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HDFC Life Insurance Company Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/HDFC_Life-Jan15_2024.pdf
Weak Q3
BUY\u0009CMP : Rs. 615\u0009PT : Rs. 750\u0009
HDFC Life reported ~2% y-o-y decline in APE (~7% below estimates) resulting in VNB declining by ~2% y-o-y (missing our estimates by ~10%). However, VNB margins stood at 26.8% stable y-o-y.
Lower APE was led by lower Non-PAR (-32%), Group protection (-31%), Annuity (-9%) and PAR (-2%) sales. While ULIP (+88%) and Individual Protection (+54%) witnessed strong growth.
Muted growth seen on Banca (~3% yoy) and Agency (~3%) channel while Direct and Broker channel declined by 6% y-o-y & 57% y-o-y respectively.
Stock currently trades at 2.4x/ 2.0x its FY2025E/ FY2026E EVPS. We maintain a Buy on the stock with an unchanged PT of Rs. 750.
Tata Consumer Products Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/TCPL-3R-Jan15_2024.pdf
Acquisitions to fill white spaces to fuel growth
BUY CMP : Rs. 1,150 PT : Rs. 1,315
Tata Consumer Products Limited (TCPL) is set to acquire Capital Foods and Organic India, which fit well within key growth platforms, including premiumization and value accretion in the portfolio.
There is significant potential to leverage TCPL’s strong distribution network, global presence and increasing scale with scope for operating efficiencies to drive profitability.
Acquisitions would be done at combined enterprise value (EV) of Rs. 7,000 crore; and funded through a mix of internal accruals/debt/equity. It will be earnings accretive in FY26E (in mid-single digits based on calculations).
Stock trades at 58x/52x its FY2025E/26E EPS. Acquisitions will add strong value to portfolio and earnings in the medium to long run. We maintain a Buy with a revised PT of Rs. 1,315.
Infosys Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/Infosys-3R-Jan12_2024.pdf
No bad news, is good news
BUY CMP : Rs. 1,612 PT : Rs. 1,850
Revenues stood at $4,663 million, down 1% q-o-q in constant currency CC terms, beating our estimates of $4,625 million in a seasonally soft quarter.
EBIT margin declined ~70 bps q-o-q to 20.5% in- line with our expectations of 20.3%. EBIT margin during the quarter was impacted by wage hike and McCamish cyber-attack incident but partially offset by cost optimization efforts.
Large deal TCV stood at $3.2 billion, with 71% being net new deals. Deal win momentum remains strong with TTM TCVs up ~53% y-o-y.
The management has tightened the revenue growth guidance for FY24 to 1.5-2% in CC terms from 1-2.5% implying muted revenue growth for Q4FY24 but has maintained the operating margin guidance for FY24 at 20% to 22%.
Large deal signings and continuity of renewals to gain further traction as macro headwinds recede, improving earning visibility for FY25/FY26E. Hence, we maintain a Buy on Infosys with revised PT of Rs. 1850 (increase in PT reflects the roll forward to FY26E EPS) At the CMP, the stock trades at 23.3x/20x its FY25/26E EPS.
HCL Technologies Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/HCLTech-3R-Jan12_2024.pdf
Robust Q3; Maintain Buy
BUY CMP : Rs. 1,543 PT : Rs. 1,780
HCL Tech reported strong revenues of $3,415 million, up 6% q-o-q/4.3% y-o-y in constant currency (CC) terms beating our estimates of 4.4% q-o-q CC led by ERS, HCL Software and IT services, which grew 8.7%/32% and 1.9%, q-o-q respectively in CC terms.
EBIT margins improved ~130 bps q-o-q to 19.8% owing to outperformance from the software (180 bps) that was offset by services margin (50 Bps) despite wage hike and furloughs. New deal win TCVs stood at $1,927 million, down 51%/18% on a q-o-q and y-o-y basis, respectively.
FY24 CC revenue growth (including ASAP acquisition) guidance narrowed to 5-5.5% at company level as well as for Services segment. Ask rate for Q4FY24 at 0.3 to 2.1%, and 1.6 to 3.5% at services level.
