23 October 2020 HSIE Results Daily HSIE Results Daily

23 October 2020 HSIE Results Daily

HSIE Results Daily

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Contents

Results Review

Asian Paints: Delivering growth along with improving profitability and

untouched free cash generation during a pandemic, especially when top

cities are yet to fire (70-80% of base quarter sales) is a testimony to APNT’s

distribution and product portfolio heft. That said, the recovery is more than

priced in at 54x Sept-22 P/E. We revise our FY22/23 EPS estimates

marginally (2/4% resp) and, consequently, our DCF-based TP to Rs. 1,850/sh

(earlier TP: Rs. 1,800/sh) implying 50x Sep-22 P/E.

Bajaj Auto: Bajaj’s 2QFY21 results were above estimates as EBITDA margin

came in at 17.7% (+110bp YoY). The demand is reviving across overseas

geographies (80-90% of pre-COVID levels) and domestic markets, with

festive sales equivalent to that of last year. The high margin domestic 3W

segment will witness a gradual pick-up in sales as cities gradually

normalise. We raise our FY21/22 estimates by 8/2% to factor in a healthy 2Q

performance and set a revised target price of Rs 3,270 at 18x Sep-22E EPS (at

a 5% premium to the 10-year historic average trading multiple). The key

risks are slower-than-expected recovery on the downside and firming up of

oil prices on the upside.

Ambuja Cements: During 3QCY20, Ambuja Cements (ACEM) reported

strong results. Standalone net sales/EBITDA/APAT rose 9/55/88% YoY to Rs

28.53/6.80/4.41bn respectively. Volumes jumped 8% YoY on strong retail

demand. Opex fell 8% YoY on robust (and structural) cost controls and low

fuel prices, driving a 44% jump in unitary EBITDA to Rs 1,200/MT. In a

positive surprise, ACEM announced Rs 17/share dividends, thus paying off

60% of its large cash pile up on books. We maintain BUY with a higher

target price (SOTP-based) of Rs 283/share, owing to increased volume

growth and robust unitary EBITDA visibility, and a leaner balance sheet,

post the large dividend payout.

HSIE Research Team

[email protected]

Page | 2

HSIE Results Daily

Asian Paints

Standing tall

Delivering growth along with improving profitability and untouched free

cash generation during a pandemic, especially when top cities are yet to fire

(70-80% of base quarter sales) is a testimony to APNT’s distribution and

product portfolio heft. That said, the recovery is more than priced in at 54x

Sept-22 P/E. We revise our FY22/23 EPS estimates marginally (2/4% resp) and,

consequently, our DCF-based TP to Rs. 1,850/sh (earlier TP: Rs. 1,800/sh)

implying 50x Sep-22 P/E.

2QFY21 highlights: Revenue grew 5.9% YoY to Rs. 53.5bn (HSIE: Rs. 52.4bn)

as recovery was stronger than expected. Decorative business volume grew

11% YoY underpinned by encouraging pick up in Emulsions (low-end and

Luxury alike), Undercoats and Waterproofing. Demand in Tier 2/3/4 towns

have passed the pre-COVID19 level, and metros/Tier 1 cities continue to

improve progressively (70-80% of pre-COVID sales). GMs expanded 197bp

to 44.4% (in-line), aided by benign RM prices and better sourcing efficiency.

EBITDA grew 32.5% YoY to Rs. 12.65bn (HSIE: Rs. 11.3bn). EBITDAM

expanded 474bp YoY to 23.6% (HSIE: 21.5%) as GM savings trickled down

and management continued to keep a tight leash on marketing, travelling,

and other SG&A expenses. International revenue grew 7.8%/-9% YoY to Rs.

6.6/10.56bn in 2Q/1HFY21 and PBT grew 44.3/-5% YoY to Rs. 690/730mn

respectively in 2Q/1H. Industrial Paints continues to witness gradual

recovery. Kitchen & Bath business nearly touched the pre-COVID level with

improving profitability.

Outlook: APNT’s 2QFY21 recovery is a testimony to its dominance across

distribution and product portfolio. However, at 54x Sept-22 P/E, pluses seem

more than priced in. We maintain our REDUCE recommendation with a

revised target price of Rs. 1,850/sh (earlier TP: 1,800/sh), implying 50x Sep-22

P/E. Note: TP change is a function of EPS change (2/4% for FY22/23).

