmentation from the current ~28mn tonne to ~37mn tonne by FY25 bodes well for long-term
volume growth. We believe the expected benefit from lower coking coal and iron ore prices and other
cost-saving measures should enable JSTL to keep a check on margin.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 1,636,460 13.8 185,470 11.3 37,303 (82.0) 15.5 5.6 7.8 52.5 13.7
FY24E 1,755,331 7.3 292,995 16.7 91,676 145.8 38.2 12.4 13.6 21.4 9.1
FY25E 2,079,043 18.4 395,342 19.0 153,117 67.0 63.8 17.0 17.9 12.8 6.7
FY26E 2,307,882 11.0 447,208 19.4 189,200 23.6 78.8 17.6 19.3 10.4 5.7

Source: Company, Elara Securities Estimate

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

209
Represented by:
Kaushal Bengani,
Deputy General
Maharashtra Seamless (Not Rated)
Manager, Investor Bloomberg Code: MHS IN, Market Cap: INR 77bn, CMP: INR 573 (as on 8 September 2023)
Relations & Finance

Executive digest: Maharashtra Seamless (MHS IN), part of D.P. Jindal group was incorporated in 1988. It is the largest
manufacturer of seamless pipes and also has electric resistance welded (ERW) pipes and renewable
energy segments.

▪ MHS is a market leader in seamless pipe category with 55% market share followed by Jindal Saw,
Investor insight:
which holds a market share of 20-25% and ISMT, with a market share of 10-15%.

▪ MHS has a diversified value-added product portfolio offering: 1) subsea sour service seamless pipes,
2) cylinder pipes, 3) cold drawn pipes and 4) drill pipes.

▪ MHS primarily supplies pipes to the oil & gas sector, boiler segment and general engineering.

▪ As on 25 July 2023, MHS’ orderbook stood at INR 17.25bn, comprising 51% orders from ONGC
and Oil India and the balance 49% orders from other products and towards export markets.

▪ Recently, MHS has received an order worth ~INR 1.57bn to supply seamless pipe, of which ~INR
1.06bn is from Oil India and ~INR 0.51bn from IOCL.

▪ MHS has planned a total capex outlay of ~INR 8.5bn in FY24-26: 1) ~INR 1.8bn on heat treatment
and finishing lines and INR 0.8bn on solar power plant at Telangana, 2) INR 3.5bn for upgrading
hot mill at Nagothane (Maharashtra) and 3) remaining may be utilized for replacement expenses
as well as other capital expenses at Maharashtra-based Mangaon and Nagothane units.

▪ MHS’ Telangana-based unit has a current manufacturing capacity of 200,000 tonne. However, it
can finish only 100,000 tonne. Hence, to fully utilize the available manufacturing capacity, MHS is
setting up heat treatment and finishing facilities at a capex of ~INR 1.8bn.

▪ There was volume loss in Q1FY24 as MHS undertook a preventive maintenance shutdown at its
Telangana unit for 15 days. However, there are no further maintenance shutdowns planned for
FY24.

▪ The management expects ~5-10% YoY volume growth in FY24.

▪ As per management, MHS is strongly positioned in seamless pipe business and does not expect
any major threats from competitors due to many factors that act as barriers to entry. These include
high capital cost, high working capital requirement, stringent technical requirements for multiple
API certifications, qualification criteria of PSUs etc., which can make it challenging for new players
to enter the market.

Analyst annotations: We expect execution of large orders in the domestic market in the next 2-3 quarters. Efforts to
penetrate new export markets should enable MHS to report healthy performance, going ahead. Also,
entry barriers would restrict new entrants and aid MHS in retaining its market share.

Key Financials: YE Revenue YoY EBITDA EBITDA PAT YoY EPS ROE ROCE
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%)
FY20 26,448 (13.3) 5,405 20.4 839 (64.2) 6.3 2.7 7.1
FY21 23,083 (12.7) 4,654 20.2 980 16.9 7.3 3.0 6.8
FY22 42,108 82.4 6,123 14.5 6,917 605.6 51.6 19.0 15.1
FY23 57,164 35.8 10,403 18.2 7,648 10.6 57.1 17.5 22.1

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

210
Represented by:
Percy Birdy
Chief Financial Officer Welspun Corp (Not Rated)
Salil Bawa Bloomberg Code: WLCO IN, Market Cap: INR 100bn, CMP: INR 382 (as on 8 September 2023)
Head of Group IR
Goutam Chakraborty
Head of IR

Executive digest: Welspun Corp (WLCO IN) is a flagship company of Welspun World. Over the years, it has transformed
itself from being a manufacturer of line pipes to becoming a conglomerate with interests spanning
various industries. Its diversified business segments currently comprise line pipes, ductile iron (DI) pipes,
specialty steel bars and tubes, TMT rebars, and building materials.
Investor insight: ▪ WLCO’s business is categorized into two verticals pipe solutions and building materials. Within the
pipe solutions vertical, it offers three products: 1) traditional line pipes, 2) DI pipes, and 3) stainless
steel (SS) pipes & tubes.

▪ Within the building materials vertical, which represents a newer addition to WLCO’s business
portfolio, it offers: 1) TMT rebars and 2) water storage tanks, interiors, electrical boxes with
acquisition of Sintex-BAPL. Also, it plans to venture into plastic pipes, thus expanding its offerings
within the building materials.

▪ As per management, Sintex was previously positioned as the market leader in the water tank
segment; however, its market share contracted over the past few years. Management is positive
about the growth potential of Sintex; thus, focus will be on regaining market share and improving
overall performance over the next two years.

▪ WLCO has a ~50% holding in Welspun Specialty Solutions (WSSL), which is into stainless steel
pipes and bars. Management believes stainless steel is a value-added product vs carbon steel and
has huge growth potential. Management says WSSL has potential to report revenue of INR 20bn
with an EBITDA margin of ~15% by FY26.

▪ In FY23, apart from Sintex, WLCO acquired specified assets of ABG Shipyard. This acquisition has
provided ~150,000 tonne of scrap materials. Currently, 35-40% of this scrap has already been
monetized, and management expects to fully monetize the remaining scrap by end-FY24 or
Q1FY25. Further, WLCO does not have plans for any major capex in this business at the moment.

▪ Management believes there is strong demand for pipes in the domestic market. Simultaneously,
the US, which is another important market, is displaying signs of recovery, which bodes well for
the pipe division.

▪ WLCO targets to increase revenue ~50% YoY to ~INR 150bn and ~90% YoY jump in EBITDA to
~INR 15bn in FY24.

▪ While several acquisitions led to a rise in debt and contraction in the return ratios, with investments
are over, management expects to reduce net debt to ~INR 2.0bn in FY24 vs ~INR 11.4bn in FY23
and to achieve ROCE of ~16% in FY24 vs ~7% in FY23.

Analyst annotations: We expect healthy demand prospects. Its presence across diversified product categories should enable
WLCO to report healthy performance. Also, improved performance coupled with the absence of any
major capex will support its deleveraging efforts.

Key financials:
YE Revenue YoY EBITDA EBITDA PAT YoY EPS ROE ROCE
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%)
FY20 97,590 12.5 11,600 11.9 6,355 - 24.1 21.1 32.1
FY21 71,526 (26.7) 7,951 11.1 7,676 20.8 29.4 21.0 21.3
FY22 65,051 (9.1) 4,717 7.3 4,388 (42.8) 16.8 10.3 11.0
FY23 97,581 50.0 4,846 5.0 2,067 (52.9) 7.9 4.5 7.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Ravi Sodah, [email protected], +91 22 6164 8517

Saurabh Mitra, [email protected], +91 22 6164 8546
Bhavi Shah, [email protected], +91 22 6164 8521

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Oil & Gas

212
Represented by:
Paras Savla, MD Deep Industries (Not Rated)
Rohan Shah, Group CFO
Bloomberg Code: DEEPIND IN, Market Cap: INR 17bn, CMP: INR 260 (as on 8 September 2023)

Executive digest: Deep Industries (DEEPIND IN) primarily operates in the oil & gas services business. Key business
segments are gas compression services, workover & drilling services, gas dehydration, conditioning &
processing and integrated project management services. The company has a presence across value
chain from upstream to downstream services.

Investor insight: ▪ Gas Compression: The company has an 85% market share in outsourced gas compression. This
business segment contributes 37-38% in revenue mix and major clients include ONGC, Gujarat
State Petronet and Vedanta. Asset turnover is ~0.45x. Currently, capacity utilization is 85% and the
majority of the fleet & equipment are imported. The segment has been growing at 15-20% in the
past 3-4 years, owing to new firms and new discoveries. The US is currently outsourcing 70% of its
gas compression services while India is outsourcing a mere 40% of its gas compression activity in
FY23. It is expected India to gradually move toward US standards
▪ Rig services: The services portfolio started in CY06 and the business contributes 33% in revenue
mix. The company has eight workover rigs and three drilling rigs. It is looking to add two drilling
rigs, which can potentially generate INR 500mn revenue from FY25. On the expenses front, the
major cost is fuel expenses as most rigs are diesel operated

▪ Orderbook: Orderbook has been growing for the past two years and stood at INR 11.6bn during
the past quarter. The company expects orderbook growth to continue for the next 5-6 quarters

▪ Others: 1) The bidding pipeline of INR 4.5bn is expected to convert over 4-5 years, 2) expected
capex in FY24 is INR 1.0bn, 3) the company has started providing services, such as mud logging,
cementing, and hydrofracturing, for the first time in India and looking to expand these services
further, and 4) it is looking to revive Dolphin offshore with barge upgradation to “Classic”, which
can potentially generate revenue of INR 750-1000mn on a yearly basis.

