In today’s briefing:
- NIFTY50 Index Rebalance Preview: High Probability Add; Impact Higher than the Headline Numbers
- Aurobindo Pharma (ARBP IN): Regulatory Issues Continue to Haunt the Company
- When Bank ESOPs Go Under Water, Expect Senior Management to Be Distracted or Departing
- Tech Mahindra – Margin Pressure Higher; Reduce Target Multiple on Vulnerability
- Balkrishna Industries – Margin Pressure to Sustain; Valuation Remains Attractive
- Bandhan Bank – Stress Levels Down on the Back of Improving Collections, Recoveries
- Bank of Baroda – Raises Credit Growth Guidance
- Coforge Ltd (COFORGE) – Strong Results; Outlook Remains Healthy
- Eicher Motors – New Launches and Exports to Drive Volume Growth; BUY
- Emami Ltd – Subdued Operating Performance; Undemanding Valuation
NIFTY50 Index Rebalance Preview: High Probability Add; Impact Higher than the Headline Numbers
- We are past the halfway mark in the review period of the NIFTY Index (NIFTY INDEX) September rebalance. We see one potential change which should be announced end August.
- There is a high probability of Adani Enterprises (ADE IN) being included in the index, while either Shree Cement (SRCM IN) or Hero Motocorp (HMCL IN) will be deleted.
- The impact of passive fund trading on the stocks is high in terms of days of ADV, but very high in terms of delivery volume.
Aurobindo Pharma (ARBP IN): Regulatory Issues Continue to Haunt the Company
- Aurobindo Pharma (ARBP IN) has been issued six observations for its oral manufacturing unit by the FDA, which will further impact its business. The company closed its New Jersey facility.
- Aurobindo’s recent acquisition of Veritaz Health for INR1.7 billion does not really fit for the company’s high hope for the domestic formulation business.
- Aurobindo shares are trading at a forward P/E of 10.9x, which is cheaper than the peers. However, the company is not expected to see multiple expansion in near future.
When Bank ESOPs Go Under Water, Expect Senior Management to Be Distracted or Departing
- When stocks languish, or spiral downwards, it is not just shareholders whose wealth erodes. Senior executives, also suffer, as much of their personal wealth may be tied up in ESOPs.
- Few HDFC Bank ESOPs may be of concern to executives while many ESOPs of RBL Bank and Bandhan Bank are under water
- ESOPs are a major retention tool for holding onto executives. If ESOPs are under water it may accelerate senior executive attrition worsening the situation
Tech Mahindra – Margin Pressure Higher; Reduce Target Multiple on Vulnerability
- Need to see how 5G spending holds up in a stagflationary environment: 5G related demand is one of the reasons why we and the street have been bullish on TML.
- While we are at the beginning of the 5G spend cycle (which could play out over a longer time compared to the 4G cycle, according to industry), we think the spends may be a bit cyclically constrained in 2HFY23 and in FY24 before they recover eventually – quite similar to how we expect the digital spends to behave.
- However, unlike in Digital, we believe that TML has a better right to win in the this area because of its long-standing relationships has with >150 Telcos, to which it has likely added a lot of value over the years.
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Balkrishna Industries – Margin Pressure to Sustain; Valuation Remains Attractive
- Demand holds reasonably well: Demand continued to hold strong across segments and regions.
- Cost pressures to persist in the near term; reiterates sustainable margin guidance
- Rs22.5bn capex to cater to medium term demand: BKT has decided to keep on hold investment of Rs3.5bn to continue operating the old Walunj plant and operations in the plant will continue, taking its total capacity to 360k MT by the end of FY23. Project capex for FY23 will likely be at ~Rs9bn each.
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Bandhan Bank – Stress Levels Down on the Back of Improving Collections, Recoveries
- Strong growth across segments: Overall loans increased by 15.1% YoY and 17.1% QoQ
- NII growth was strong; aided by margin expansion: NII increased by 44.6% YoY and 19.5% QoQ.
- Deposits growth steady: Overall deposits increased by 23.5% YoY and 14% QoQ. CASA deposits increased by 18.5% YoY and 4% QoQ.
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Bank of Baroda – Raises Credit Growth Guidance
- Guiding for 10-12% credit growth: Gross advances increased by 8.9% YoY and 6% QoQ. Domestic loan book increased by 6.7% YoY and 4.6% QoQ, led by 16.8% YoY growth in retail loans.
- Asset quality improves: Overall asset quality improved, with the GNPA ratio falling to 6.61% in 4QFY22 from 7.25% in 3QFY22 and 8.87% in 4QFY21.
- NII growth led by margin expansion: NII growth at 21.2% YoY came in higher on the back of 36bps YoY expansion in NIM.
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Coforge Ltd (COFORGE) – Strong Results; Outlook Remains Healthy
- Encouraging growth across verticles – On the vertical front, the BFS vertical exhibited a robust growth of 3% QoQ.
- Outlook & Valuation – Coforge has a robust business structure coupled with multiple long-term contracts spread across verticals which will help it generate sustainable growth momentum moving ahead.
- We recommend a BUY rating on the stock and assign a 24x P/E multiple to its FY24E earnings of Rs 177.8/share which gives a TP of Rs 4,200 /share.
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Eicher Motors – New Launches and Exports to Drive Volume Growth; BUY
- Revenue and margins in line – displaying good improvement: Standalone revenue came in at Rs31.9bn, up ~9% YoY, which was in line with our estimate, led by ASP growth and an optimum product mix.
- Valuation turns favorable: We value RE (standalone) at 24x FY24E EPS and VECV at 12x EV/EBITDA on FY24E to arrive at a TP of Rs2,939.
- We expect demand to remain strong and drive volume growth going ahead in both domestic as well as export markets, leading to 21% volume growth.
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Emami Ltd – Subdued Operating Performance; Undemanding Valuation
- 4QFY22 headline performance: Emami’s 4QFY22 consolidated revenue grew by 5.4% YoY to Rs7.7bn (vs our est. Rs7.7bn).
- FY22 performance: Revenue, EBITDA, PBT and APAT (before Amortization) grew by 10.8%, 7.7%, 12.2% and 49.2% YoY, respectively.
- Other highlights: (1) LUP’s contribute 23-24% to the overall portfolio. (2) The company added additional 8,000 rural towns in FY22 through Project Khoj, taking the total to 40,000 towns.
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