Quarterly financial summary

(Rs mn) 2Q

FY21

2Q

FY20

YoY

(%)

1Q

FY21

QoQ

(%) FY19 FY20 FY21E FY22E FY23E

Net Revenue 53,502 50,507 5.9 29,227 83.1 193,415 202,113 195,321 232,453 260,590

EBITDA 12,652 9,548 32.5 4,843 161.3 35,245 41,618 42,288 49,625 55,057

APAT 8,519 8,450 0.8 2,196 287.9 21,595 27,101 26,813 32,712 37,578

EPS (Rs) 8.9 8.8 1.2 2.29 287.9 22.5 28.3 28.0 34.1 39.2

P/E (x)

86.9 69.2 70.0 57.4 49.9

EV/EBITDA (x)

53.3 45.0 43.9 37.1 33.1

Core RoCE(%)

25.2 27.7 25.7 31.5 36.1

Source: Company, HSIE Research, Standalone Financials

Change in estimates

(Rs mn)

FY21E FY22E FY23E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 195,321 188,760 3.5 232,453 230,410 0.9 260,590 256,587 1.6

Gross Profit 86,765 85,208 1.8 101,163 100,503 0.7 112,781 111,389 1.3

Gross Profit Margin

(%) 44.4 45.1 (72 bps) 43.5 43.6 (10 bps) 43.3 43.4 (13 bps)

EBITDA 42,288 38,689 9.3 49,625 48,500 2.3 55,057 53,015 3.9

EBITDA margin (%) 21.7 20.5 115 bps 21.3 21.0 30 bps 21.1 20.7 47 bps

APAT 26,813 24,211 10.7 32,712 32,032 2.1 37,578 36,148 4.0

APAT margin (%) 13.7 12.8 90 bps 14.1 13.9 17 bps 14.4 14.1 33 bps

EPS (Rs) 28.0 25.2 10.7 34.1 33.4 2.1 39.2 37.7 4.0

Source: Company, HSIE Research

REDUCE

CMP (as on 22 Oct 2020) Rs 2,100

Target Price Rs 1,850

NIFTY 11,896

KEY

CHANGES OLD NEW

Rating REDUCE REDUCE

Price Target Rs 1,800 Rs 1,850

EPS % FY22E FY23E

+2.1 +4.0

KEY STOCK DATA

Bloomberg code APNT IN

No. of Shares (mn) 959

MCap (Rs bn) / ($ mn) 2,014/27,350

6m avg traded value (Rs mn) 4,855

52 Week high / low Rs 2,144/1,431

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) 23.8 15.8 18.0

Relative (%) 16.7 (13.4) 13.9

SHAREHOLDING PATTERN (%)

Jun-20 Sep-20

Promoters 52.79 52.79

FIs & Local MFs 3.94 3.23

FPIs 18.21 19.84

Public & Others 25.06 24.14

Pledged Shares 6.18 6.26

Source : BSE

Pledged shares as % of total shares

Varun Lohchab

[email protected]

+91-22-6171-7334

Jay Gandhi

jay.gandhi @hdfcsec.com

+91-22-6171-7320

Page | 3

HSIE Results Daily

Bajaj Auto

Margin beat

Bajaj’s 2QFY21 results were above estimates as EBITDA margin came in at

17.7% (+110bp YoY). The demand is reviving across overseas geographies (80-

90% of pre-COVID levels) and domestic markets, with festive sales equivalent

to that of last year. The high margin domestic 3W segment will witness a

gradual pick-up in sales as cities gradually normalise. We raise our FY21/22

estimates by 8/2% to factor in a healthy 2Q performance and set a revised

target price of Rs 3,270 at 18x Sep-22E EPS (at a 5% premium to the 10-year

historic average trading multiple). The key risks are slower-than-expected

recovery on the downside and firming up of oil prices on the upside.

2QFY21 financials: Volumes declined 10% YoY to ~1mn units (vs. 440K

QoQ). However, realisations grew 3% YoY (-2% QoQ) due to BSVI

transition. Revenue at Rs 71.5bn came in line with estimates (-7% YoY).

EBITDA margin at 17.7% surprised positively and expanded 100/440bps

YoY/QoQ. Other expenses declined 23% YoY due to delayed festive season,

lower marketing spends, and operating cost controls. PAT at Rs 11.3bn

increased more than 2x QoQ (-19% YoY).

