India

• Krishna Institute of Medical Sciences (KIMS IN) shares gained ~18% since we initiated it on October 28, 2021. Investors can add to positions at the current level.
• Regional focus is still paying off and KIMS reported solid Q3 results, with revenue and PAT growing by 10% and 76%, y/y, respectively, driven by higher patient volume and occupancy.
• EBITDA margin of acquired assets has enough headroom to grow to the level of mature assets. The company is on track to add 1,650–1,800 beds in next three years.

• Oyo (1698548D IN) is a leading hospitality technology platform. Its DRHP aimed for a $1.2 billion raise although recent reports point to a less than $1 billion raise.
• The fundamentals are mixed as it remains uncertain if it can deliver profits or cash generation with a return to growth (due to gradual lifting of travel restrictions).
• Based on the information in the DRHP, we believe the negatives outweigh the positives and we would give the IPO a pass.

• We interact with E-Com manager of a large restaurant chain in South India with an objective to understand key demand drivers and current ordering trends for OFD players. 
• AOV and Order volumes have seen YoY increase in Q3FY22 for both Zomato (ZOMATO IN) and Swiggy. 
• Amazon.com Inc (AMZN US) has seen a jump in Food Delivery orders, but remains a pilot and is not a major threat to either Zomato or Swiggy. 

• Advanced Enzyme Technologies (AET) is a focused, research driven Indian enzymes company
• The business is divided into three segments – 1) human healthcare, 2) animal healthcare and 3) industrial processing business
• Target Price and Valuation: We value AET at Rs 380 i.e. 24x FY24E EPS of Rs 15.8

• FSN E-Commerce Ventures (Nykaa) (NYKAA IN) announced a steady growth across all key operating metrics in both the Beauty and Fashion verticals for the quarter ending 31st December 2021.
• Steady operating performance was helped by favorable macro (normalization in economic activity) and supportive sector-specific factors (Diwali, wedding season) as well as aggressive marketing (now 14% of revenues).
• Despite an 83% growth in 9MFY22 GMV and a resultant 89% growth in gross profits, EBITDA grew only 11% as increased marketing spend consumed most of the margin upside.

• Escorts Q3FY22 results were broadly in line with our expectations, driven by a richer Tractor mix and a recovery in the Railway business in Q3FY22
• The company reported total revenue of Rs 1,957 Cr (our estimate – Rs 1,911 Cr) against Rs 2,017 Cr in Q3FY21, a marginal de-growth of 3% YoY
• We maintain our HOLD rating on the stock keeping our target price unchanged at Rs 1,900, valuing the company at 19x FY24E P/E

• Maintain TP and forecasts; HOLD
• Four price hikes in 3Q and once in Jan’21
• Higher input prices impacting profitability
• Negatives priced in; Downside likely capped

• Bata India is a major player in the Indian footwear market with a presence across men’s, women’s and kid’s footwear segment
• It has a pan-India presence with the largest network of retail stores in the footwear industry with 1600+ stores
• Target Price and Valuation: We maintain BUY recommendation on the stock and value Bata at Rs 2360 i.e. 50x FY24E EPS

• TVS Motors Ltd (TVSL) posted a robust set of numbers in Q3FY22 with the performance ahead of our expectations
• The company’s total export of two-wheelers (2W) and three-wheelers (3W) registered a growth of 13% YoY at 2.95 Lc units in Q3FY22, offsetting a decline of 20% in domestic sales (5.8 Lc units)
• We maintain our BUY rating on the stock with a revised target price of Rs 720 (from Rs 670 earlier) valuing the company at 22x FY24 EPS.

• Bajaj Electricals’ business portfolio spans across consumer products (CP) and EPC (illumination, power transmission and power distribution)
• The company has been reducing exposure in the EPC business with maximum on executing high margin business
• Target Price and Valuation: We value Bajaj Electrical at Rs 1280 using SOTP i.e.40x and 7x PE for CP and EPC respectively on FY24E EPS each

• We interact with two dealers of Mahindra & Mahindra (MM IN) & Escorts Ltd (ESC IN) 
• High pressure on billing is denting dealer profitability leading to dealership closures 
• Weddings and changing spending patterns suggest a weak demand environment likely to continue. 

