# Detailed analysis over past prediction by IndiaNivesh
Apollo Tyres | Q1FY20 Result Update
Low cost inventory assists margins; Attractive valuations, maintain BUY
Despite slowdown in the OE demand across most segments, advantage of lower Chinese TBR imports, steady growth by the company in the domestic replacement markets and Europe led to Apollo Tyres’ Q1 FY20 consolidated revenue growth of 1% YoY. Low cost inventory aided margins but going forward, rising natural rubber prices and some increase in crude derivative raw materials should impact margins negatively. The increasing contribution of Hungary plant in the overall revenues (both in Europe and consolidated) will assist operating efficiencies. We adjust our margin estimates accordingly. Post the recent stock price correction, we believe valuations have turned attractive. We maintain BUY with a revised price target of Rs240.
Q1 FY20 results: Despite some slowdown in the OE demand across most segments, advantage of lower Chinese TBR imports and steady growth by the company in the replacement demand led to Apollo Tyres’ Q1 FY20 revenue growth of 1% YoY. The company reported its revenues at Rs43.3. Low cost inventory aided margins. The margin was at 11.0%, up 110bps QoQ. Accelerated depreciation (non-cash item) impacted profits. Adjusted PAT came in at Rs1.4bn.
Rising natural rubber prices to impact margins: Natural rubber prices have risen during the last three months from Rs128/kg to Rs150/kg. Rubber being ~40% of the total costs has a significant bearing on the margins. Accordingly, we have cut our margin estimates (assuming the slowdown may not allow the company to pass on the hike to the end consumer in the near term). We foresee a margin impact of ~13% on our earlier estimated EBITDA.
Significant capex to pressurize balance sheet, earnings, RoE & RoCE: The company intends to incur a capex of Rs45bn in over FY20-FY21. This capex includes setting up a new green-field facility in Andhra Pradesh and further enhancing capacities at their existing plant in Chennai. This is over and above the Rs50bn that the company has spent during last two years. This will continue to impact earnings in the near term.
Valuation: Rising natural rubber prices will impact margins. The increasing contribution of Hungary plant in the overall revenues (both in Europe and consolidated) will assist operating efficiencies going forward. However, due to the aggressive capex incurred and planned, the interest burden and higher depreciation would hit profits and, accordingly, impact PAT.
We have projected revenue, EBITDA and PAT CAGRs over FY19-21E at respectively 11%, 18% and 12%. Due to favourable demand outlook and recent stock price correction, we believe valuations have turned attractive. The stock is currently trading at 8.3xFY21e. We value the company at 13xFY21e. We retain our BUY recommendation with a revised price target of Rs240 (earlier Rs270).
Axis Bank | Q1FY20 Result Update
Challenges to RoE improvement remain
Except NII, all key earnings line items of Axis Bank diverged significantly from our estimates. Despite a strong beat on operating profit, contributed largely by treasury profits and a sequential slump in opex, sharply higher provisions including contingent provisions caused the net profit to miss our estimate. A key positive was the robust business momentum and the management optimism on growth. Asset quality remains a key concern, given the elevated slippages, although the bank tried to address the same by continuing to hoard contingent provisions. On balance, we continue to believe AXSB is unlikely to cross the 15% RoE level in FY21E. As we roll earnings, we are changing our rating to ‘ACCUMULATE’ from ‘REDUCE’ with a revised target price of Rs730, valuing the bank at 2.75x FY20E ABV.
One-offs cause earnings divergence: Stronger treasury profit (Rs8.3bn vs Rs4bn est.) and sharply lower opex (Rs38.2bn vs Rs41.6bn est.) caused the operating profit to sharply beat our estimates. However, provisions including contingent provisions caused profit to undershoot our estimate. AXSB now holds Rs23.6bn in contingent provisions. The NII was in line with a domestic NIM print of 3.56% (-5bps QoQ) and the overall NIM of 3.4% (-4bps QoQ). The bank expects NIMs to stay flat YoY in FY20E. We estimate NII growth to trend in line with the balance sheet momentum.
