India

• Delhivery (1058656D IN) is the largest and fastest-growing 3PL express parcel delivery player in India by revenue in FY21. It has won SEBI approval to raise up to $1 billion.  
• The fundamentals are mixed as it has been unable to leverage its leading position and strong growth to deliver profits or cash generation.  
• Based on the draft red herring prospectus, we are cautious about this potential IPO as the negatives outweigh the positives.  

• Oriental Hotel (OHL) operates in South India with Indian Hotels Company (IHCL) being one of the promoter entities
• The company owns and operates seven hotels with ~825 rooms across business & leisure locations in the south
• We remain positive on the company and maintain our BUY rating. We value the stock at Rs 73 i.e. 30x FY23E EV/EBITDA

Our earlier report, India’s gas sector to benefit from syzygy ahead’, highlighted how CNG/LNG Retail sales have been declining by 3%/11% CAGR for China Gas Holdings/ENN Energy for the past five years. On the contrary, the Industrial segment continued to grow for these companies at 19-20% CAGR for the past few years. Due to high Real Estate prices, we don’t expect the Industrial segment to grow in Delhi. Other areas…

• Axis Bank (AXSB.IN) [Axis] has become the frontrunner to purchase Citigroup’s (C.US) India [Citi India] consumer business; 
• The Citi India transaction would represent a negative adjusted net spread of 41 bp for Axis – intimating a negative return on investment of 1.0%; and
• As many customers have hit the exit button, we have already witnessed Citi India’s retail loan portfolio decline 6.7% YOY prior to FY 2022 COVID-19 protocols.

• GTPL Hathway (GTPL) is a leading MSO (No. 1 in terms of subscribers) offering cable television (CATV) and broadband services
• Expansion into new states and digitisation has led to strong topline and earnings growth of ~27% and ~86% CAGR, respectively, over FY16-21
• We roll over to FY24 and value GTPL at Rs 290 i.e. 14x FY24E P/E

UTCEM’s 3QFY22 performance was impacted by cost inflation, primarily energy and other costs, leading to a 6.7pp YoY fall in EBITDA margin and 19% YoY fall in EBITDA/t. EBITDA fell 22% YoY, despite higher other operating income (up 2.3x YoY). Adjusted for tax write-backs, profit fell 26% YoY. The industry has seen peak of the fuel cost inflation and imported/domestic petcoke prices have declined 38%/33% from its peak in Nov-21. This should help cost moderate from 1QFY23.

• UltraTech is the largest cement manufacturer in India with a domestic capacity of 114.5 MT
• It has grown through the organic and inorganic routes and added around ~30 MT of capacity in the last three years.
• We remain positive on the company and maintain BUY rating. Valued at Rs 9,300 i.e.19.0x FY23E EV/EBITDA

ICICIBC has been the best performer in the Banking sector (despite the consensus Buy tag) as it delivered 80%/42% returns over FY21/FY22 YTD. Its market capitalization ranking within the BFSI space has improved to two from five in FY18. Stability of the top management has helped improve its operational performance. Mr. Sandeep Bakhshi’s appointment as CEO has brought stability which enabled value creation and drove re-rating as bank delivered 31% CAGR in m-cap since FY1821 v/s 7% over FY10-18.

• Tata Metaliks (TML) is a subsidiary of Tata Steel, which was established in 1990
• TML has manufacturing facilities in Kharagpur, West Bengal, which produces pig iron and ductile iron (DI) pipes.
• We value TML at Rs 975 i.e. 6.5x FY23E EV/EBITDA

Unitary EBITDA fell 20/17% YoY/QoQ to INR 1,046/MT. The company is hopeful that cost inflation has peaked out and, with demand picking up, all of this should bolster volume growth and lead to margin rebound Q4 onwards. UltraTech Cement : We maintain BUY on UltraTech (UTCEM) with an unchanged target price of INR 8,775/share (16x Dec’23E consolidated EBITDA). We continue to like the company for its strong growth and margin outlook and balance sheet management.

• Vedanta Limited decided to delist its ADRs last autumn. They were delisted but the process of unwinding them comes down to selling the unconverted ADR underlying shares. 
• Citi is conducting an offering to sell those underlying shares. This will aid in setting the unwind price for existing but unsettled listed ADR derivatives (yay).
• The offering itself is just over 1% of shares out, 4% of float, and 12% of foreign portfolio investor holdings. Not huge, but the trend vs peers gives one pause.