• Affle India (Affle) is a technology platform that enables advertisers to do targeted advertising.
• It helps advertisers to measure the effectiveness of advertisement as it charges only when a user downloads an app or completes a transaction
• Target Price and Valuation: We value Affle at Rs 1,500 i.e. 67x P/E on FY24E EPS

• Astral: We maintain our REDUCE rating on Astral with a revised TP of INR 2,180/sh (34x its Dec-23E consolidated EBITDA, implying 53x P/E)
• Aarti Industries: We maintain our BUY recommendation on Aarti Industries (AIL) with a target price of INR 1,380/share
• Aditya Birla Capital: We maintain BUY on ABCL with a revised SOTP-based TP of INR157 and initiate coverage on ABSLAMC with a target price of INR720

• Minda Corporation (Minda Corp) Q3FY22 performance was stable but marginally below of our estimates. 
• The company reported revenue of 738 Cr (our estimate – Rs 766 Cr), remaining flat QoQ
• We revise our rating from HOLD to BUY and value the stock at 17x FY24E EPS to arrive at a target price of Rs 230/share.

• Shree Cement is the third largest cement group in India with domestic cement capacity of 43.4 MT as of FY21.
• In the past four years, it has diversified itself from a 100% north player to one with capacities now in Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, Karnataka and Odisha
• Target Price & Valuation: We value Shree at Rs 28,700 i.e. 21.5x FY23E EV/EBITDA

• Tata Steel reported strong result on a standalone basis. Europe, however, disappointed due to a surge in energy and coal costs.
• Consolidated EBITDA was 66% higher on a YoY basis, but 3% lower sequentially
• EBITDA rose 82% YoY to INR121.7b (10% ahead of our estimate), despite a 9% QoQ drop fueled by rising coking coal prices that was not fully offset by a marginal increase in ASP

• HG Infra Engineering Ltd (HGIEL) reported a healthy set of Q3FY22 numbers
• The company reported APAT margins of 9.7% against 8.9% in Q3FY21 while also maintaining its growth momentum.
• We retain a BUY rating on the stock with a target price of Rs 890/share, implying an upside of 41% from the CMP.

• Affle Ltd. (Affle) reported a strong growth backed by robust device addition
• The company’s Q3FY21 revenue stood at Rs 339 Cr, up 23.6% QoQ and 125.5% YoY
• We recommend a BUY on the stock and assign 49x P/E multiple to its FY24E earnings of Rs 29.46/share which gives a TP of Rs 1,450/share, implying an upside potential of 15% from CMP.

• SBI’s earnings traction continued in Q3FY22 and was up 62% YoY, led by a 33% YoY decline in provisions and 7% YoY growth in PPOP
• The bank continues to positively surprise on the asset quality front with slippages of 0.4%, restructured book at 1.2%, and lower SMA book (~16bps) during Q3FY22
• We maintain a BUY on the stock with a revised target price of Rs 720/share (SOTP basis core book at 1.3x FY24E and subsidiaries at Rs 211).

• Minda Industries Ltd. (MIL) reported a decent set of results in a tough environment and the same was in line with our estimates
• Despite a decline in automotive production due to semi-conductor shortages
• We upgrade our rating from HOLD to BUY with a revised target price of Rs 1,250 (Rs 1,000 earlier), valuing the stock at 32x FY24E EPS, indicating an upside of 12% from the CMP.

• Adani Wilmar (6596700Z IN) raised around US$500m in its India IPO.
• Anchor quality wasn’t the greatest, in our view, and were the firm to trade towards its peers’ trailing average, it would imply a 21.8% downside potential. 
• In this note we will talk about the subscription levels and trading dynamics.

• SBI results were highly managed in FY 2Q22, and going forward it’s difficult for anyone to take both these results and this bank very seriously;
• SBI reported FY 3Q22 results of INR 84.3 bn, improving INR 8.1 bn (10.6%) linked quarter. Volatility between loss provisions and operating expenses continued; and
• Net new NPLs accelerated 18.5% annualized, and SBI’s reserves are short INR 568 tn – over five quarters of pre-tax results.

• The SPAC market has been down and out in 2022, with few high-quality deals.
• However, things appear to be changing, with rumours surfacing that three SPACs are fighting to take the words largest EdTech startup public.
• If the company makes a debut at a $50 billion valuation, there will be very little room for error, leaving room for far more downside than upside.

• Brigade Enterprises (BEL) is one of the leading property developers in South India
• Its offerings include Grade-A commercial property, affordable to ultra-premium housing in real estate business and operational marquee hotel assets in the hospitality segment
• Target Price and Valuation: We value BEL at Rs 600/share

• Avadh Sugar has 31800 TCD sugarcane crushing capacity, 325 KLD distillery capacity and 74 MW saleable power capacity
• The company produces 6.0 lakh tonnes (lt) of sugar, 8 crore litre of ethanol & 15 crore units of saleable power.
• Target Price and Valuation: We value the stock at Rs 970, valuing the business at 2x FY23 BV.