Slippages increase, more problem accounts identified, NPAs stable: Non-corporate slippages rose sharply from the Q4FY19 trough of Rs16.4bn to Rs26.7bn with overall slippages hitting ~Rs48bn, up 1.6x QoQ. While the BB-and-below pool stayed stable at Rs75bn, the bank identified 8 stressed group exposures aggregating to Rs122bn (loans, investments, NFB). After considering overlaps with NPAs, BB-and-below pool, provisions, and available credit enhancement on NFB, this exposure comes down to Rs47bn. This takes the potential stress pool to Rs122bn, and remains the key monitorable on asset quality of AXSB going forward.
Strong growth despite cautious optimism: Although AXSB talked about being cautious on growth, the bank saw sufficient lending opportunities to keep domestic loan growth (19% YoY in Q1FY20) at 5–7% above industry growth average. Retail (22% YoY) was the key growth driver, while overseas advances continued to shrink (-34% YoY), thereby restricting the headline growth rate at 12.7%YoY. Home loans (15.9% YoY), vehicle loans (33.1% YoY), and small business loans (62.7%YoY) were top volume drivers for retail. We believe AXSB domestic loan book will stay in a strong growth trajectory.
Valuation: We are upgrading AXSB to ‘ACCUMULATE’ from ‘REDUCE’ and revising the target price to Rs730, reflecting our yet cautious view on the bank’s earnings and valuations. While AXSB is firmly on the path to an earnings recovery with some key structural improvements, we do not see that adding up to RoE of >15%. We believe the path to 18% RoE is longer, and it would be early to attribute a higher multiple to AXSB. At our target price, we value AXSB at 3x FY20E ABV of Rs241, a premium of 0.5x over its historic 1-yr forward P/ABV multiple.
Taj GVK Hotels & Resorts | Q1FY20 Result Update
Reduced refurbishment cost helps EBITDA growth; reiterate BUY
Taj GVK reported a 0.6% YoY revenue drop in Q1FY20 on account of a 3.2% fall in banqueting income, which constitutes ~44% of the overall revenue. The reported EBITDA margin in Q1FY20/Q1FY19 was at 22.7%/21.6% on account of lower repairs and renovation expenses amounting to Rs8.7mn/Rs67.8mn. Due to this, the PBT witnessed 178% growth from Rs30.1mn in Q1FY19 to Rs83.8mn in Q1FY20. The company’s performance is at par with the peer set, where we have seen flattish revenue growth, impaired by election-related disruption. We expect the business activity to pick up in the second half, thereby lifting the room revenue and banqueting performance. We reiterate our BUY recommendation on the stock with a revised target price of Rs212 per share.
Q1FY20 revenue breakdown: RevPAR in the four Hyderabad assets (Taj Krishna, Vivanta Begumpet, Taj Banjara and Taj Deccan) improved by 7.4%, helped by the replacement of low-yield crew business in the base quarter. Although the Hyderabad hotels had ~130 rooms under renovation in the base quarter, the occupancy remained flat. Taj Chandigarh also had 17.2% RevPAR improvement, helped by the improvement in occupancy by 13%.\
Renovation cost: The company reduced its repair and renovation expenses to Rs8.7mn as against Rs67.8mn in Q1FY19. Because of this, the PBT increased from Rs30mn to 84mn. The company spent ~Rs195mn towards repairs and renovation in FY19. The company renovated/refurnished 3 floors of Taj Krishna in FY19 and will take up renovation of 2 more floors during FY20. Further, it also plans to renovate 72 rooms of Taj Deccan in FY20.
Taj Yelahanka: Recently, the SC has set aside the NGT order banning construction activity within 75m of the lake bed. On account of this, the company is not planning to build a 250-room luxury hotel at the cost of Rs7.5mn per room.