• Mindtree Ltd (Mindtree) is a mid-tier IT company with a presence in the US, Europe & RoW catering to BFSI, communication media & technology, retail & travel
• Expertise in infrastructure & application catering to Global 2000 clients
• We maintain HOLD rating on the stock. We value Mindtree at Rs 5,055 i.e. 40x P/E on FY24E

HDFCB reported an in line quarter, with NII/PPOP growth of 13%/10.5% YoY. PAT grew 18% YoY to INR103.4b (in line). Profitability stood stronger despite the bank creating additional provisions of INR9b, taking the total buffer to ~INR86.4b (~70bp of loans). The bank witnessed a healthy pickup in business as loans grew 5.2% QoQ. The Retail segment grew 13.3% YoY, while Commercial and Rural Banking…

• HDFC Bank’s (HDFCB) Q3FY22 earnings performance was stable, albeit with marginal lags
• The management commentary was highly positive on growth pick-up in Retail/Rural/SME/Commercial segments
• We maintain a BUY on the stock with a revised target price of Rs 1985/share (SOTP basis core book at 3.5x FY24E and Rs 70 Subsidiary Value).

Jindal Steel and Power Limited is an India-based steel producer.

• HCL Technologies Ltd (HCL Tech) Q3FY22 performance stood above our expectations and beat our estimate on all fronts.
• The company reported revenues of Rs 22,331 Cr, up 8.1% QoQ and 15.7% YoY.
• We recommend a BUY on the stock and assign a 24x P/E multiple to its FY24E earnings of Rs 67.4/share which gives a TP of Rs 1,600/share, indicating an upside of 20% from CMP.

• PNC Infratech Limited has played a crucial role in India’s infrastructural growth, particularly in the Highway and Airport sectors
• Over the past 20 years, PNC Infratech has emerged as one of the most efficient players across several infra-segments such as roads and highways, bridges, and airport runways.
• We recommend a Buy the stock for a target price of Rs 350 implying an upside of 15% from CMP

Brokers – growth expected to moderate: Despite healthy consolidation seen in index levels in Q3FY22, cash ADTVs (ex-prop) were sequentially flat whereas growth in derivatives ADTVs (ex-prop) continued unabated at 22% (estimated). A buoyant market for primary issuances resulted in an impressive pace of new investor additions at 7mn in the first 2 months of Q3 (H1FY22: 15mn). Despite flattish volume in the cash segment, delivery volume has increased; this, coupled with healthy derivates volume, is expected to boost broking revenues.

HCLT delivered an exceptionally strong revenue growth of 7.6% QoQ CC in 3QFY22, 310bp above our estimate, led by its troubled Products and Platforms (P&P, +24.5% QoQ) vertical, which did exceptionally well despite benefitting from seasonality and deal spill over from 2QFY22 (600bp impact). Its Services verticals (IT Services/ER&D up 4.7%/8.3% QoQ CC) continued to clock strong growth and was ahead of our estimate. HCLT reported strong new deal TCV of USD2.1b (flat QoQ, +64% YoY).

We maintain our BUY rating with a target price of INR 1,485, valuing the HCLT stock at 22x Mar-24E EPS, factoring in +13/14% CAGRs in revenue/EPS over FY21-24E HCL Technologies: We maintain BUY on HCL Tech (HCLT), supported by strong growth in services (+5.3% QoQ CC) and recovery in P&P (+24.5% QoQ CC). The services growth was led by ER&D but the ~200 bps decline in margin was higher than peers. Key attributes that support our growth outlook are: (1) growth momentum in ER&D services (+8.3 QoQ CC), supported by digital engineering and IoT services; (2) robust TCV of USD 2.14bn (+64% YoY growth), led by eight large deals in services and product; and (3) strong fresher hiring, which will continue in FY23E.

Jindal Steel and Power Limited is an India-based steel producer.

Brokers – growth expected to moderate: Despite healthy consolidation seen in index levels in Q3FY22, cash ADTVs (ex-prop) were sequentially flat whereas growth in derivatives ADTVs (ex-prop) continued unabated at 22% (estimated). A buoyant market for primary issuances resulted in an impressive pace of new investor additions at 7mn in the first 2 months of Q3 (H1FY22: 15mn). Despite flattish volume in the cash segment, delivery volume has increased; this, coupled with healthy derivates volume, is expected to boost broking revenues.