• Our profitability and credit quality screens were generally, in terms of credit quality metrics to end-December 2021, more constructive than the prior quarter, whilst core profitability signals improved slightly
• The threat of worsening credit quality in the coming quarters is still real, in our view, with the financial difficulties of Future Retail indicating potential corporate credit quality deterioration
• We like quality play HDFC Bank, turn constructive on State Bank of India and we remain negative on Canara Bank and Bandhan Bank; neutral on Kotak Mahindra and ICICI Bank

• Pfizer collectively addresses 15 therapy areas in the domestic formulations with a portfolio of over 150 products that include therapeutics & vaccines
• The company has been continuously restructuring its portfolio in the last few years to improve the productivity of its core brands.
• Target Price and Valuation: Valued at Rs 5350 i.e. 36x P/E on FY24E EPS of Rs 148.6

• Dalmia Bharat Sugar (DBS) is the only sugar company present in UP and in Maharashtra
• The company has sugar crushing capacity of 38250 TCD (6 ltpa), distillery capacity of 540 KLD (16 crore litre pa), co-generation capacity of 102 MW & wind power of 16.5 MW (total 30 crore units saleable power)
• Target Price and Valuation: We value the stock at Rs 660, ascribing a multiple of 14x FY23 earnings.

• DABUR’s topline performance in Q3FY22 was in line with our and street estimates
• Consolidated Revenue at Rs. 2,942 Cr grew 7.8% yoy (Rs. 2,947cr our est) driven by a strong 7.4% growth in India FMCG growth led by a 2% volume growth (implies 2yr CAGR of 9.5%).
• Maintain BUY with revised TP of Rs. 680 as we continue to value it at 49x FY24E.

• Gail India is a gas utility company with various business segments such as gas transmission & trading, LPG, LLH and petrochemicals.
• It operates a natural gas pipeline network of 13700 km as of end of FY21
• Target Price and Valuation: We roll over valuations to FY24E and value Gail at Rs 180/share based on SoTP method

• Exide Industries (EIL) is a part of the duopolistic organised Indian lead acid battery market with a presence across automotive & industrial applications.
• Segment mix: -automotive sales~73% & industrial application ~26%
• Target Price and Valuation: We value EIL at revised SOTP-based TP of Rs 195 (Rs 122 for battery business at 12x FY24E EPS, Rs 73 for investments; earlier TP Rs 210).

• Bank claimed  “procedural lapse” whereby the bank received repayments of large numbers of loans, and disbursed new loans to the same accounts, on the same day, and in cash.
• Earlier CEO stated that the bank during Covid had an approved loan product which facilitated same day repayments of earlier and disbursal of new loans 
• Regulator and the board of directors needs to probe whether this was a “procedural lapse” or a management policy and fix accountability of senior management.

• HDFC Ltd (HDFC.IN) [HDFC] reported FY 3Q22 results of INR 30.5 bn, decreasing INR 6.2 bn (16.9%) linked quarter basis reflecting a lack of dividends received;
• Given the INR 4.2 bn in NCO during FY 3Q22, net new NPLs increased INR 11.7 bn or 23.3% on an annualized basis; and
• We also find that HDFC’s reserve still needs shoring up by another INR 185 bn or over a year of PBT.  

However, EBITDA fell 2% YoY, owing to the elevated gas price impact. The company continues to keep a tight leash on its debtors. Timely capacity expansion in Q4FY22 should bolster its volume and market share growth. We maintain BUY on Somany Ceramics with an unchanged target price of INR 1,130/share (13x Dec-23E consolidated EBITDA). We continue to like SOMC for its strong retail distribution, improving product mix, and tightened working capital (WC).

Cadila Healthcare (CDH) delivered lower-than-expected 3QFY22 earnings, weighed by lower Domestic Formulation (DF) / US / EM sales and increased operational costs. CDH continues its effort to build the product pipeline and niche launches (including g-Revlimid) for the US market. Even innovation-led products are advancing well in the respective clinical stages of development.

Tata Power is India’s largest integrated power company.

Cadila Healthcare: Cadila’s Q3 revenue/EBITDA missed our estimates by ~3%/9% due to lower-than-expected sales in India/EMs and higher R&D and other expenses. The company expects its India business to grow in strong double digits in FY23. While it guides for a flattish FY23 in the US, it aspires to take US revenue to ~USD1bn (vs. ~USD800mn in FY22e) by FY24e. However, we believe this is far-fetched, given that it hinges on multiple factors like Moraiya resolution in CY22, normalised price erosion in FY23, and timely launch of two high-value products.