We believe HCL Tech is well-equipped to maintain its growth leadership among large peers in the medium term given the diversified portfolio that is well-aligned to growth areas and strong execution. Hence, we maintain Buy with revised price target (PT) of Rs 1,780. At CMP the stock trades at 22.5/19.1x its FY25/26E EPS.
Wipro Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/Wipro-3R-Jan12_2024.pdf
Beats expectations, Optimistic Commentary
HOLD CMP : Rs. 465 PT : Rs. 530
Wipro’s Q3FY24 revenue stood at $2,656.6 million, down 1.7% q-o-q in CC but above our estimate of 2.5% q-o-q decline in CC owing to weakness in Communications, Manufacturing, Technology, Consumer, and BFSI verticals partially offset by growth in HealthCare and Energy & Utilities.
IT services margin declined 10bps q-o-q to 16%, beating our estimates of 15.4% despite wage hikes and furloughs. Total bookings stood at $3.8 billion while large deal TCV stood at $0.9 billion, down 8.3% y-o-y in CC.
The company provided revenue growth guidance for IT services in the range of -1.5 to 0.5% in constant currency for Q4FY24 implying anticipation of improving demand environment.
In line with our sector upgrade, we have raised the target multiple for Wipro to factor in receding macro headwinds and better earnings visibility for FY25. However, we believe Wipro’s earnings growth momentum would lag its Tier 1 peers. Hence, we maintain Hold on Wipro with revised price target (PT) of Rs. 530. At CMP, the stock trades at 20.5/17.7x its FY25/26E EPS.
Gujarat Gas Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/GujGas-3R-Jan12_2024.pdf
Margin tailwinds from fall in spot LNG price
BUY CMP : Rs. 535 PT : Rs. 615
A sharp fall of 34% in spot LNG price to $11/mmBtu since November 2023 could act as margin tailwinds for Gujarat Gas. Asian spot LNG March 2024 futures show further decline of 10% to $10/mmBtu.
Propane prices stay firm at $580-600/tonne and a likely improvement in I-PNG’s competitiveness versus propane could drive volume recovery from Morbi ceramic cluster as customers may switch to natural gas from propane.
Likely lower gas costs and volume recovery would drive solid 30% earnings CAGR over FY2024E-FY2026E along with RoE of 21%.
We maintain a Buy with a revised PT of Rs. 615 as we rollover PE multiple to FY26E EPS. At CMP, the stock trades at 19x FY26E EPS.
Hi-Tech Pipes Ltd
https://www.sharekhan.com/MediaGalary/Equity/Hitech-3R-Jan12_2024.pdf
Operational profitability upbeat; outlook is positive
POSITIVE CMP : Rs. 147 Upside potential : 20%
We stay Positive on Hi-Tech Pipes and expect a 20% upside, rolling forward our valuation multiple to FY2026E earnings, considering its strong net earnings growth outlook over FY2023-FY2026E.
Consolidated Q3 net earnings beat estimates, led by higher-than-estimated operational profitability, while revenue lagged due to lower realisation.
Hi-Tech expects sales volume of over 4 lakh tonne for FY2024 and 20-25% y-o-y growth for FY2025-FY2026. EBITDA/tonne target is pegged at Rs. 3,500 and Rs. 4,000 for FY2025 and FY2026, respectively.
About 1.2 lakh tonne of the 1.7-lakh tonne LDA pipe project at Sanand is under trial runs. Hitech eyes a 1-million tonne capacity by FY2025-end.
Hi-Tech Pipes Ltd
https://www.sharekhan.com/MediaGalary/Equity/Hitech-3R-Jan12_2024.pdf
Operational profitability upbeat; outlook is positive
POSITIVE CMP : Rs. 147 Upside potential : 20%
We stay Positive on Hi-Tech Pipes and expect a 20% upside, rolling forward our valuation multiple to FY2026E earnings, considering its strong net earnings growth outlook over FY2023-FY2026E.
Consolidated Q3 net earnings beat estimates, led by higher-than-estimated operational profitability, while revenue lagged due to lower realisation.