Analyst annotations: DEEP remains strong in gas compression services. Further, expansion into drilling and integrated
services can provide significant opportunities. Further, the Dolphin offshore acquisition can provide
new avenues for growth in offshore drilling services in the international markets.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 2,618 1,255 48 311 4.9 1.8 (0.3) 53.4 14.9
FY21 1,937 (26) 803 41 648 108 10.1 6.2 (0.2) 25.6 21.3
FY22 3,216 66 1,148 36 724 12 11.3 10.3 8.3 22.9 14.5
FY23 3,413 6 1,362 40 1,253 73 19.6 10.3 9.0 13.3 12.7

Source: Bloomberg Company, Elara Securities Research

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

213
Represented by:
Sashi Menon, ED of F&A
Niraj Priyadarshi
Gail India
GM of DFS Bloomberg Code: GAIL IN, Market Cap: INR 829bn, CMP: INR 128 (as on 8 September 2023)
Manoj Kumar Sinha
CM of F&A-MAC
Ashutosh Shukla
Sr Manager of F&A-MAC
GAIL India (GAIL IN) is India’s leading natural gas company with diversified interests across the natural
Executive digest:
gas value chain of trading, transmission, LPG production & transmission, LNG regasification,
petrochemicals, city gas and E&P. It owns and operates a network of 15,600km of natural gas pipelines
across the country. The company commands a market share of ~70% in gas transmission and +50% in
gas trading in India via LNG imports as on FY23. GAIL and its subsidiaries & JV also have a significant
presence in city gas distribution (CGD). It is expanding its presence in renewable energy (RE).

Investor insight: ▪ Transmission: Volume growth in the transmission segment will be driven by offtake from fertilizers,
CGD and completion & restoration of pipelines and 100% utilization of the petrochemicals plant.
The company expects transmission volume growth of 25-30mmscmd over FY23-26

▪ FY24 volume growth would come from the Dadri pipeline restoration of 4.0mmscmd, RCF,
Baruani, Sindri & HURL fertilizer plants ramp-up of 5.0mmscmd, petchem plant utilization
increase of 1.5msmcmd and CGD of 1.0mmscmd

▪ FY25 volume growth would come from refineries of Paradip, Barauni & Haldia of
~7.0mmscmd and CGD of 3.0mmscmd
▪ FY26 volume growth would be from Indradhanush Gas Grid (IGGL at 3.0msmcmd), CGD
(3.0mmscmd) and Guwahati refinery (2.0mmscmd)
▪ Marketing: GAIL guided gas marketing volume of 97mmscmd in FY24, 102mmscmd in FY25 and
107mmscmd in FY26. Gazprom volume is flowing as per contract in FY24. On the supply front,
50% of marketing volume is procured from domestic supply and 40% of volume procured from
international contracts at fixed marketing margin

▪ Pipeline projects: Projects which are expected to be completed during FY24-25 are as follows:
Mumbai-Jharsuguda, Kochi-Mangalore-Bengaluru, Durgapur-Haldia, Barauni-Guwahati, Dhamra-
Haldia, Haridwar-Dehradun and Northeast gas pipelines. Capex for the Kochi-Bengaluru pipeline
will be INR 60bn with volume potential of 12mmsmcd
▪ Petrochemicals: GAIL plans to increase utilization of the Pata plant at ~40% to 100% during FY24

Analyst annotations: Outlook: With new fertilizer plants, new CGD areas, higher petchem plant utilization is likely to see
surge in transmission volume by ~10mmscmd every year over FY23-26. The marketing segment is also
likely to see a surge in volume with upcoming major LNG export capacity globally. Petchem plant
utilization is set to go up from 40% to 100%, subject to LNG prices remain at or below USD 10/mmbtu.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 984,284 59.0 138,296 14.1 103,646 111.9 15.6 20.3 15.6 8.1 6.5
FY23 1,513,965 53.8 66,868 4.4 52,894 (49.0) 7.9 9.5 7.2 15.9 13.5
FY24E 1,408,137 (7.0) 107,134 7.6 76,136 43.9 11.4 13.2 9.1 11.0 8.5
FY25E 1,436,476 2.0 133,566 9.3 92,868 22.0 13.9 14.7 10.1 9.0 6.8

Source: Company, Elara Securities Estimate

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

214
Represented by:
KK Chatiwal, MD Indraprastha Gas
Sanjay Kumar, CFO
Bloomberg Code: IGL IN, Market Cap: INR 334 bn, CMP: INR 482 (as on 8 September 2023)

Executive digest: Indraprastha Gas (IGL IN) is a leading natural gas distribution company in India. Its operates primarily
in NCT-Delhi. It provides services to 2.37mn households, 5,108 commercial customers, 3,913 industrial
customers and 1.7mn vehicles as on March 2023. IGL has 1,868km of steel pipelines and 792
compressed natural gas (CNG) stations with compression capacity of 9.7mn kg/day.

Investor insight: ▪ Outlook: IGL reiterated volume guidance of 9.0mmscmd by end-FY24. Daily volume has picked up
from Q1FY24. However, overall Q2FY24 sales volume would be intermittently affected due to rains
in July and the G-20 Summit in September. EBITDA margin is expected to be in the range of INR
7-8/scm for the medium to long term. Incremental sales volume will be contributed equally by
Delhi-NCR and newer geographical areas (GA). The company plans to add 125 CNG stations in
FY24 with planned capex of INR 12-13bn. In the bus segment, the Delhi Integrated Multi-Modal
Transit System (DIMTS) contribution in CNG sales is likely to stagnate or fall with electric vehicles
(EV) penetration

▪ Gas sourcing and pricing: Administered price mechanism (APM) gas allocation is 87% currently.
However, it is likely to reduce as new firms grow. IGL has contracted 2.2mmscmd liquefied natural
gas (LNG), which includes 0.1mmscmd high pressure & high temperature (HPHT) gas. The
company currently has no spot LNG purchase. APM allocation coupled with contracted LNG is
adequate to cover sales up to 9.0mmscmd. Blended landing price of LNG is ~USD 13/mmbtu,
which is revised depending on Benchmark prices. Currently, the fixed component in LNG contract
is higher than earlier. Industrial piped natural gas (PNG) is at a discount to propane by ~5%

▪ Volume mix: Buses (Delhi Transport Corporation, DIMTS and school) comprises 19-20% of sales
mix as on FY23. Rewari GA sales is currently at 0.2mmscmd and is expected to add 0.1mmscmd
further in FY24. Estimated potential of Rewari is 1.0mmscmd over the next 4-5 years. Kanpur,
Gurugram and Muzaffarnagar are expected to add 0.1mmsmcd each. Among associate and JV
companies, sales volume of Maharashtra Natural Gas (MNGL) and Central UP Gas (CUGL) is
1.3mmscmd and 0.3mmscmd, respectively. MNGL sales mix is similar to IGL’s

Analyst annotations: EV not a major threat in the medium term: CNG running cost is lower than that of EV. Moreover, EV
charging infrastructure might be a challenge in Delhi and large-scale shift to EV is unlikely in the next
2-3 years. The company is in discussions with government bodies regarding interstate buses fleet
conversion to CNG, which would provide growth opportunity among long haul vehicles. Despite
government push toward EV over fossil fuels, the CNG vehicle conversion rate was 16,800 in August,
which is near the historical peak, vs 14,800 in July 2023.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 77,100 56.0 18,811 24.4 13,150 30.8 19.2 19.0 16.7 24.9 17.4
FY23 141,459 83.5 20,398 14.4 14,450 9.9 21.1 20.4 17.8 22.7 16.3
FY24E 142,814 1.0 28,329 19.8 18,604 28.7 27.1 22.4 21.7 17.6 11.8
FY25E 154,660 8.3 30,635 19.8 21,239 14.2 30.9 21.6 19.9 15.4 10.9

Source: Company, Elara Securities Estimate

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

215
Represented by:
Rajesh Patel, CFO Mahanagar Gas
Rajesh Wagle
SVP of Marketing Bloomberg Code: MAHGL IN, Market Cap: INR 104bn, CMP: INR 1,057 (as on 8 September 2023)

Executive digest: Mahanagar Gas (MAHGL IN) is a leading natural gas distribution company in India. It operates in
Mumbai, Mumbai suburban, Thane and Raigad districts. It provides services to 2.2mn households and
4,589 industrial & commercial customers. It currently operates 312 CNG stations.

Investor insight: ▪ Outlook: Volume growth in the medium term is expected to be 5-6% while EBITDA margin will be
lower from the Q1FY24 level. Long-term EBITDA margin is expected to be INR 8-10/scm. Estimated
potential of newly acquired geographical areas (GA) is 1.2 mmscmd in the next eight years. Capital
expenditure is slated at INR 7bn for FY24. The company plans to set up 50 CNG stations in FY24

▪ Gas sourcing and realization: For compressed natural gas (CNG), administered price mechanism
(APM) gas allocation is 87% as on H1FY24. For industrial and commercial customers, the company
has three term LNG contracts. While two term contracts are linked to Henry Hub benchmark, one
is linked to Brent crude. Currently, CNG prices are at a discount of 16% and 45-50% to diesel and
petrol, respectively. MAHGL is trying to expand further in the commercial segment. Additionally,
for industrial customers, it offers a 10% discount if they switch from furnace oil (FO) to piped
natural gas (PNG) for a three-year period
▪ Raigad GA & Unison Enviro acquisition: Sales volume in Raigad GA is currently 0.12mmscmd.
Regarding the Unison Enviro acquisition, MAHGL will apply for the transfer of assets in October
and approval is likely to be received after 1-2 months. Total acquisition cost (including liabilities) is
~INR 7bn. Expected capex in these GA is INR 1bn annually over the next 7-8 years
▪ Others:

• 600 MSRTC buses will be inducted into MGL GA

• BEST bus fleet is 2,900 and contributes 7-8% in CNG sales mix. BEST’s 2,000 buses run on CNG
and it has placed order of 200 new CNG buses
• B2B LNG sales commenced in MAHGL GA

Analyst annotations: APM gas price cap at USD 6.5/mmbtu and spot LNG price in the range of USD 8-10/mmbtu works in
favor of MGL. Brent crude price has increased to ~USD 90/bbl, thus, the price gap between CNG and
petrol & diesel would remain in favor of MAHGL. Vehicular conversion is reverting to its peak levels.
Margin visibility also remains strong with pricing back in favor.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 35,602 65.4 9,243 26.0 5,969 (3.7) 60.4 16.6 14.6 17.4 11.1
FY23 62,993 76.9 11,842 18.8 7,901 32.3 80.0 19.1 16.6 13.2 8.6
FY24E 65,633 4.2 16,149 24.6 10,938 38.4 110.7 22.3 20.4 9.5 6.3
FY25E 67,970 3.6 14,607 21.5 9,873 (9.7) 100.0 17.7 15.7 10.5 7.0

Source: Company, Elara Securities Estimate

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

216
Represented by:
Sachidananda
Maharana, CGM of F&A
Oil India
Tonmoy Dutta Bloomberg Code: OINL IN, Market Cap: INR 307bn, CMP: INR 281 (as on 8 September 2023)
GM of Operations

Oil India (OINL IN) is a fully integrated exploration and production government Maharatna company.
Executive digest:
It has a strong presence in Northeast India. The company has its onshore operations in Assam,
Arunachal Pradesh, Mizoram, Tripura, Nagaland, Odisha, Andhra Pradesh and Rajasthan while
offshore operations at the Andaman Islands, Kerala-Konkan and KG shallow waters. Besides India, it
has a participating interest in eight countries across the globe. Numaligarh Refinery (NRL, Not Listed)
is a subsidiary of OINL with a 69.63% stake.