• The Reserve Bank of India (RBI), India’s central bank, is set to launch its own blockchain-based currency, the digital rupee, by 2023 

• The move is likely to give an impetus to the participation of institutional players in the blockchain space

• In November 2021, the Indian government said the RBI was working on a strategy to introduce a central bank digital currency (CBDC) in a phased manner after examining its use cases

Issue Snapshot: Issue Open: Feb 04 Feb 08, 2022 Price Band: Rs. 824 866 *Issue Size: Rs 3149.2 cr (Entirely Offer for sale) Reservation for: QIB Upto 50% eq sh Non Institutional atleast 15% eq sh Retail atleast 35% eq sh Face Value: Rs 1 Book value: Rs 35.45 (Sep 30, 2021) Bid size: – 17 equity shares and in multiples thereof 100% Book built Issue Vedant Fashions Limited – IPO Note

• DLF’s residential business continues to perform strongly, recording pre-sales of INR2,018cr (up 97% YoY and 33% QoQ
• With pre-sales of INR4,544cr in M9FY22, the management revised its guidance to around INR6,000–6,500cr for FY22
• It also reported strong cash surplus for the second consecutive quarter, with cash surplus of INR764cr resulting in net debt reduction of INR765crto INR3,220cr.

DLF reported strong performance in its residential business as new sales value doubled YoY driven by new launches and robust cash flow generation. This led to further reduction in net debt in its development (DevCo) arm. Sales traction remained intact despite 12% price hike taken at the portfolio level since beginning of the year and DLF further plans to take 10-12% price hike in its key projects (Camellias and the recently launched ONE-Midtown). DLF’s commercial portfolio (DCCDL) performance remained stable with marginal increase in occupancy to 88% v/s 87% in 2QFY22.

• HDFC Ltd is the largest NBFC engaged in the housing finance business.
• It has demonstrated a consistent performance in terms of both business growth as well as asset quality.
• Target Price and Valuation: We value HDFC Ltd at ~2.5x FY24E core ABV and Rs 1676 (post15% discount) for subsidiaries and maintain target price of Rs 3350/share.

• Indoco manufactures and markets branded formulations and APIs for the domestic and export markets
• In domestic formulations, through its nine marketing divisions, the company serves a range of specialties
• Target Price and Valuation: We value Indoco Remedies at Rs 510 i.e. 18x P/E on FY24E EPS of Rs 28.3

• Orient cement reported Revenue growth of 2% in Q3FY22 owing to higher realization. However, the company’s EBITDA/APAT posted a de-growth of 14%/19% on account of elevated costs
• The company reported a volume of 1.22 million tonnes per annum (mntpa), down 10% YoY as it did not resort to selling cement at unremunerative prices and maintained price discipline.
• We value the company at 6x of its FY23E EV/EBITDA and retain our BUY rating on the stock with a target price of Rs 200/share. TP implies an upside of 16% from CMP.

• Tech Mahindra (TechM) has over 1.2 lakh employees across 90 countries serving 1000+ clients with higher exposure to telecom (40% of revenues)
• Apart from telecom, the company caters to BFSI, manufacturing & retail
• Target Price and Valuation: We value TechM at Rs 1850 i.e. 23x P/E on FY24E EPS

• TTK Prestige is India’s leading player in kitchen solutions and has been successful in transforming itself from a company manufacturing pressure cookers
• It continues to be market leader in the cooker segment and has material share in other appliance and cookware categories
• Target Price and Valuation: We value TTK at Rs 1270 i.e. 45x FY24E EPS

• VIP Industries is one of Asia’s leading seller/manufacturer of various type of luggage’s, backpacks and handbags
• VIP has a range of leading brands, positioned across the entire price range, catering to value (Aristocrat) mid (VIP, Skybags) and premium (Carlton, Caprese) price points
• Target Price and Valuation: We value VIP at Rs 770 i.e. 48x FY24E EPS

Our next Webinar features an actionable, counter-consensus look into IndiaMart (INMART IN) from experienced Insight Providers Pranav Bhavsar and Nitin Mangal of India Independent Insight. While the stock is well-owned, forensic accounting and investigative due diligence from our Insight Providers suggests that risks are grossly under-appreciated. Join our session to get the full scoop.

The webinar will be hosted on Wednesday, 23 February 2022, 17:00 SGT/HKT.

Pranav Bhavsar is the Founder of ASA Capital Management, focusing on research on consumer themes and companies operating in India or global companies that have significant exposure to India or the Indian economy.