Hi-Tech expects sales volume of over 4 lakh tonne for FY2024 and 20-25% y-o-y growth for FY2025-FY2026. EBITDA/tonne target is pegged at Rs. 3,500 and Rs. 4,000 for FY2025 and FY2026, respectively.
About 1.2 lakh tonne of the 1.7-lakh tonne LDA pipe project at Sanand is under trial runs. Hitech eyes a 1-million tonne capacity by FY2025-end.
Gujarat Gas Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/GujGas-3R-Jan12_2024.pdf
Margin tailwinds from fall in spot LNG price
BUY CMP : Rs. 535 PT : Rs. 615
A sharp fall of 34% in spot LNG price to $11/mmBtu since November 2023 could act as margin tailwinds for Gujarat Gas. Asian spot LNG March 2024 futures show further decline of 10% to $10/mmBtu.
Propane prices stay firm at $580-600/tonne and a likely improvement in I-PNG’s competitiveness versus propane could drive volume recovery from Morbi ceramic cluster as customers may switch to natural gas from propane.
Likely lower gas costs and volume recovery would drive solid 30% earnings CAGR over FY2024E-FY2026E along with RoE of 21%.
We maintain a Buy with a revised PT of Rs. 615 as we rollover PE multiple to FY26E EPS. At CMP, the stock trades at 19x FY26E EPS.
Infosys Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/Infosys-3R-Jan12_2024.pdf
No bad news, is good news
BUY CMP : Rs. 1,612 PT : Rs. 1,850
Revenues stood at $4,663 million, down 1% q-o-q in constant currency CC terms, beating our estimates of $4,625 million in a seasonally soft quarter.
EBIT margin declined ~70 bps q-o-q to 20.5% in- line with our expectations of 20.3%. EBIT margin during the quarter was impacted by wage hike and McCamish cyber-attack incident but partially offset by cost optimization efforts.
Large deal TCV stood at $3.2 billion, with 71% being net new deals. Deal win momentum remains strong with TTM TCVs up ~53% y-o-y.
The management has tightened the revenue growth guidance for FY24 to 1.5-2% in CC terms from 1-2.5% implying muted revenue growth for Q4FY24 but has maintained the operating margin guidance for FY24 at 20% to 22%.
Large deal signings and continuity of renewals to gain further traction as macro headwinds recede, improving earning visibility for FY25/FY26E. Hence, we maintain a Buy on Infosys with revised PT of Rs. 1850 (increase in PT reflects the roll forward to FY26E EPS) At the CMP, the stock trades at 23.3x/20x its FY25/26E EPS.
SHAREKHAN SPECIAL:-Q3FY2024 Results Preview
Modest growth, domestic themes to outperform
https://www.sharekhan.com/MediaGalary/Equity/Q3FY24_ResultsPreview-Jan11_2024.pdf
In Q3FY24, we expect a modest y-o-y earnings growth of 11% for Nifty 50 companies driven by domestic cyclicals such as banks, automobile as well as capital goods, pharmaceuticals, cement, while IT and chemicals would underperform.
EBITDA margins are likely expand for automobiles, cement and metal sectors while those of IT, agri-inputs, speciality chemicals are likely to contract on a y-o-y basis. For the SK universe, we expect healthy 14% y-o-y earnings growth.
Demand outlook in domestic (urban/rural) and export market after the festive season, margin outlook and capex recovery would be keenly watched out for in management commentaries.
Nifty’s valuation of 20x FY25E EPS is not cheap but not expensive either given expectations of a 12-14 % CAGR in Nifty-50 earnings over next two years. Favourable macros, potential rate cuts, easing inflation and policy reforms bodes well for equity. After a strong rally in the small/mid-cap space, we turned selective and preferred large caps.
High-conviction investment ideas:
Large-caps: HDFC Bank, SBIN, L&T, Tata Motors, ITC, Tata Consumers, Sun Pharma, Tata Power, NTPC, IndusInd Bank, TCS, DLF, Lupin, HeroMoto.