Investor insight: ▪ Capital expenditure: OINL plans to spend INR 49bn in FY24 where 55% of budgeted capex will be
spent toward drilling and seismic activities. The company has drilled 42 wells in FY23 and plans to
drill 75 wells each in FY24 and FY25. OINL’s equity contribution to NRL expansion is INR 15bn. For
city gas distribution (CGD) JV with Assam Gas Company, a combined capital outlay of INR 35bn,
is expected

▪ Overseas investments: Two major overseas investments are in Mozambique and Russia. Operator
of Mozambique plans to restart work in November and first production is expected by FY27. The
company has invested USD 1bn in Russian assets of Vankor and Taas. Taas investment has been
recovered via dividend while Vankor investment is recovered up to 75-78% through oil equity.
Venezuelan asset has not seen much development owing to the political scenario

▪ Production and realization: Historically, crude oil realization has been in the range of USD 0.5-
1.0/bbl against the Brent crude benchmark. On the natural gas realization, Directorate General of
Hydrocarbons (DGH) guidelines would allow premium of 20% over administered price mechanism
gas (APM) for some fields are awaited. Natural gas output also depends on offtake from customers
in the Northeast, and Indradhanush Gas Grid pipeline network (IGGL) is expected to facilitate gas
production once it commences

Analyst annotations: Outlook: OINL targets to achieve annual production of more than 4mn tonne of crude oil and 5.0bcm
of natural gas over the next two years. The company has signed MoU with NTPC and is looking into
geothermal energy, compressed biogas and hydrogen. Its green energy plans primarily involve solar
and hydrogen verticals, as the company plans to meet net zero targets by CY40

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 300,112 33.5 105,004 35.0 67,363 97.2 62.1 24.8 14.8 4.5 4.3
FY23 410,389 36.7 152,681 37.2 98,544 46.3 90.9 28.5 17.8 3.1 3.0
FY24E 386,488 (5.8) 141,733 36.7 91,835 (6.8) 84.7 23.1 14.9 3.3 3.2
FY25E 407,557 5.5 146,055 35.8 95,374 3.9 88.0 22.3 14.6 3.2 3.1

Source: Company, Elara Securities Estimate

Analyst: Gagan Dixit, [email protected], +91 22 6164 8504

Reena Shah, [email protected], +91 22 6164 8591
Amogh Deshpande, [email protected], +91 22 4204 8664

217
Power, Capital Goods & Railways

218
Represented by:
Anshuman Ashit, IR Inox Wind (Not Rated)
Manish Garg, SGM
Bloomberg Code: INXW IN, Market Cap: INR 65bn, CMP: INR 201 (as on 8 September 2023)

Executive digest: Inox Wind (INXW IN) is a fully integrated company in the wind energy market and provides end-to-
end turnkey solutions. It has capacity to manufacture 1,900MW of nacelle and hubs, 1,600MW of
blades, and 600MW of towers for 2MW wind turbine generator (WTG).

Investor insight: ▪ Type certificate for the state-of-the-art, 3.3MW WTG received from TUV SUD

▪ Orderbook stands at 1,327MW as on June 2023 across 2.0MW and 3.3MW WTG, which provides
execution visibility over FY24-25

▪ Additional large order inflow of 250MW during the Q1 FY24 and 150MW of follow-up order from
NTPC and 100MW of order from ABEnergia Renewables, both for 3.3MW WTG

▪ The company will execute close to 500 MW of orderbook over the course of this fiscal year

▪ As on 31 March 2023, net debt was about INR 12.5bn. It aims to become a net debt-free company
over the next 12 months.

▪ INWX sees no major capital expenditure for the next 2-3 years. There will be a need to incur
additional capex once the market progresses to 8-10GW.

▪ Management targets 12-15% of EBITDA margin in FY24

Analyst annotations: We remain positive on the business prospects, given the wind industry is expected to witness a
turnaround this year, owing to the favorable policy changes. Notification from the government to issue
bids for cumulative capacity of 10GW each year over FY24-28 is slated to reinforce & fasten pace of
capacity additions in the wind space. Inox wind would benefit from innovative abilities, efficiency, rising
government support, and industry consolidation.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%)
FY21 7,107 (7.0) (1,654) (23.3) (3,059) (9.0) (13.8) (20.4) (5.9)
FY22 6,246 (12.1) (3,104) (49.7) (4,258) (39.0) (19.3) (27.2) (8.4)
FY23 7,370 18.0 (2,638) (35.8) (6,853) (61.0) (20.5) (37.4) (10.5)

Source: Bloomberg, Company, Elara Securities Research

Analyst: Rupesh Sankhe, [email protected], +91 22 6164 8581

Ragini Pande, [email protected], +91 22 6164 8500

219
Represented by:
Rajeev Gupta
ED (Finance) and CFO
KEI Industries
Kishore Kunal Bloomberg Code: KEII IN, Market Cap: INR 227bn, CMP: INR 2,518 (as on 8 September 2023)
AVP of Corporate and
Company Secretary

Executive digest: Established in 1968, KEI Industries (KEII IN) is involved in cable manufacturing and EPC businesses. The
company has a well-diversified product basket (EHV, MV & LV power cables) and business model
across retail (domestic & exports) and institutional customers in sectors, such as power, refineries,
railways, and fertilizers. KEII’s manufacturing facilities are at Bhiwadi, Chopanki, Pathredi, Silvassa and
Chinchpada. It is setting up a plant at Sanand, Gujarat, which is likely to be operationalized by FY25,
apart from Brownfield capex being undertaken at the Silvassa and Bhiwadi plants in FY24. In addition,
it is involved in EPC work for electrification, including laying cables, setting up transformers, and last-
mile connection.

Investor insight: Key channel categories

▪ Dealer & distribution (retail): It made 44% revenue contribution in FY23. Management aims to scale
it to 47% in FY24 and 50% in FY25. Currently, KEII’s network stands at 1,900 dealers, 25,000 retail
outlets, and 200,000 architects & influencers. It aims to grow dealer network by 8-9% every year.
Category EBITDA margin stood at 11% in FY23, with an inventory level at 15 days
▪ Domestic institution: It formed 30-35% of total revenue in FY23 with an EBITDA margin of ~10%.
KEII caters to 2,000 institutions
▪ Exports: It formed 10% of total revenue in FY23 with an EBITDA margin of ~11%. KEII supplies
cables to 50 countries and recently added geographies, the US and the EU. It aims to increase
exports to 16-17% of total revenue in FY24
▪ Extra high voltage (EHV) cables: It formed 6-7% of total revenue in FY23 with an EBITDA margin
of 15%. Orderbook as on June 2023 stood at INR 17bn and execution timeline would be nine
months. Management wants to reduce this business due to high working capital requirement and
utilize these funds in ramping up the retail business
Growth and capex guidance
▪ Domestic cables and wires industry is expected to grow at a 10-12% CAGR over the next five
years, led by infra capex, renewables, and strong housing demand
▪ Revenue growth over FY240-25 could be in the range of 16-17%
▪ KEII is adding a Greenfield facility in Gujarat, as it currently faces capacity constraints in the cables
segment. It is expected to operationalize by FY25, post which management expects to grow at a
higher rate in FY26
▪ The first phase of capex would be toward low voltage cables, followed by medium voltage and
then EHV
▪ Capex is set to be funded by internal accruals
▪ Total Greenfield capex outlay would be INR 10bn to be spent over FY23-25. It would help in
generating additional revenue up to INR 45bn
▪ EBITDA margin in FY24 is expected to be at 10.5-11.0%. Management expects margin to expand
to 12.5% by FY27-28, led by operating leverage and higher retail segment contribution
Exports
▪ Key geographies for KEII are the African Union, the Middle East, and Australia.
▪ In August, it received certification for selling cables in the US
▪ Demand is strong in the US (transmission capex), the EU (renewables), the African Union (infra &
transmission), and the Middle East (refinery capex)
▪ Key foreign firms in the US market: India (Polycab, KEI & Apar), Vietnam, South Korea (LS Cable &
Systems), and the UAE (Ducab)

220
 EHV market in India
▪ Domestic EHV cables market size stood at INR 25bn as on FY23, of which ~INR 13bn is the
contribution from domestic firms and the rest are imports
▪ KEII and Universal Cables are leading firms in this segment while Finolex Cables is a smaller firm

Analyst annotations: The domestic wires and cables industry size stood at ~INR 650bn as on FY23, and it expected to grow
at 10-12% in the next five years. Robust domestic demand and rising opportunities for India’s firms in
the international market would aid in leading firms, such as Polycab and KEII, to achieve high teens
revenue growth in the upcoming years. KEII is well poised vs peers to leverage India’s infrastructure
investment. This along with growing retail franchisee, a lean WC cycle and capacity spike should meet
demand.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 69,123 20.7 7,062 10.2 4,774 26.9 52.9 19.9 19.2 47.6 31.6
FY24E 83,766 21.2 9,304 11.1 6,380 33.6 70.7 22.1 21.6 35.6 24.1
FY25E 1,03,245 23.3 12,371 12.0 8,529 33.7 94.6 23.7 23.0 26.6 18.0
FY26E 1,25,648 21.7 15,365 12.2 10,627 24.6 117.8 23.5 22.7 21.4 14.3

Source: Company, Elara Securities Estimate

Analyst: Harshit Kapadia, [email protected], +91 22 6164 8542

Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

221
Represented by:
Rajendra Goyal, CFO NHPC
Saroj Roy, DGM
Bloomberg Code: NHPC IN, Market Cap: INR 530bn, CMP: INR 53 (as on 8 September 2023)

Executive digest: NTPC (NTPC IN) is the largest hydropower development organization in India, with capabilities to
undertake activities from conceptualization to commissioning of hydro projects. Robust growth on
account of a healthy project pipeline is expected in the near term.