Nitin Mangal is a SEBI registered Research Analyst with more than 10 years of experience in Indian equities. He is Pioneer of Corporate Governance and Accounting Research in Indian Market and has successfully developed a product for Institutional Investors named as “Analysis Beyond Consensus” during his association with Edelweiss Securities Ltd, Mumbai. 

• Sagar Cements is a south based cement player with cement capacity of 8.25 MT. Region wise, AP/Telangana accounted for ~60% of sales followed by Tamil Nadu (16%) and Karnataka (9%).
• Going forward, the company will be able to develop a presence in the fastergrowing eastern market and the more profitable central market with recent commissioning of new 2.5 MT capacity
• Self-reliance in power (61.5 MW), ability to switch between coal and petcoke for fuel requirement and split grinding units near market gives it cost advantage

CME segment drives growth

Healthy performance ahead of season, beat our estimates

Results a mixed bag; Growth returned

• Hester is one of India’s leading animal healthcare companies & the second largest poultry vaccine manufacturer in the country
• It has a strategic presence in 30+ countries with key markets being India, Nepal and Tanzania.
• Target Price and Valuation: We value Hester at | 2780 (base business at Rs 2712 i.e. 38x FY24E EPS of Rs 71.4 + NPV of Rs 67.8 for Covaxin DS opportunity).

• Bharat Electronics (BEL) is leading aerospace and defence electronics company. It primarily manufactures advance electronics products.
• Multi-product, multi-technology- diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, home land security, civilian products, etc
• Focus to increase non-defence share to ~20-25% over two to three years

• About the stock: Info Edge provides internet based service delivery like recruitment services (Naukri), real estate (99 acres), Jeevansaathi and Shiksha.
• Quasi play on Indian start up like Zomato, PolicyBazaar, Shoekonect, Ustra, Gramophone and job market, matrimony services & real estate market
• Prudent capital allocation and recruitment business EBITDA margin >50%

• While EM rates on aggregate have moved up as US rates have risen, there is a fair degree of differentiation within EM; e.g., the divergence between India and Mexico.
• Rates in India climbed higher following the pro-growth budget, which increased borrowing needs, while yields rallied in Mexico following indications that the country has entered a technical recession.
• These idiosyncratic developments accelerated the divergence in rates between the two countries, allowing me to suggest taking profits on my Receive Mexico 5y vs Pay India 5y rate trade recommendation.

• Amber is a leading solution provider for air conditioner OEM/ODM industry in India.
• The company has a product portfolio including RACs, RAC components and other non AC components
• Derives ~62% of its revenues from RACs and the rest from components and mobility applications

• The review period for the NSEBANK INDEX ended on 31 Jan. The rebalance will be effective after the close on 30 March and the announcement will come end February.
• Based on the index methodology, we see Bank Of Baroda (BOB IN) replacing RBL Bank Ltd (RBK IN) in the index.
• Passive trackers will need to buy 11 days of delivery volume on Bank Of Baroda (BOB IN) while selling 5 days of delivery volume on RBL Bank Ltd (RBK IN).

This month, we undertake a study of the ratings evolution of all the issuers that have been included in the Lucror Asia HY index (commenced in 2013).

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

Soft result after performing well in five consecutive quarters

HPCL’s reported EBITDA missed our estimates significantly led by lower marketing gross margin (at INR3/lit, 46% est. miss), while GRM was in line at USD6.4/bbl. Refining throughput stood at 4.2mmt (+6% YoY, +68% QoQ). The company completed the expansion of its Mumbai refinery and is running at its optimal capacity as highlighted in the earnings concall. SG GRM has further improved to USD5.9/bbl in Jan’22 YTD, and the ramp up at Mumbai refinery should see near-term margin expansion. The Vizag refinery is running at >100% capacity utilization.

Info Edge Ltd (INFOE) delivered better-than-expected revenue in 3QFY22, with standalone revenue growth of 48% YoY (estimate of +42%). On the other hand, the EBITDA margin missed estimates due to higher ad spending in the 99acres business. 3Q billing also came in ahead of our estimate, led by a large beat in Naukri (80% YoY). The management has indicated continued strength in the Naukri business over the near term, along with the large impact of a price increase in FY22E billing.

Market leader in the domestic fan industry with value market share of 27%. The company has enhanced focus on increasing market share in home appliances categories like (air coolers, water heater and kitchen appliances) Robust balance sheet with RoE & RoCE of 34% & 39% (three-year average), respectively, with stringent working capital policy Q3FY22 Results: Delivered in line performance; premium fans reported 30% YoY…

Record revenue with beat on all fronts