• Bank underperformance in India typically leads a Nifty top during stretched readings that are building in the Nifty.
• Nifty banks are the preferred short (as a pair if you will) over the Nifty currently but will see the Nifty top out and commence a pullback.
• Nifty stall zone near October highs with pullback support targets at 17,800 and 17,400 and comes at a time when the global cycle faces late January weaknesss.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Shui On Land
2. Logan Property Holdings
3. Sino Ocean Land
4. Tata Motors Ltd
5. Yuzhou Group

and more…

• Tata Consultancy Services: TCS reported in-line revenue performance, while the margin was a miss
• Infosys: We maintain BUY on Infosys (INFY), following a significant beat in revenue (+7% QoQ CC vs. estimate of 4.4%) and a strong growth outlook.
• Wipro: Wipro delivered a muted performance in Q3; growth of 3.0% QoQ CC was below estimate and the lowest in the last five quarters

TCS reported 3QFY22 revenue of USD6.52b, up 4.0% QoQ in constant currency (CC) above our estimate of 3.2% QoQ growth. 3Q topline was driven by Communication, Technology and Regional markets, while Manufacturing and Retail verticals dragged down growth. EBIT margin contracted 60bp QoQ to 25.0%, 100bp lower than our estimate of 26.0%, as TCS augmented its employee intake (all-time high at 28k), along with a spike in sub-contracting cost.

• Tata Consultancy Services Ltd (TCS) reported a 4.3% revenue growth QoQ in Q3FY22 in Rupee terms, much in line with our expectations
• The company’s revenues stood at Rs 48,885 Cr, up 16.3% YoY and 4.3% QoQ
• We recommend a HOLD rating on the stock and assign a 31x P/E multiple to its FY24E earnings of Rs 135.2/share to arrive at a TP of Rs 4,200/share

• Wipro Ltd’s (Wipro) revenue growth stood below our expectations at Rs 20,313 Cr, up 3.1% QoQ and 27% YoY in CC terms
• Operating profit grew robust 30.8% YoY to Rs 3,492 Cr, aided by better executions, better employee management and service mix
• We recommend a HOLD rating on the stock and assign a 27x P/E multiple to its FY24E earnings of Rs 27.7/share to arrive at a TP of Rs 750/share, implying an upside of 9% from CMP.

• Infosys Ltd (Infy) reported Q3FY22 revenue of Rs 31,867 Cr, up 7.7% QoQ and 7% QoQ (in CC terms)
• The company’s operating profit stood at Rs 7,484 Cr, reporting a growth of 7.3% on a QoQ basis
• We recommend a BUY rating on the stock and assign a 29x P/E multiple to its FY24E earnings of Rs 73.5/share to arrive at a TP of Rs 2,140/share

• Wipro (WPRO) reported 3QFY22 IT Services revenue of USD2.64b (+3.0% QoQ CC), missing our estimate by 70bps
• We now expect FY22 IT Services revenue growth at 27.4% (18.5% YoY organic growth), down 100bps v/s the previous expectation.
• We lower our FY22–24E EPS estimate by 1% to factor in the miss on the growth front. We maintain our Neutral stance as we view the current valuation as fair

INFO reported a growth of 7% QoQ CC, ahead of our estimate of 4.8%, on the back of a broad based performance. Large deal TCV stood at USD2.53b (net new at 44%). The management indicated traction in large deals, and highlighting that the deal pipeline was the highest in a very long time. EBIT margin dipped only 10bp QoQ to 23.5%, in line with our estimate, despite a drag from employee additions (12.5k), higher sub-contracting, and…

• TCS reported a healthy revenue growth of 15.4% YoY in constant currency (CC) terms. Operating margins contracted by -60bp to 25%, due to supply-side challenges. 
• LTM attrition for TCS was 15.4%, best in the industry. However, on an absolute basis, it is high and TCS is continuously working on stabilizing it.  
• Growth has been broad-based across sectors and the demand outlook remains robust on the back of strong spends by corporates on digital transformation and adoption of cloud.

• We initiate coverage on SAIL with a BUY recommendation and a Target Price (TP) of Rs 150/share, implying an upside of 44% from the CMP
• While we expect steel margins to come under pressure in H2FY22, they are likely to recover post H2FY22 and remain above cycle average
• Our optimism is based on the expectation of weak demand in China getting offset by lower production forecasts and China continuing to disincentivize steel exports

• Godrej Consumer (GCPL) is our top pick from our Staples Coverage Universe from a oneyear horizon
• Recent sales growth momentum encouraging: After maintaining a Neutral view on GCPL for 10 years, we turned bullish on its prospects earlier this year
• Mr Sudhir Sitapati’s medium-term focus would be on driving double-digit volume led growth primarily via penetration gains

• We speak to a total of ten channels representing Apl Apollo Tubes (APAT IN) , Kajaria Ceramics (KJC IN) and Somany Ceramics (SOMC IN) 
• There are some indications of Market share loss for Apl Apollo Tubes (APAT IN) 
• Demand in metros remains strong and robust, while tier 2/3 locations seems to be grasping for growth. 