Investor insight: ▪ Currently, 7.0GW of projects are operational as on June 2023, and 10.5GW are under-construction
projects. It has an additional 8.8GW projects under various stages of survey and investigation.

▪ YoY commissioning schedule: Parbati II (800MW) & two units of Subansiri Lower (500MW) in FY24;
Rangit IV (120MW) in FY25; six units of Subansiri lower (1500 MW and Kiru (634MW) in FY26;
Pakal Dul (1,000MW), Kawar (540MW), Ratle (850MW) and Teesta VI (500MW) in FY27

▪ Dibang, which is the largest hydro project of 2,300MW capacity, will be commissioned in FY32.

▪ Capex allocated and deployed, respectively: Subansiri at INR 212bn & INR 193bn; Parbati at INR
111bn & INR 103bn; Rangit IV at INR 9.38bn & INR 7.50bn, Kiru at INR 43bn & INR 12bn, Pakal
Dul at INR 81bn & INR 33bn, Kawar at INR 45bn & INR 5bn, Ratle at INR 53.0bn & INR 4.5bn, and
Teesta VI at INR 57bn & INR 29bn

▪ The tariff for pumped storage projects (PSP) is in the range of INR 7-8 per unit with a ROE of 16.5%.
Capex required per MW is in the range of INR 70-80mn

▪ While conventional hydro projects operate at 16.5% ROE, the realized ROE of operational projects
is 19-20% as it includes plant availability factor (PAF), unscheduled interchange (UI) and secondary
energy incentives

▪ Regulated equity, which currently stands at INR 133bn, will reach INR 280bn by FY27 post
commissioning of under-construction capacity

▪ Plant availability factor (PAF) for run-on-river (ROR) projects with pondage is higher than ROR
projects without pondage. Blended PAF is around 77% with an average PAF is 84%

▪ PSP MOU is Andhra Pradesh of 3,000MW and Maharashtra at 7,000MW

Analyst annotations: We remain positive on the company’s business prospects. Given better visibility of under-construction
projects, we expect performance to improve from the current levels.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 83,538 (1.8) 46,787 56.0 35,377 9.0 3.5 10.9 8.9 13.9 15.8
FY23E 93,163 11.5 53,706 57.6 39,782 12.5 4.0 11.5 7.0 12.4 14.1
FY24E 1,19,429 28.2 70,108 58.7 40,839 2.7 4.1 11.2 7.8 12.1 10.8
FY25E 1,52,004 27.3 92,005.0 34.2 48,390 18.5 4.8 12.4 9.7 10.2 8.4
Source: Company, Elara Securities Estimate

Analyst: Rupesh Sankhe, [email protected], +91 22 6164 8581

Ragini Pande, [email protected], +91 22 6164 8500

222
Represented by:
Rahul Mittal, CMD RITES
Krishna Agarwal
Director Finance Bloomberg Code: RITE IN, Market Cap: INR 132bn, CMP: INR 548 (as on 8 September 2023)

Executive digest: Rail India Technical and Economic Service or RITES (RITE IN), a government-owned company and a
Miniratna (Category – I) Schedule ‘A’ public sector enterprise, was incorporated on 1974. It is a leading
firm in the transport consultancy and engineering sector in India. RITE is the only firm, which provides
diversified services and geographical reach under one roof. It has deep expertise as a transport
infrastructure consultancy organization in the railway sector. The company also offers consultancy
services across other infrastructure and energy market sectors, including urban transport, roads &
highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and
renewable energy. It services public sector undertakings, government agencies and large private
sector corporations, in India and abroad. It has undertaken projects in 55 countries, including Asia, the
Africa Union, Latin America, South America and the Middle East.

Investor insight: Consultancy to remain key to success

▪ RITES is primarily a consultancy services company with a 49% revenue contribution from this
segment in FY23. Within consultancy, there are two major segments: project management
consultancy (PMC) and quality assurance (QA). QA forms ~30% of the consultancy revenue in
FY23
▪ Within QA, 60% of contribution is from Indian Railway (IR). In April 2023, IR opened tenders on
competitive basis, which led to 80% reduction in quotes. The impact on books started from August
2023; from Q2, the full impact would be visible on margin
▪ Despite a significant hit from the IR QA segment, RITES aims to offset the loss by adding more non-
railway clients.

▪ With its certifications, RITE is targeting the EU, the Middle East and the African Union to secure
more business

Other takeaways
▪ All exports of rolling stock orders are on a competitive basis
▪ Highway and metro consultancy orders are on a competitive basis. In the railways business, only
some State enterprises place orders on a nomination basis while tendering is on a competitive
basis

▪ On an overall basis, 80-90% of total tenders in the consultancy segment are on a competitive basis

Analyst annotations: With sharp correction in realization from the IR QA, we expect margin to drag over FY24-25. However,
rising infrastructure capex bodes well for consultancy and turnkey solution businesses. global
opportunity in export of. RITE designated as nodel agency for export rolling stock, which started to
play out in the international arena. Despite short - medium term challenges, we are positive on the
long term growth prospects of RITE driven by infrastructure capex and export in rolling stock.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY23 26,283 (1.3) 7,449 28.3 5,420 5.0 22.6 21.3 21.4 24.3 16.5
FY24E 26,111 (0.7) 6,023 23.1 4,508 (16.8) 18.8 17.3 17.4 29.2 20.2
FY25E 34,628 32.6 8,074 23.3 6,138 36.2 25.5 23.1 23.1 21.5 14.9
FY26E 40,906 18.1 9,641 23.6 7,347 19.7 30.6 26.0 26.0 17.9 12.4

Source: Company, Elara Securities Estimate

Harshit Kapadia, [email protected], +91 22 6164 8542

Analyst: Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

223
Represented by:
Kasturi Soundararajan, IR Tata Power
Rajesh Lachhani, IR
Bloomberg Code: TPWR IN, Market Cap: INR 859bn, CMP: INR 269 (as on 8 September 2023)

Executive digest: Tata Power (TPWR IN) is one of the largest integrated power companies with a presence across
generation, transmission, distribution, and new-age energy solutions. The firm together with its
subsidiaries & joint entities has generation capacity of 14,294MW as on June 2023, of which 38%
comes from clean energy sources. It serves a diverse set of consumers by generating and distributing
power from sources, including thermal, hydroelectric, and renewable energy (RE).

Investor insight: ▪ PLF of the Mundra plant has improved to 70-75% as the plant operated under Section 11 and will
continue to do that until 30 September and may get extended if heat conditions prevail

▪ It sets a sustained debt-equity ratio guidance at 1.1x

▪ There is huge opportunity potential from the captive projects from its Group companies. Tata Steel
would require 10GW to transition from a fossil to RE power, which can benefit Tata Power

▪ Tata Power Renewable Energy will set up a 12MW on the site solar project at Tata Motors. It will
also set up a 28.12MW green energy plant for Sanyo Steel Manufacturing, a 6.0MW captive solar
plant for Chalet Hotels and a 26MW captive solar plant for Neosym Industry

▪ Currently, it has 5GW (4GW of solar and 1GW of wind) of renewables portfolio. It has 3.7GW of
RE projects in the pipeline and targets to reach 15GW of RE capacity in the next 4-5 years

▪ It plans to add 2.0-2.5GW of renewable capacity every year

▪ There is huge opportunity in the smart meters business. It has won an order for deployment of
1.8mn smart meters in Chhattisgarh. It has already installed 650,000 smart meters

▪ Orderbook for the utility scale and rooftop EPC stands at 4,200MW worth INR 176bn of which
third-party EPC accounts for 57% in value

▪ The company has set a capex target of INR 120bn for FY24 with a focus on RE projects

▪ Around 1.5-1.6GW land bank availability is in place

▪ Management is positive for the distribution business. It is the only private distribution company
with exposure to state. The distribution business is expected to benefit from privatization

Analyst annotations: We remain positive on the company’s business prospects. We expect performance to improve from the
current levels with rapidly growing generation capacity at its disposal, and a strengthened focus on
EV and RE businesses.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 428,157 31.9 75,112 17.5 21,560 45.2 6.7 9.6 9.6 30.1 11.5
FY23 551,091 28.7 77,056 14.0 38,095 76.7 11.9 13.2 8.7 17 10.6
FY24E 524,031 (4.9) 93,345 17.8 36,780 (3.5) 11.5 11.3 10.4 20 9.8
FY25E 565,099 7.8 96,630 17.1 39,703 7.9 12.4 10.9 10.6 18.5 8.8

Source: Company, Elara Securities Estimate

Rupesh Sankhe, [email protected], +91 22 6164 8581

Analyst:
Ragini Pande, [email protected], +91 22 6164 8500

224
Represented by:
KS Patel
Vice Chairman & MD
Voltamp Transformers (Not Rated)
Bloomberg Code: VAMP IN, Market Cap: INR 53bn, CMP: INR 5,295 (as on 8 September 2023)

Executive digest: Voltamp Transformers (VAMP IN) is primarily into manufacturing oil filled power & distribution
transformers. Its product portfolio comprises oil-filled power and distribution transformers up to 160
megavolt ampere (MVA), 220 kilovolts (KV) class, and dry type transformers up to 12.50 MVA, 33 KV
class. Production facilities are at Makarpura and Savli in Vadodara, Gujarat, with an aggregate installed
capacity of 14,000 MVA.