Other details: During the quarter, the company provided for Rs6mn as doubtful receivables from Jet Airways. The company has filed necessary claims in this regard.
Application of IndAS 116: The company has adopted IndAS 116 with the modified retrospective method, which will impact the retained earnings by Rs113.8mn, while a right-of-use asset of Rs319.7mn and a lease liability of Rs433.5mn will be created.
Valuation: At the CMP of Rs175, the stock is trading at an 18/13x FY20/21 EV/EBITDA multiple. We currently have a BUY rating on the stock with a revised target price of Rs212 per share. Reiterate BUY.
Hero MotoCorp | Q1FY20 Result Update
Attractively valued; recommend BUY
Hero MotoCorp reported Q1FY20 results broadly in line with our expectations. While the volume growth for the quarter was subdued at 12% yoy, we believe with the onset of monsoon, liquidity concerns fading away and newer launches, Hero will be able to deliver much better performance in the coming quarters. With competition retracing back on their strategy to sell their basic 100cc motorcycle at aggressive pricing, we expect both volumes and margins to revive going forward. We retain BUY and with a price target of Rs.3,250.
Q1 FY20 result analysis. At Rs80.3bn, revenue was down 9% YoY led by a de-growth of ~12% in its quarterly sales volume. The average blended realisation for the quarter was ~Rs43,600 up 4% YoY. The EBITDA margin for the quarter was 14.4% (15.6% in Q1FY19, 13.6% in Q4FY19). While there were some savings in the gross margins, staff expenses and higher discounts led to the YoY decline in margins. It reported its quarterly PAT at Rs 12.6bn. This includes a one-off income of Rs7.4bn (Rs4.9bn net of tax). Adjusting for the same, PAT came in at Rs7.8bn (marginally lower than our estimate of Rs8.2bn)
Change in estimates: Keeping the retail slowdown in account, we re-visited our estimates for FY20 and FY21. We lowered our volume growth assumption for FY20 to -5% YoY versus a growth assumption of 4% YoY earlier (-3% YoY for motorcycles and -20% YoY for scooters). Accordingly, we cut our revenue and earnings estimates for FY20 by ~12% and ~18% and for FY21 by ~13% and ~18% respectively.
Near term pain priced in: We acknowledge the retail slowdown that has been impacting the automotive growth over the past six-eight months. However, we have also witnessed a significant correction in stock price (Hero down xx% during the last 3 months). We believe most pessimism should be in the price. The stock trades attractively at 11.8xFY21e. Favourable macro factors warrant a decent upside from current levels.
Valuation: In the near term, we expect volume to revive driven by newer launches, ramp up in rural demand and pick up in festive season sales. We also believe with higher operating leverage, Hero will be able to retain its margins (~15%) going forward. With competition retracing back on their strategy to sell their basic 100cc motorcycle at aggressive pricing, we expect both volumes and margins to revive going forward. We expect a revenue/EBITDA/PAT CAGR of 5%, 5% and 8% respectively during FY19-21. With a RoE and RoCE of around 25%, we value the company at a P/E of 17xFY21 EPS and arrive at a price target of Rs3,250. We continue to recommend BUY.
Risk: Lower than expected volume growth, further increase in raw material costs
V2 Retail | Q1FY20 Result Update
SSSG dips to -8% as sentiments weaken; reiterate BUY
V2 Retail reported 7.8% revenue growth as the SSSG fell to -8%, owing to weak rural demand and intensified competition. The EBITDA margin came in at 7.6% in Q1FY20 as compared to 10.6% in Q1FY19, owing to a 430bps fall in the gross margin. The management guided for weakness in Q2 as well and is now hoping to see revival during the festive season. Meanwhile, V2 has maintained a tight leash on the cost of retailing (gross margin minus EBITDA margin) at Rs166/sqft/month in Q1FY20 vs 228/sqft/month in Q1FY19. It has also improved its inventory days from 132 to 107 days. Given the weakness in per sqft sales at Rs767 in a seasonally strong Q1, the probability of achieving our full-year estimate of Rs763 appears difficult. We would revise the same if the sentiment post Q2 does not improve. Our SSSG estimate for FY20 is -3.2% vs -4.9% in FY19. We are anchoring on revenue pickup in H2 and 10 store additions during the fiscal. We maintain our estimates in the interim with a negative bias. Reiterate BUY.
