In today’s briefing:
- State Bank of India – Rules Don’t Apply
- This $50 Billion SPAC Deal Has Several Red Flags
- Brigade Enterprises Ltd: Strong Launch Pipeline Ahead
- Avadh Sugar: High Sugar Prices, B-Heavy Ethanol Aid Profit Jump
- Indian Banks; Further Question Marks on Credit Quality
- Pfizer Ltd: Growth in Brands Intact Amid Margins Normalisation
- Dalmia Bharat Sugar: Increase of 3x in Distillery Sales to Boost Profits
- Dabur India: Broad Based Growth Led By Impressive Execution
- GAIL: Gas Trading Segment Continues to Drive Earnings
- Exide Industries: Await Bigger, Firm Investments in Li-On Battery Space
State Bank of India – Rules Don’t Apply
- 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.
This $50 Billion SPAC Deal Has Several Red Flags
- 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 Ltd: Strong Launch Pipeline Ahead
- 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
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Avadh Sugar: High Sugar Prices, B-Heavy Ethanol Aid Profit Jump
- 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.
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Indian Banks; Further Question Marks on Credit Quality
- 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 Ltd: Growth in Brands Intact Amid Margins Normalisation
- 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
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Dalmia Bharat Sugar: Increase of 3x in Distillery Sales to Boost Profits
- 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.
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Dabur India: Broad Based Growth Led By Impressive Execution
- 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.
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GAIL: Gas Trading Segment Continues to Drive Earnings
- 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
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Exide Industries: Await Bigger, Firm Investments in Li-On Battery Space
- 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).
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