Investor insight: ▪ Sales volume rose 13,000 MVA in FY23 from 12,000 MVA in FY22, up 8.3% The overall market
sentiments are favorable, and the company sees an opportunity to increase its market share
gradually over the upcoming years. It has estimated topline of INR 14-15bn in FY24

▪ VAMP is focused on increasing its profitability through increasing its project base, with major focus
on projects with execution certainty, cashflow guarantee, and follows a cost-plus approach for
pricing. It does not focus on projects with large execution periods or retention money. It has a
diverse client base, with its presence across 40 sectors, and 10% of its business catered to PSU or
government companies

▪ The company has a steady focus on improving its balance sheet and cashflow positions. This is
reflected in the fact it is debt-free, and it has a low receivable balance of INR 2.26bn and low
payable balance of INR 30mn for sales of INR 13.5bn

▪ VAMP targets a 12% EBITDA margin, with 10-12% sales volume growth in FY24. Operating margin
stood at 17% in Q1FY24
▪ Capacity expansion plans: Currently, the company has 14,000 MVA of capacity, which is adequate
to meet current demand. However, VAMP plans to expand capacity by 4,000MVA during FY24-
25, whereby it will utilize additional capacity for green energy projects. Additional capacity should
ensure sustainable growth for the upcoming 5-6 years

▪ Cash-rich company: It adds INR 2bn of surplus cash to its cash balance every year. It currently has
INR 7-8bn of cash, which it has invested in overnight mutual funds and liquid investments on
which it earns a yield of 6.5-7.0%. Further, the aforementioned capacity expansion plan will be
funded out of surplus cash balances, and no borrowings will be taken. It has a healthy dividend
payout ratio of 32%, with a gradual increase in the payout ratio estimated

▪ Service business: VAMP is looking to scale up its service business, from INR 460mn in FY23 to INR
600mn in FY24, and an estimated to rise to INR 1bn over the next 4-5 years. The service business
will be a zero cash outlay, low or no fixed asset and low employee cost business

▪ Exports: The company has a yearly exports revenue of INR 300-500mn. However, due to high
freight and logistical cost involved in exporting transformers, higher exports are not feasible

Analyst annotations: VAMP’s disciplined approach has allowed it to earn a consistent return, with a favorable outlook
expected. Its capacity expansion and service business scaleup plans, aided by its large cash balance,
could help to achieve large sustainable sales and profit growth in the upcoming years. However, peers
are sitting on a significant amount of unutilized capacity, which if utilized, could result in price
competition, dragging margin. Additionally, with the entry barriers in the industry being low, the
company will have to ensure it is able to retain its market share while also maintaining its competitive
edge.

225
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 8,586 3.6 1,231 (5.6) 868 4.8 88.3 12.5 15.7 10.0 7.2
FY21 6,923 (19.4) 1,499 21.8 915 5.4 110.9 11.6 14.4 9.9 7.2
FY22 11,272 62.8 1,819 21.4 1,271 39.0 131.3 15.0 19.4 14.9 10.8
FY23 13,851 22.9 2,710 48.9 1,966 54.6 197.6 19.5 25.2 13.6 9.9

Source: Bloomberg, Company, Elara Securities Research

Analyst: Harshit Kapadia, [email protected], +91 22 6164 8542

Mudit Kabra, [email protected], +91 22 4204 8611
Nemish Sundar, [email protected], +91 22 6164 8500

226
Retail & Textile

227
Represented by:
Samir Agrawal
CSO, Business Head, AMD
Arvind
Bloomberg Code: ARVND IN, Market Cap: INR 44bn, CMP: INR 171 (as on 8 September 2023)

Executive digest: Arvind (ARVND IN), incorporated in 1931, is one of the largest manufacturers and exporters of denim
fabric and woven fabric from India. Headquartered at Ahmedabad in Gujarat, it is the flagship
company of the Sanjay Lalbhai Group. ARVND also manufactures garments, voiles, and knits. It has
forayed into advanced materials business which focuses on three verticals, including human
protection, industrial products and composites. The company also in the business of providing telecom
related services, real estate and environmental solution businesses.

Investor insight: ▪ Demand uptick visible: ARVND has started seeing improvement in demand from the global
markets; however, sustainability of trend will be determined by post-Christmas consumer
shopping. The advanced materials division (AMD) customers remain sticky and 20% growth is
expected to sustain. It also aims to ramp up the garment segment to deliver 20% growth

▪ Utilization and capex: The denim segment quarterly run rate is expected to be 14-15mn m. The
woven segment is already operating at optimum utilization and the garment segment is gradually
ramping up. It is incurring capex of INR 6bn in FY24 and FY25 in the ratio of 2:1 between textiles
and AMD. The AMD segment is already running at 90-95% utilization and the upcoming capex
will double capacity to deliver growth. Capex in AMD will trigger when it reaches 80-85%
utilization. Debottlenecking efforts is also likely to take garment capacity to 62mn pieces from
45mn pieces currently

▪ Debt reduction in focus: With increasing base of the AMD segment, working capital needs are
bound to rise; however, ARVND will continue to reduce long-term debt from cash inflows. It is able
to source short-term debt at 5.5% and long-term debt at 9.0%

▪ Duty advantage via FTA to aid in growth: India’s products face 10% duty disadvantage due to
Generalised Scheme of Preference (GSP) benefits enjoyed by under-developed countries, such as
Bangladesh, Sri Lanka and Pakistan. With FTA efforts at play, India will be able to compete with
these countries

Other highlights
▪ Current captive consumption of denim is 15% and for woven is 7-8%. It aims to increase this with
garment capacity ramping up
▪ It aims to increase textile margin to 12%

▪ ARVND took advantage of labor incentives provided by States to set up garment units

▪ The company is approved under Technical Textile PLI; however, HSN codes in which the company
deals in are not a form of PLI, due to which talks between the company and the Textile Ministry
are underway. Regardless of the incentive, ARVND is already doing capex and any incentive from
PLI will be a plus, says managsement

Analyst annotations: ARVND’s asset-light strategy of investing in high asset turnover business and exiting the non-core
businesses & assets should strengthen balance sheet and ROCE. We expect free cashflow of INR 7.6bn
during FY24E-25E. We expect a sales CAGR of 8.5%, an EBITDA CAGR of 14.8% and a PAT CAGR of
25.9% over FY23-25E

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 80,099 57.9 8,281 10.3 2,474 1,177.4 9.5 8.7 7.8 18.0 7.4
FY23 83,825 4.7 8,277 9.9 3,458 39.8 13.2 11.0 10.4 12.9 7.0
FY24E 83,096 (0.9) 8,468 10.2 3,695 6.9 14.1 10.7 9.3 12.1 6.8
FY25E 98,638 18.7 10,907 11.1 5,485 48.4 21.0 14.5 11.9 8.2 5.1

Source: Company, Elara Securities Estimate

Analyst: Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Vishal Panjwani, [email protected], +91 22 4204 8663

228
Represented by:
Ankit Gupta
President of Marketing
Dollar Industries (Not Rated)
Ajay Patodia Bloomberg Code: DOLLAR IN, Market Cap: INR 27bn, CMP: INR 471 (as on 8 September 2023)
Chief Financial Officer

Executive digest: Dollar Industries (DOLLAR IN) was established by Dindayal Gupta in 1972. The company is one of the
leading firms in the men’s innerwear market in India with a 10-12% market share. It manufactures and
distributes products with its flagship brand, Dollar Big Boss. It has a presence across social media,
eCommerce platforms and is also available offline in 29 states in India, and internationally in countries,
such as the UAE, Oman, Basra, Jordan, Qatar, Kuwait, Bahrain, Yemen, Iraq, Myanmar, Nepal and
Nigeria. It is the only hosiery and knitwear company in India with a fully integrated production unit.

▪ Demand scenario: Demand has improved compared to the past year. Thermals demand is
Investor insight:
expected to improve this year as the category faced a 30% decline in the previous year. Order flow
remains good for the upcoming months, especially in thermals

▪ Sales: DOLLAR aims to reach INR 20bn in sales by FY25. Category-wise breakdown as on FY23 is
as follows: Dollar Man at 42%, Dollar Always at 40%, socks at 2%, thermals at 6% and Force Next
at 3.5%. It continues to innovate in categories; however, 80% revenue still comes from 20% stock
keeping units (SKU). In its first year of launch in FY24, the raincoat category has performed well
with sales in the range of INR 100mn and it aims to rise 4x in the current year. Missy has turned
out to be INR 1,250mn brand with the launch of women’s wear, lingerie, and athleisure
▪ ASP: The company has already given notice to dealers, and it will likely take a 1.0-1.5% price hike
on products in September. In the past year, average selling price (ASP) declined 12-13% in a phase-
wise manner and has bottomed
▪ Input cost scenario: Exports requirement of cotton has been low in recent months and cotton
prices have been stable in the range of INR 55.000-60,000 per candy. DOLLAR has sustained raw
material stock for 7-10 days only. Although cotton is moving in the range of +/- 10% from 60,000
per candy levels but yarn prices remain stable
▪ Margin: Margin is likely to take a hit in Q2, led by cotton inventory loss and high cost thermal
inventory in Q3. Gross margin is likely to be in the range of 31.0-32.5% for the current year.
Category-wise, EBITDA is 25% for raincoats, 18-20% for athleisure, 12-15% for Big Boss and 8-10%
for the economy segment. Overall EBITDA is likely to be in the range of 11-12% in the current year,
13-14% in the next year and aims to be 15-16% thereafter