Key takeaways: Domestic segment: Management’s strategy of launching a

downsized Pulsar 125 (ahead of the BSVI rollout) is now bearing fruit as the

OEM recorded healthy sales of this variant. In the ongoing festive season,

2W sales have been equivalent to last year. While 3W domestic demand has

bottomed, the pick-up is expected to be gradual. Export markets:

Internationally, the company is gaining market share and has achieved its

highest exports in Sep-20. Demand has recovered to 80-90% of pre-COVID

levels for 2Ws and 75-80% for 3Ws. However, frontier markets such as

Nigeria have witnessed social unrest recently. While the situation is

expected to normalise, we will monitor the demand trends in this key

market. Any further rise in oil prices will lead to a faster recovery in the

African region.

Financial Summary (Standalone)

YE Mar (Rs mn) 2Q

FY21

2Q

FY20

YoY

(%)

1Q

FY21

QoQ

(%) FY19 FY20 FY21E FY22E FY23E

Net Sales 71,559 77,073 (7.2) 30,792 132.4 303,576 299,187 261,567 294,469 338,502

EBITDA 12,663 12,781 (0.9) 4,085 210.0 51,925 50,962 43,943 49,647 58,730

APAT 11,382 14,024 (18.8) 5,280 115.6 44,366 51,000 43,550 48,637 56,326

Adj. EPS (Rs) 39.3 48.5 (18.8) 18.2 115.6 153.3 176.2 150.5 168.1 194.6

APAT Growth(%)

8.5 15.0 (14.6) 11.7 15.8

P/E (x)

19.5 17.0 19.9 17.8 15.4

RoE (%)

21.7 24.5 20.8 21.1 22.1


Change in estimates

Rs mn New Old Change (%)

FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E

Revenue 261,567 294,469 338,502 261,491 294,353 338,353 0 0 0

EBITDA 43,943 49,647 58,730 38,962 46,979 55,997 13 6 5

EBITDA margin (%) 16.8 16.9 17.4 14.9 16.0 16.6 190 bps 90 bps 80 bps

PAT 43,550 48,637 56,326 40,435 47,838 55,890 8 2 1

EPS 150.5 168.1 194.6 139.7 165.3 193.1 8 2 1


ADD

CMP (as on 22 Oct 2020) Rs 3,006

Target Price Rs 3,270

NIFTY 11,896

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target Rs 3,230 Rs 3,270

EPS % FY21E FY22E

8% 2%

KEY STOCK DATA

Bloomberg code BJAUT IN

No. of Shares (mn) 289

MCap (Rs bn) / ($ mn) 870/11,811


52 Week high / low Rs 3,315/1,789


3M 6M 12M

Absolute (%) 0.7 26.3 (3.7)

Relative (%) (6.4) (2.9) (7.8)


Jun-20 Sep-20

Promoters 53.7 53.7


FPIs 13.7 13.6


Pledged Shares 0.0 0.0

Source : BSE

Aditya Makharia

[email protected]

+91-22-6171-7316

Mansi Lall

[email protected]

+91-22-6171-7357

Page | 4

HSIE Results Daily

Ambuja Cements

Stellar show yet again; dividend bonanza announced

During 3QCY20, Ambuja Cements (ACEM) reported strong results.

Standalone net sales/EBITDA/APAT rose 9/55/88% YoY to Rs 28.53/6.80/4.41bn

respectively. Volumes jumped 8% YoY on strong retail demand. Opex fell 8%

YoY on robust (and structural) cost controls and low fuel prices, driving a 44%

jump in unitary EBITDA to Rs 1,200/MT. In a positive surprise, ACEM

announced Rs 17/share dividends, thus paying off 60% of its large cash pile

up on books. We maintain BUY with a higher target price (SOTP-based) of

Rs 283/share, owing to increased volume growth and robust unitary EBITDA

visibility, and a leaner balance sheet, post the large dividend payout.

Strong 3QCY20 results, large dividend payout: Riding on robust retail

demand in north, central and east markets, ACEM printed 8% YoY volume

rise. NSR also remained solid at +1% YoY. Opex reduction accelerated to 8%

YoY, benefitting from structural metrics (fixed cost controls, logistics

optimization and Material Supply Agreement with ACC) and lower fuel

prices. Thus, its unitary EBITDA soared 44% YoY to Rs 1,200/MT. It also

announced Rs 17/share dividend (60% of its cash balance, 7% pre-tax yield).