Growth and margins: Revenue grew by 7.8% YoY in Q1FY20 as against 32% YoY in Q1FY19 owing to a fall in SSSG to -8% with a deterioration in gross margin by 430bps. The EBITDA margin was at 7.6% vs 10.6% in Q1FY19. The PBT margin dropped 400bps YoY on pre-IndAS 116 basis.
Key performance indicators: The ASP increased from Rs259 in Q1FY19 to Rs262 in Q1FY20. Inventory days/payable days stood at 107/42 days, whereas sales per sqft fell from Rs992 to Rs767 per sqft. The company opened and closed a store each, keeping the absolute store count at 77. It reduced the size of two stores by 22,000 sqft and 10,000 sqft in Goa and Jammu, respectively. The management has indicated that Rs110mn of outstanding debt will be repaid by the end of Q2FY20.
Valuation: V2 has historically traded at a discount to V-Mart. We have assigned a 50% discount (60-month median) to the 22x 2-yr forward EBITDA multiple of V-Mart to arrive at V2’s 2-yr forward multiple. We are assigning an 11x EV/EBITDA multiple to the FY21 estimated EBITDA of Rs744mn to arrive at a target of Rs240 per share, which implies an upside of 74% from the CMP of Rs138 per share. Reiterate BUY.
HeidelbergCement India | Q1FY20 Result Update
Q1 results positive; H2 expected to be better
HeidelbergCement India reported EBITDA/tonne of ~Rs1,253 vs our estimate of ~Rs1,238. This is the best-ever quarter on EBITDA/tonne basis. Higher EBITDA/tonne supported by the increase in realisation by ~9.3% (YoY) to ~Rs4,630/tonne vs our estimate of ~Rs4,538/tonne. It is estimated that the company will become net cash in FY20E. Based on the prevailing prices of imported coal (RB index) and petcoke, a significant saving in fuel cost is estimated in H2FY20. Average ex-factory Jamnagar petcoke price (net of input tax credit) in H2FY19 was ~Rs9,050/tonne and the July 2019 price was Rs7,100/tonne. Even after factoring in an average price of Rs7,500/tonne for H2FY20, there is a saving in fuel cost of ~Rs108/tonne on YoY basis. Another positive is that Bara GU of UltraTech is not estimated to be operational before September 2019. The supporting clinker capacity (Super Dalla) is not estimated to be operational before November 2019. Driven by the lack of additional supply and normal growth in demand, the WSP in H2FY20 in central and eastern UP is estimated to be higher by ~Rs10/bag compared to H1FY20.
Q1FY20 Results highlights:
Best-ever realisation per tonne and EBITDA per tonne
Saving in power and fuel cost by ~Rs245/tonne (QoQ), because in Q4FY19 company sourced fuel at higher prices
Freight cost declined by ~Rs49/tonne (QoQ)
Valuation: At the CMP of Rs187, HeidelbergCement India trades at FY21E EV/EBITDA of ~5.31x and EV/tonne of ~Rs6591. During FY20–21E, the company is estimated to repay debt of Rs2.5bn. Even on factoring in the same EV as in FY19, there’s an upside of 18.8%.
Even though in FY20E Heidelberg is estimated to become net cash as against being net debt till FY19, the company is valued at 9.06x (average of FY15-19) FY21E EV/EBITDA, indicating a target price of Rs271. Maintaining BUY.