▪ Inventory: Due to low thermal sales in the past year, the high cost impact of inventory is expected
to flow in the current year. Although the company’s inventory is high, channel inventory remains
low. Dead stock is minimal as it is into basic and core categories. It aims to bring inventory to 90-
95 days optimum level and net working capital (NWC) days to 120 days

▪ Project Lakshya: Around 250 dealers are already enrolled until Q1FY24 and contribute to 30% of
revenue. Like for Like (LFL) volume growth stood at 20% vs a mere 4% YoY volume growth at the
company level. The project is launched in most states except Uttar Pradesh and West Bengal,
which remains key ground. It aims to bring 60-70% dealers under the Scheme by CY26

▪ Dealer financing: Dealer financing initiatives are moving in the right direction with companies able
to pull money from these accounts within 10-15 days of bill generation. Around 280 dealers have
already registered in the scheme. Dealers get a 2% incentive on orders on purchases enrolled
under the Scheme. The financing is provided at a competitive rate, which is currently at 8.5%. For
any deposits with a company, the dealer also gets interest at a rate higher than the market. It is in
talks to partner with a second banking firm. ICICI Bank is the current partner and talks are
underway with HDFC Bank. This financing stands in contingent liability and is in the range of INR
120-150mn

229
 ▪ Expansion: With 800,000 touchpoints in the industry, DOLLAR aims to reach 400,000 touchpoints.
It has shortlisted 200,000 touchpoints to date and 130,000 touchpoints are enrolled with the
company. It has a network of 1,200 distributors and a single dealer & distributor takes care of 300-
350 retailers. It has facilitated retailers with a tele-calling system where they can call and post an
order directly. Each tele-caller receives 150-180 calls per day. Receivables from retailers are
allocated and agents get 1.5-2.0% commission. There are 15-20 agents in India and churning turns
are negligible

▪ Capex update: Warehousing capex is already completed and yarn-related capex is expected to be
completed by end-FY24 as there was a delay in supply from Laxmi Machine Works. The
warehousing capex can meet the needs of the next five years as the current warehouse has 50%
additional space and can be expanded within six months. With new spindle capacity, it may further
add 6MW solar capacity to meet the needs of additional capacity. DOLLAR saves INR 5/unit of
power consumption while using solar sourced energy

▪ Brand visibility: DOLLAR already has 19 Exclusive Brand Outlets (EBO) in Tier II & III cities and will
continue to expand to create strong brand visibility. It plans to keep promotion expenses in the
range of 6.0-6.5% of sales going forward.

Analyst annotations: DOLLAR has embarked on a strategy to tap hosiery retailers and gain extensive penetration with a
focus on creating connections at the retailer level. It is also focused on premiumization of its products
via athleisure, women’s innerwear & outerwear products and premium brand, Pepe. We are positive,
given its expansion plans and distribution strategy of penetrating Tier II & III cities.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 9,481 (7.8) 1,046 11.0 573 (22.1) 10.1 13.2 15.9 10.8 7.5
FY21 10,158 7.1 1,381 13.6 853 48.8 15.0 17.3 18.6 15.3 10.3
FY22 13,184 29.8 2,198 16.7 1,471 72.4 25.9 24.4 26.7 21.2 15.2
FY23 13,666 3.7 982 7.2 524 (64.3) 9.2 7.6 9.7 37.6 21.9

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Vishal Panjwani, [email protected], +91 22 4204 8663

230
Represented by:
Ankit Panchmatia
Investor Relations Officer
Grasim Industries (Not Rated)
Bloomberg Code: GRASIM IN, Market Cap: INR 1216bn, CMP: INR 1850 (as on 8 September 2023)

Executive digest: Grasim Industries (GRASIM IN), incorporated in 1947, is the flagship company of the Aditya Birla Group.
On a standalone basis, GRASIM’s core businesses comprise viscose staple fibre (VSF), caustic soda,
speciality chemicals, including chlorine derivatives, rayon-grade wood pulp (RGWP) with plants at
several locations. It also has other businesses, such as fertiliser and textile. The company is the largest
manufacturer of epoxy and has recently announced its foray in the paints business. Leveraging the
Group synergy, GRASIM is entering the B2B online marketplace for building materials.

Investor insight: ▪ Leadership position in several domains: GRASIM retains the leadership position in major business
verticals since inception. It is the largest VSF and viscose filament yarn firm in India (the third-largest
globally), the largest caustic soda producer (ninth globally), the largest epoxy producer in India,
leader in categories of textile, such as wool, linen and premier fabrics, the largest player in building
materials B2B platform and foray in the paints business will make it the second-largest paints maker
in India. With growth kicking in from all verticals, standalone revenue is expected to receive a
booster shot.
▪ Capex in epoxy and paints segment: The company has announced INR 100bn capex for its foray
in the paints business and has spent INR 40bn to date. Around INR 1.0bn capex is expected to be
spent for the next six quarters. Out of total six factories, three are expected to go live by Q4FY24
and the rest by FY25. With total capacity of 600mn liters, GRASIM will be the second-largest paints
firm in terms of capacity as well as revenue. The plants are spread pan-India to serve customers in
all regions. It is also doubling its epoxy segment capacity by end-Q1FY26. With India becoming
hub for wind blades, demand for epoxy is expected to flourish with renewable energy in flavor

▪ Derivatives specialization in the chemicals segment key focus: Chemicals business revenue
composition as on FY23 is as follows: 45% revenue from caustic soda, 25% from epoxy and 25-
30% from chlorine & its derivatives. It is also foraying in epichlorohydrin, which will bolster growth.
It has gained a contract to make use of its own 200 KTPA chlorine. Lubrizol will be setting up a
CPBC plant near GRASIM’s facility in two phases, which will be managed by the company for a
management fee. The first phase will be for 50 KTPA and the second will be for 150 KTPA. The first
phase is expected to be completed in the next 18-24 months. Such contracts provide a long-term
visibility on growth and lower cost in chlorine disposal.

▪ B2B building materials platform to lift growth: The company has already onboarded 130 brands
in eight categories and has 3,000 stock keeping units (SKU) listed. While earning 1% spread in the
initial stage, it aims to leverage this platform for growth by promising timely delivery, financing
solutions and competitive pricing. GRASIM does not maintain a warehouse and transactions are
dealt with directly among parties

▪ Other highlights

▪ Around 90% of revenue comes from the VSF and chemicals businesses. Cashflow from these
businesses are currently used for paints business capex

▪ Dividends received from UltraTech Cement are passed through to shareholders

▪ In the paints business, the company will offer a range of solutions, and also share know-how
with channel partners to increase reach. It does not intend to compete in pricing

GRASIM’s market leadership in a majority of business segments, high growth capex in chemicals,
Analyst annotations:
including chlorine derivatives and epichlorohydrin, and foray in the paints business place it in a sweet
spot to lead in India’s growth story. Increase in standalone revenue may be from the paints business,
B2B platform and epoxy business start. We remain positive in long run.

231
Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 158,564 (22.1) 21,354 13.5 12,880 150.0 17.2 3.2 9.5 25.5 16.2
FY21 122,070 (23.0) 15,643 12.8 9,050 (29.7) 10.6 2.2 6.4 117.5 61.7
FY22 206,329 69.0 32,162 15.6 30,513 237.2 39.5 6.7 18.4 40.5 33.8
FY23 265,761 28.8 31,799 12.0 21,237 (30.4) 28.9 4.4 11.4 50.5 34.4

Source: Bloomberg, Company, Elara Securities Research

Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Analyst:
Vishal Panjwani, [email protected], +91 22 4204 8663

232
Represented by:
Kailash Lalpuria
ED and CEO
Indo Count Industries (Not Rated)
Bloomberg Code: ICNT IN, Market Cap: INR 4bn, CMP: INR 246 (as on 8 September 2023)

Indo Count Industries (ICNT IN), incorporated in 1988 by Anil Kumar Jain, forayed into the home textile
Executive digest:
business in 2007. The company is focused on the bed sheet category by setting up a state-of-the-art
manufacturing facility at Kolhapur, Maharashtra, with capacity of 36mn m pa. ICNT is one of the largest
manufacturers and exporters of bed & bed linen, quilts from India with capacity of 153mn m pa. It
caters to bed sheets, fashion, utility, and institutional bedding segments. The company forayed into
branding and retailing through Boutique Living and Layers brands in the domestic market and
Boutique Living, Pure Earth and Wholistic brands in the US.
▪ Demand outlook optimistic: Inventory buildup scenario, logistical & geopolitical issues and cotton
Investor insight:
volatility seems to be subsiding. Inflation is also cooling off and is at a reasonable level, creating a
healthy environment for retailers and manufacturers. Improvement in demand is expected with
order inflow for holiday and festival season. The EU and the UK traction is still subdued, but it is
optimistic of demand revival. Stable growth witnessed in the US markets with inventory levels
climbing down
▪ Sales to pick up with exports demand: ICNT sustains volume guidance of 85-90mn m of sheeting.
Sales is normalizing currently with utilization level improving. Retailers globally are optimistic about
the upcoming holiday season and have started placing replenishment orders. The wellness and
hygienic category of products have seen a surge since COVID
▪ Input prices to remain stable: Cotton prices are stable with reducing global stock-to-use ratio. India
is expected to remain cotton-surplus this year. ICNT is buying cotton based on its orderbook and
continues to hedge it to avoid volatility
▪ Capacity readiness: With GHCL acquisition, the company has adequate capacity for the next 3-4
years and plans to ramp it up. With the ramp-up, sales is expected to double. Only maintenance
capex of INR 400-500mn is expected, says management.
▪ FTA to bolster demand: Firms such as ICNT will benefit with the UK and the EU FTA as India will
become competitive in key markets, such as Pakistan, Bangladesh and Sri Lanka. The wallet share
is expected to go up in the UK and the EU markets with signing of the FTA. India has stable supply
chain and with alternate sourcing at play, organized firms are bound to grab the opportunity
▪ Other highlights:
▪ Margin is set to improve with mix inclining toward fashion and non-commodity categories
▪ Unfolding of premiumization in the Developed Markets will bolster growth for fashion
products