Outlook: Buoyed by structural opex reduction and healthy pricing, we

expect ACEM’s unitary EBITDA to rebound to a 13-year high of Rs 1,176/MT

in CY20E and to sustain during CY21/22E. Its upcoming expansion in

Rajasthan by 2QCY21 will boost volume growth during CY21-23E. We raise

our EBITDA estimates for CY20/21/22E by 6/7/6% factoring in the cost

controls benefits. Robust margin, high growth visibility and leaner balance

sheet (large dividend payout) should drive rerating. We raise our valuation

multiple for standalone business to 12x Sep’22E EBITDA (earlier 11x), inline

its 10-year mean. We value its 50% holding in ACC at a 20% discount, thus

leading to a SOTP target price of Rs 283/share with a BUY rating.

Standalone Quarterly/Annual Financial summary YE Dec

(Rs mn)

3Q

CY20

3Q

CY19

YoY

(%)

2Q

CY20

QoQ

(%) CY18 CY19 CY20E CY21E CY22E

Sales (mn MT) 5.7 5.3 7.8 4.2 35.3 24.2 24.0 22.5 25.3 27.5

NSR (Rs/MT) 5,031 4,992 0.8 5,195 (3.2) 4,697 4,870 4,997 5,040 5,111

Opex (Rs/MT) 3,831 4,156 (7.8) 3,775 1.5 3,913 3,973 3,821 3,881 3,951

EBITDA (Rs/MT) 1,200 836 43.5 1,421 (15.5) 784 897 1,176 1,158 1,160

Net Sales 28,525 26,258 8.6 21,768 31.0 113,568 116,679 112,680 127,277 140,695

EBITDA 6,803 4,398 54.7 5,952 14.3 18,953 21,489 26,524 29,253 31,927

APAT 4,405 2,346 87.8 4,534 (2.8) 12,129 14,770 18,199 19,635 20,807

AEPS (Rs) 2.2 1.2 87.8 2.3 (2.8) 6.1 7.4 9.2 9.9 10.5

EV/EBITDA (x)

18.6 15.8 13.5 12.0 10.4

EV/MT (Rs bn)

11.96 11.50 12.11 11.20 10.64

P/E (x)

41.6 34.1 27.7 25.7 24.2

RoE (%)

5.9 6.8 8.5 9.2 9.1

Source: Company, HSIE Research, Standalone Financials

Estimates revision

Rs Bn CY20E

Old

CY20E

Revised

Change

%

CY21E

Old

CY21E

Revised

Change

%

CY22E

Old

CY22E

Revised

Change

%

Net Sales 109.8 112.7 2.6 124.0 127.3 2.6 137.1 140.7 2.6

EBITDA 24.9 26.5 6.4 27.4 29.3 6.9 30.0 31.9 6.3

APAT 16.2 18.2 12.6 17.4 19.6 12.7 19.3 20.8 7.7

AEPS (Rs) 8.1 9.2 12.6 8.8 9.9 12.7 9.7 10.5 7.7


BUY

CMP (as on 22 Oct 2020) Rs 254

Target Price Rs 283

NIFTY 11,896

KEY

CHANGES OLD NEW

Rating BUY BUY

Price Target Rs 260 Rs 283

EBITDA % CY20E CY21E

6.4 6.9

KEY STOCK DATA

Bloomberg code ACEM IN

No. of Shares (mn) 1,986

MCap (Rs bn) / ($ mn) 504/6,838


52 Week high / low Rs 256/137


3M 6M 12M

Absolute (%) 26.2 43.7 29.5

Relative (%) 19.1 14.4 25.4


Jun-20 Sep-20

Promoters 63.27 63.27


FPIs 16.25 16.79


Pledged Shares - -

Source : BSE

Pledged shares as % of total shares

Rajesh Ravi

[email protected]

+91-22-6171-7352

Saurabh Dugar

[email protected]

+91-22-6171-7353

Page | 5

HSIE Results Daily

Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Disclosure:

Analyst Company Covered Qualification Any holding in the stock

Varun Lohchab Asian Paints PGDM NO

Jay Gandhi Asian Paints MBA NO

Aditya Makharia Bajaj Auto CA NO

Mansi Lall Bajaj Auto MBA NO

Rajesh Ravi Ambuja Cements MBA NO

Saurabh Dugar Ambuja Cements MBA NO

Page | 6

HSIE Results Daily

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