• Motherson Sumi (MSSL) primarily serves global PV & CV industry with a history of successful turnarounds in acquisitions and inorganic-led growth.
• MSSL’s stock price has grown at ~13% CAGR from ~Rs 145 levels in January 2017, widely outperforming the Nifty Auto index
• We value the combined entity post-merger of erstwhile SAMIL into MSSL at Rs 270/share on SOTP basis

• The Ipca Laboratories stock has been sub-divided from one existing equity share of Rs 2 each face value into two equity shares of Rs 1 each face value
• Consequently, Ipca Lab’s share price has dropped to ~Rs 1099/share from ~Rs 2200/share.
• Hence, our target price has also now been revised to Rs 1245/share post this corporate action.

• Revenue growth of Abbott India Ltd (AIL) for FY21 has outpaced the Indian Pharma Market (IPM) growth by 100 bps majorily contributed by addition of new products
• AIL has leadership position in 9 top brands out of 10 in their respective therapies
• We recommend BUY with a TP of Rs 20,000/share.

• Toxity in Axis Bank’s work culture confirmed by Ravi Narayanan – Group Executive, retail liabilities and branches
• Senior executive at town hall meeting allegedly stated “employees should fight, abuse and complain amongst them [sic] for business, this is the attitude what [sic] I like”
• Strategy of abuse so far has failed but with board’s endorsement, more of the same is being implemented which may have adverse impact on performance 

Consensus (continues to) believe that DMart is a linear and secular growth story. We disagree. This analyst’s >20 years Consumer experience suggests that in India, nuances matter more. We disagree with consensus’ over-enthusiasm of BAAP. SELL. Watch-out for DMart (and modern retail) potentially getting disrupted like how India skipped wireline penetration and jumped directly to wireless.

• UPL, incorporated in 1969, is a global player in the agro-chemicals industry with strong presence in off-patent market of US and Europe
• UPL is a direct proxy for increase in demand for food crops due to rising commodity prices, high population growth and high demand for bio-fuel
• The recent acquisition of Arysta, will further increase UPL’s global scale and make it the 5th largest agrochemical player globally

• With rates in India vulnerable to a further correction in the US, I recommend paying India 5y vs receiving Mexico 5y rate in a beta-neutral ratio.
• Real rates in India are the lowest among major emerging countries, which along with rising inflation expectations and strong growth should pressure the RBI to raise rates soon.
• Mexico is appealing as a receiver against paying in India because the central bank is further along in its monetary tightening cycle as is evident from the high real rates.

• The management is optimistic on VRLL’s growth prospects over the next couple of years. A shift towards the organized sector would result in robust business opportunities 
• In the near term, stabilization of fuel prices and improved volumes will benefit this sector. 
• We expect VRLL to clock a revenue/EBITDA/PAT CAGR of ~19%/19%/45% over FY21- 24E. We reiterate our Buy rating, with a TP of INR540/share (35x FY24E EPS)

We expect regulatory convergence on the back of the RBI’s recent narrative for digital lenders although FinTech BNPLs are likely to sustain their superior user experience. Within a bouquet of BNPL options, credit cards remain the most exhaustive and profitable and, in fact, offer an up-sell opportunity for credit-tested top-of-the-BNPL-pyramid customers. India’s Buy-Now-Pay-Later (BNPL) is positioned as a source of gateway credit and poised to grow to USD56bn by FY26 (~5% of digital P2M payments) on the back of rising ecommerce and digital payments penetration.

We initiate on SBI Cards with BUY and RI-based target price of INR1,100. SBI Cards and Payment Services (SBI Cards), India’s second largest credit card issuer, has established itself as an enviable franchise, delivering on all fronts (~40% EPS CAGR from FY18 to FY20, ~5-6% RoA, prudent risk management, etc.). With a balanced customer acquisition strategy across open market and banca (SBI), SBI Cards has diversified its revenue streams (fee income at ~50% of total income) to drive earnings, which is poised for a 45% EPS CAGR over FY21-FY24E.

Focus on backward integration in the Chemical segment should improve chlorine usage as Grasim plans to increase chlorine consumption in value added products (VAPs) to 40% by FY25E from 28% in FY21. Chemical segment’s OPM should improve to 19% in FY23E from 13% in FY21. Further, likely capacity expansions of 37%/33% in the VSF/Caustic soda segments, respectively, should improve volume/profits during FY22-24E. We estimate a 16%/15% volume CAGR for the VSF/Chemical business, respectively, over FY21-24.