ICNT is focused on the bed linen category in the home textiles sector. Its efforts to diversify products
Analyst annotations:
into fashion, institutional and utility bedding are likely to witness traction. Management has reiterated
its strategy to remain asset-light, given strong ecosystem of yarn and fabric capacity in the country,
which is likely to result in higher return ratios for peers. GHCL acquisition provides synergistic benefits,
such as new customers and products, along with ready capacity to benefit from India’s signing of FTA
with key countries.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 20,801 7.5 1,832 8.8 738 22.5 3.7 7.5 13.6 6.4 3.7
FY21 23,490 12.9 3,796 16.2 2,506 239.7 11.9 22.1 20.0 10.4 7.6
FY22 26,097 11.1 4,341 16.6 3,586 43.1 17.9 24.9 28.0 8.8 9.3
FY23 27,822 6.6 4,543 16.3 2,768 (22.8) 14.0 16.4 18.9 8.0 6.3

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Vishal Panjwani, [email protected], +91 22 4204 8663

233
Represented by:
Abraham George
Head of Analytics & IR Kalyan Jewellers India (Not Rated)
Sanjay Mehrotra Bloomberg Code: KALYANKJ IN, Market Cap: INR 254bn, CMP: INR 247 (as on 8 September 2023)
Head of Strategy

Kalyan Jewellers India (KALYANKJ IN), established by TS Kalyanaraman in 1993, designs, manufactures
Executive digest:
and sells gold, studded, and other jewelry products. It is one of India's most significant jewelry retailers,
boasting a nationwide presence and operations in the Middle East. As on June 30, 2023, it operates
161 showrooms in India, 33 in the Middle East, and 994 "My Kalyan" Grassroots Stores. These
Grassroots Stores play a vital role in educating esteemed clients about the purity of gold, assisting them
in making wedding-related purchases, and enrolling them in advanced purchase plans among a range
of services.

▪ Aggressive capex through asset-light model: KALYANKJ has embarked on an aggressive

Investor insight:
expansion strategy through franchise operated company owned (FOCO) model. There are two
options in franchisee, one in which capex, opex and inventory cost will be borne by franchisee
and another in which only opex and inventory cost will be borne by the franchise. It incurs
inventory cost of INR 200mn with an operating expense of 7% of sales. The fit-out expenses of INR
35mn per store is either borne by the company or the franchisee depending on the agreement.
Most franchisee agreements currently involve fit-out expense by the company. The role of
franchisee will be that of a financier whereas identifying location, agreement with landlord will be
done by company. Management says it has been receiving strong franchise enquiries and has
evaluated more than 200+ stores, but it is set to open only 52 in FY24. It says store expansion could
further accelerate in FY25
▪ Franchisee model to improve profitability: Under both options, the franchise will post an earnings
EBIT of 7% and Kalyan will earn PBT of 5%. The franchise model will gradually accelerate PBT
margin to 5.0% from the current 4.5-4.7%. A franchisee owner earns a pre-tax ROCE of15-17%
▪ Current scenario: Q2 wedding season demand slowed after Adhik-maas, which was for 28 days,
especially in the non-South region. Wedding demand started coming back post Adhik-maas with
onset of the Onam festival
▪ Balance sheet deleveraging: The sale of non-core asset is underway and the funds will go for
repayment of debt. The sale of aircraft sale is set to be done by end of this month. The sale of
aircraft will generate cashflow of ~INR 1.0bn. The company expects to repay debt of INR 3.5bn in
FY24 and this process is expected to continue for three years
Other highlights
▪ Margin of studded jewelry is 30%+ whereas for gold jewelry it is 11-12%. Also, margin of studded
jewelry in the non-South region is higher than South India
▪ While other firms maintain the same inventory across regions, Kalyan follows a hyperlocal
approach; for eg, inventory in its Thane store will be different from inventory at Borivali based on
demand in respective regions.

KALYANKJ is expanding on a unique FOCO model, allowing it to increase its presence in the non-
Analyst annotations:
South region and become a pan-India jewelry firm. Its franchise model may enable it to improve its
profitability and ROCE. The sale of non-core assets would further strengthen balance sheet and
improve its return ratios. We retain our positive stance, led by its store expansion strategy and balance
sheet strengthening efforts.

YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
Key financials: March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 100,165 2.5 7,603 7.6 1,430 NM 1.5 6.9 8.1 165.5 33.3
FY21 85,433 (14.7) 5,943 7.0 (63) NM (0.1) (0.4) (1.1) NA 47.6
FY22 107,808 26.2 8,145 7.6 2,242 NM 2.2 16.2 6.7 113.3 35.2
FY23 140,714 30.5 11,140 7.9 4,331 93.2 4.2 16.8 10.0 58.7 24.1

Source: Bloomberg, Company, Elara Securities Research

Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Analyst:
Vishal Panjwani, [email protected], +91 22 4204 8663

234
Represented by:
Ramesh Poddar, MD & CEO.
Gaurav Poddar, Executive
Siyaram Silk Mills (Not Rated)
Director. Bloomberg Code: SIYA IN, Market Cap: INR 26bn, CMP: INR 596 (as on 8 September 2023)
Ashok Jalan, Director.
Mr Surendra Shetty, CFO

Executive digest: Siyaram Silk Mills (SIYA IN), established in 1978, manufactures fabrics and readymade garments, in the
men’s wear segment. It specializes in manufacturing suiting fabrics, shirting fabrics, and ready-made
garments for men. Besides the flagship brand Siyaram that caters to suiting fabric business, SIYA has
many popular brands under its umbrella – J.Hampstead for premium fabrics, Oxemberg for men's
formal and casual clothing, Cadini, an Italian brand offering high-quality, high-performance garments
and Siyaram’s Mozzo offering a varied range, from men's travel wear to party wear. As of 31 March
2023, Siyaram Mills operated 12 manufacturing plants at Tarapur, Daman, Amravati and Silvassa,
housing 655 looms (79.5mn meters capacity) and 526 machines (3.5mn pieces capacity, 4.8mn kg of
indigo capacity, and 2.4mn kg of knitted fabric capacity). SIYA has 1.75 lakh sqft of retail space.

Investor insight: ▪ SIYA aims to achieve an annual operating margin within 14-16%, although FY24 may see slightly
lower margin due to a weak Q1. SIYA expects annual topline growth of 12-14% for the next 2-3
years, with garmenting projected to outgrow the overall company target by 1-2%.

▪ Q2FY23 saw a significant exceptional export order (INR 700-800mn), which created a higher
baseline for the current quarter. However, SIYA expects better domestic demand. Q1FY24 showed
weakness. A similar trend is expected in Q2, largely due to the shift of the Diwali season to
November. Q1FY24 margin was hit by lower sales and higher ad expenditure (~17-20% of sales).

▪ Advertisement expenditure may be in the range of 3-4% of sales. The largest part of the business
is distribution-driven and higher inventory in channels has started liquidating now. Thus, expect
better demand, going forward. Export orders may grow ~12-15% with the upcoming FTA.

▪ Siyaram Men’s Bazaar: A noteworthy development on the horizon is the introduction of the
Siyaram Men’s Bazaar, a venture involving franchisee-based exclusive brand outlets (EBOs) at the
Taluka level, set to commence in the next quarter. The initial roll-out will begin in Maharashtra,
offering fabrics and garments with replenishment based on demand. Each store requires an
investment of ~INR 2.5-3.0 mn, with an expected payback period of 3-4 years.

▪ New fabric offerings: SIYA recently introduced knitted denim fabric, the first of its kind in India.
Despite its currently minor revenue share, this unisex fabric designed for top and bottom wear has
received positive market response, commanding a 15-20% premium over woven fabric.
Furthermore, it presents export potential. Additionally, SIYA has expanded its product offerings
with the launch of fabric tailored for ethnic wear.

▪ Outsourced manufacturing focus: SIYA is actively increasing the proportion of outsourced

manufacturing. Currently, 50% of the fabric and 25% of ready-made garments are manufactured
in-house. Outsourced margins are slightly more favorable, and this may not hit overall margin.

▪ Garment segment – Channel optimization: SIYA strategically reduced certain channels within the
garment segment. While this hit turnover, it positively impacted profitability. Importantly, there are
no plans to revert to previous strategies of selling garments through LFS channel. It took SIYA ~2-
3 years to recover from the losses incurred during the transition.

▪ Distributor dynamics: In the distributor landscape, gross margins typically range within 15-20%.
SIYA collaborates with a total of 800 distributors, and the largest among them contributes ~INR
300mn, representing a relatively insignificant portion of total sales. SIYA’s credit policy offers a 45-
day credit period to all the distributors, and due to long-standing relationships, bad debts remain
practically negligible. SIYA charges interest on delayed payments, which encourages distributors
to align their purchasing patterns with actual demand.

▪ Other highlights: Fabric contributes to 78% of the revenues, with trouser fabric being a significant
component. Shirting fabric is steadily gaining traction. Garments account for 14% of revenue, and
the remaining 8% is generated from yarn sales.

235
Analyst annotations: SIYA is into its growth mode, which may likely be led by the garments business, expanding network
for fabric and likelihood of exports gaining traction. We opine that higher growth may improve
profitability as the operating leverage is very high for SIYA. It continues its focus on strong balance
sheet with tight control on working capital and asset light capacity structure. SIYA is well positioned to
gain from improving consumer demand in H2FY24. Increasing competition in economy garments
segment is a key challenge for scaling up the business. We do not have rating on the stock.