Mid-caps: BEL, APL Apollo, Bharat Forge, HAL, Indian Hotels, PNB, Bank of India, Sanofi India, LTIM, CESC.
Small-caps: Artemis Healthcare, Kirloskar Oil Engines, Rolex Rings, Samhi Hotels, Koltepatil, Caplin Point, CIE India, Garware Hitech, NIIT MTS, Birlasoft and Subros.
Tata Consultancy Services Ltd
https://www.sharekhan.com/MediaGalary/StockIdea/TCS-3R-Jan11_2024.pdf
Earnings beat; Maintain Buy
BUY\u0009CMP : Rs. 3,736\u0009PT : Rs. 4,200\u0009
Q3 earnings were better than estimates in a seasonally soft quarter with revenues at $7,281 million, up 1.7% y-o-y in constant currency (cc) beating our estimates of $7,224 million driven by Energy Resources and Utilities, Manufacturing, and Life Sciences & Healthcare verticals.
EBIT margins improved ~75 bps q-o-q to 25%, beating estimates by ~50 bps led by operational efficiencies and reduction in sub-contractor expenses partially offset by furloughs and higher third-party expenses. Deal win TCVs were stable and broad-based at $8.1 billion, up ~4% y-o-y. Book to bill ratio stood at 1.1x.
Management commentary was stable and hopeful of a recovery in FY25 owing to expectations of sector headwinds bottoming out. Management believes there will be positive momentum in BFSI in the next quarter and are some seeing green shoots in Consumer vertical.
We believe TCS is well positioned to grab cost optimisation and transformational opportunities as sector headwinds recede and witness a strong pick-up in growth momentum given its strong domain capabilities , contextual knowledge and strong execution . Hence, we maintain Buy rating on TCS with an unchanged PT of Rs. 4,200. At CMP, the stock trades at 26.4x/23.3x FY25/26E EPS.
Q3FY2024 Infra/Logistics/BM/Realty Results Preview
https://www.sharekhan.com/MediaGalary/Equity/Q3FY2024_Infra_Results_Preview-Jan11_2024.pdf
Realty robust, BM/Infra/logistics decent
Net earnings for our universe of building materials companies are likely to grow 33.5% y-o-y as OPM expands while demand remains soft. Steel piping companies remain unfavourably placed.
Infrastructure and logistics companies are expected to see decent net earnings growth y-o-y. Road project awarding remained weak till November 2023 although construction picked up. The logistics segment would see marginal pressure sustaining.
Real estate companies are likely to continue to report strong sales booking, as highlighted in the operational updates of Macrotech, Sobha, and Puravankara. Further, we expect robust sales booking growth from DLF and Oberoi. Other players are also expected to see decent y-o-y growth.
Preferred Picks – KNR Construction, PNC Infratech, Greenlam, Carysil, Hindware Home Innovation, TCI Express, TCI Ltd., DLF, Sobha, Macrotech, Kolte-Patil Developers, and Arvind Smartspaces.
Q3FY2024 Infra/Logistics/BM/Realty Results Preview
Realty robust, BM/Infra/logistics decent
https://www.sharekhan.com/MediaGalary/Equity/Q3FY2024_Infra_Results_Preview-Jan11_2024.pdf
Net earnings for our universe of building materials companies are likely to grow 33.5% y-o-y as OPM expands while demand remains soft. Steel piping companies remain unfavourably placed.
Infrastructure and logistics companies are expected to see decent net earnings growth y-o-y. Road project awarding remained weak till November 2023 although construction picked up. The logistics segment would see marginal pressure sustaining.
Real estate companies are likely to continue to report strong sales booking, as highlighted in the operational updates of Macrotech, Sobha, and Puravankara. Further, we expect robust sales booking growth from DLF and Oberoi. Other players are also expected to see decent y-o-y growth.
Preferred Picks – KNR Construction, PNC Infratech, Greenlam, Carysil, Hindware Home Innovation, TCI Express, TCI Ltd., DLF, Sobha, Macrotech, Kolte-Patil Developers, and Arvind Smartspaces.
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