Key Financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 16,961 (6.4) 1,700 10.0 692 (30.1) 14.6 9.1 8.8 40.9 19.0
FY21 10,873 (35.9) 538 4.9 36 (94.8) 0.5 0.5 2.3 1,096.1 54.1
FY22 19,018 74.9 3,331 17.5 2,162 5,940.2 45.3 25.4 22.3 13.1 9.0
FY23 22,325 17.4 3,684 16.5 2,510 16.1 52.5 24.2 21.7 11.4 7.7

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Vishal Panjwani, [email protected], +91 22 4204 8663

236
Represented by:
V Balaji, CFO SP Apparels (Not Rated)
Bloomberg Code: SPAL IN, Market Cap: INR 15 bn, CMP: INR 553 (as on 8 September 2023)

Executive digest: SP Apparels (SPAL IN), established in 1989, is a leading manufacturer and exporter of knitted garments
for infants and children in India. Its product range includes bodysuits, sleepsuits, tops, and bottoms. It
is a fully backwardly integrated company with capacity from spinning, knitting, dyeing, printing &
garmenting. It has capacity of 55,000 spindles out of which 27,000 are company-owned and the rest
are leased, with 5,000 sewing machines, 18 embroidery machines and 13 printing machines. Major
export customers of SPAL include Tesco, Primark, and Carter.

Investor insight: ▪ Demand scenario: The US is experiencing a significant level of economic recession, but the
situation in the EU is better. Many export orders have been shifted to Bangladesh and Vietnam,
due to their duty-free cost structure. However, FTA will bring the company at par with Bangladesh
and Vietnam suppliers. With China+1 strategy and the UK FTA, India may run out of capacity.
Currently, around 65% of the rest of world’s garment imports are sourced from China, with a mere
4-5% originating from India

▪ Outlook: Management has set a target of revenue growth in the range of 10-15% pa since higher
levels of skill is needed in making children & infant garments and EBITDA margin (including
exchange gains) is at 18%. FY23 was challenging due to volatility in cotton prices, resulting in a
significant loss of INR 300mn at the EBITDA level in the spinning segment. It expects yarn prices to
stabilize. In Q1FY24, the spinning division achieved a breakeven, and it is expected the second
quarter will yield positive results. Realization per garment piece was INR 145 last year, but it has
come off currently

▪ Other business segments update: The company is in domestic retail business for the past 15 years.
Crocodile is doing exceptionally well and has 65 stores vs 16 stores pre-IPO in FY16. Stores are
based in South India. It expects FY24 to breakeven, and better performance in FY25, but it has no
plans to invest more money out of internal funds. SP Apparels UK (P) Ltd, its UK based subsidiary -
Q2 is expected to face similar challenges as in Q1, but there are prospects for improved
performance in Q3

▪ Labor trends and challenges: Companies are shifting their operations away from Tirupur to
regions, such as Madhya Pradesh, Odisha and even exploring options, such as Ethiopia (as seen
in the case of KPR Mills), primarily due to scarcity of skilled labour. However, it is worth noting
productivity in plants in MP is currently low at around 40%. There is a noticeable transition from
skills-based labour to knowledge-based labour in South India; hence, the company is sourcing
skilled labour from the northern region to address its workforce needs. In Tamil Nadu, 80% of the
workforce is comprised women and during festivals & vacations, it is common for them to take
time off, which impacts workforce availability. Currently, SPAL has 35-40% migrant labour, but its
efficiency is low

▪ Tie up with manufacturers in Sri Lanka: SPAL will start with 200 sewing machines on job work basis
in Sri Lanka (in which it will not buy manufacturing units, only investment would be working
capital) and will slowly move to 1,000-1,500 machines based on outcome. The reason for
outsourcing in Sri Lanka is its efficiency in terms of output, which is better than in India (85% vs 60-
65% in India) and there are idle factories in Sri Lanka. The first order from retailers for output-based
on Sri Lankan factories can be expected in March or April

Other highlights
▪ The company aims to increase contribution of adult wear to 20% of revenue

▪ On the costing front, KPR Mills has an advantage in terms of power cost due to its solar plant;
otherwise, it would be at par with SPAL

237
Analyst annotations: SPAL is a strong firm which is in the niche business of manufacturing and exporting infant and
children’s wear. It has been increasing its backward integration into yarn and knitted fabrics for
enabling higher sustainable margin in the garment exports business. It added clients across
geographies, thereby reducing the concentration risk of the company. This will also help penetrate
newer markets providing growth opportunities in the long term. Its product diversification toward
adult wear is likely to increase addressable market, providing long-term growth sustainability. Key
triggers include demand recovery in key markets. Key risks include demand slowdown in the UK
market.

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 8,090 (2.1) 831 10.3 567 (22.8) 22.1 11.3 5.3 25.6 19.5
FY21 6,523 (19.4) 1,043 16.0 432 (23.8) 16.8 8.0 5.0 33.5 15.2
FY22 8,594 31.8 1,517 17.7 848 96.2 33.0 14.2 8.3 17.1 10.6
FY23 10,779 25.4 1,426 13.2 825 (2.6) 32.9 12.6 7.4 17.1 11.2

Source: Bloomberg, Company, Elara Securities Research

Analyst: Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519

Vishal Panjwani, [email protected], +91 22 4204 8663

238
Represented by:
Sanjay Gupta, CFO Welspun India (Not Rated)
Salil Bawa
Group Head of IR Bloomberg Code: WLSI IN, Market Cap: INR 120 bn, CMP: INR 123 (as on 8 September 2023)

Executive digest: Welspun India (WLSI IN), part of USD 2.7bn Welspun Group, is a global leader in the home textiles
sector with presence in bed, bath and flooring categories. With its global scale, vertically integrated
capacity, it manufactures and exports to retailers across the world, including the US, the UK, and the
EU. WLSI has ventured into new emerging businesses such as advanced textile and flooring. It also has
forayed into the retail business through its owned brands, Spaces and Welspun, in the domestic and
international markets. Further, it also manufactures and distributes licensed brands, including Martha
Stewart and Scott Living, in both domestic and global markets.

Investor insight: ▪ Outlook: WLSI expects long-term revenue CAGR of 18-20%. The company's emerging businesses,
which includes retail, branded products, advanced textiles, and flooring, are projected to grow at
25%+ compared to the other segments. In FY24, it expects to see growth of 10-12% with an
EBITDA of INR 15bn. It reiterated guidance of INR 150bn revenue by FY26. The current debt
stands at INR 15bn and it expects to reduce it to INR 10bn by end-FY24. EBITDA margin for home
textiles is expected to reach 17% in FY24, a sharp improvement from 8.8% in FY23

▪ Current scenario: US retailers are experiencing robust MoM increase in demand, and they have re-
entered the restocking phase. The underlying economy of the US is exhibiting growth at a rate of
6-7% whereas India is growing at 15%. Notably, price of cotton, which used to be at INR 45,000
per candy, has settled at a new normal of INR 60,000 per candy. Additionally, ocean freight cost
has sharply decreased from their previous highs of USD 11,000 per container to USD 1,800

▪ Flooring to benefit from China+1 strategy: The flooring sector is poised to gain from the "China
+1" strategy, as China holds a significant 70% share in this market but import duties of 11% in
China make India a competitive alternative. The primary market for SPC (Stone Plastic Composite)
tiles is in the West, as there is limited demand in India. The total tile market size in the US is USD
90bn, with SPC tiles forming USD 10bn. India imports ~70% of raw materials used in this industry
from China. The entire capex of INR 14bn is completed and the company is well positioned to
leverage on the opportunity

▪ Domestic retail business to be growth driver: In FY23, WLSI achieved sales of INR 5,500mn from India
business, marking a significant increase that doubled its share to 11% of total revenue. For Spaces, it
does not anticipate opening new stores in the near term, but it plans to leverage the distribution
network of retailers, following a franchisee-owned franchisee-operated (FOFO) model.

India is likely to benefit from global retailers looking to diversify global supply chain, led by China+1
Analyst annotations: sourcing strategy. Being the largest domestic home textiles firm, WLSI is likely to benefit from this shift.
We are positive on management strategies to improve revenue, including focus on branded sales,
innovation, and diversifying product mix (higher domestic sales, new flooring solutions plant, foray in
health & hygiene segment and advanced textiles). The company’s strategy to diversify into new
products would help in achieving double-digit topline growth. Key risks include volatility in exchange
rates and cost inflationary pressures. Key catalysts are reduction in input cost pressure and signing of
FTA with key markets, such as the EU and the UK (improved market opportunity).

Key financials: YE Revenue YoY EBITDA EBITDA Adj PAT YoY Fully DEPS ROE ROCE P/E EV/EBITDA
March (INR mn) (%) (INR mn) Margin (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY20 67,411 3.3 12,147 18.0 4,640 (2.2) 4.6 16.1 4.1 26.6 12.8
FY21 73,402 8.9 13,520 18.4 5,397 16.3 5.4 16.3 4.9 22.9 10.9
FY22 93,115 26.9 13,587 14.6 6,017 11.5 6.1 15.8 5.0 20.2 11.1
FY23 80,938 (13.1) 7,525 9.3 1,988 (67.0) 2.0 4.9 1.8 61.1 19.0

Source: Bloomberg, Company, Elara Securities Research

Analyst:
Prerna Jhunjhunwala, [email protected] , +91 22 6164 8519
Vishal Panjwani, [email protected], +91 22 4204 8663

239
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Research Analyst or his/her relative(s) has not served as an officer, director or employee of the subject company.
Research analyst or Elara Securities (India) Private Limited have not received any compensation from the subject company in the past twelve months. Associate entities of
Elara Securities (India) Private Limited may have received compensation from the subject company in the past twelve months. Research analyst or Elara Securities (India)
Private Limited or its associate entities have not managed or co-managed public offering of securities for the subject company in the past twelve months. Research analyst
or Elara Securities (India) Private Limited or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the
subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities may have received any compensation for
products or services other than investment banking or merchant banking or brokerage services from the subject company or third party in connection with the Research
Report in the past twelve months.
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investors.
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

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Disclaimer for non U.S. Investors

The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor
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in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Disclaimer for U.S. Investors

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Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not guarantees
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differ materially from these “forward-looking statements” and financial information.

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