Investoreye (11) - 3

Investor’s Eye
November 08, 2023
Index
Stock Update
Tata Power Company Ltd
Sundram Fasteners Ltd
Apollo Tyres Ltd
Exide Industries Ltd
Balrampur Chini Mills Ltd
Restaurant Brands Asia Ltd
Va Tech Wabag Ltd
Alicon Castalloy Ltd
Viewpoint
Sobha Ltd
Carysil Ltd
Himatsingka Seide Ltd
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Stock Update
Tata Power Company Ltd
Healthy Q2; start of module production a positive
Powered by the Sharekhan 3R Research Philosophy Power Utilities Sharekhan code: TATAPOWER
Reco/View: Buy  CMP: Rs. 255 Price Target: Rs. 285 á
3R MATRIX + = -
Result Update
Right Sector (RS) ü á Upgrade  Maintain â Downgrade
Right Quality (RQ) ü Summary

Q2 consolidated PAT grew by 9% y-o-y to Rs. 1,017 crore led by a strong growth from RE portfolio and Odisha
Right Valuation (RV) ü discoms offsetting lower coal profits.
+ Positive = Neutral – Negative TPSSL saw strong order execution and rise of 392 bps q-o-q in EBITDA margin with PAT growth of 6.7x q-o-q to
Rs74 crore. RE generation/Odisha PAT was also up 20%/45% y-o-y. Mundra UMPP is PAT break-even.
Mundra UMPP would operate under Section 11 of the Electricity Act till June24. 4.3GW solar cell & module plant
What has changed in 3R MATRIX achieved first module out (FMO) in Oct’23 and cell production expected in Q4FY24. This would address concern
of supply chain and input cost for solar plants.
Old New
Tata Power has a well-planned strategy to shift towards clean energy and targets for 4x rise in its PAT by FY2027E
RS  over FY2022. We maintain a Buy on Tata Power with a revised PT of Rs. 285. At CMP, the stock trades at 2.3x/2.1x
FY25E/FY26E P/BV.
RQ  Tata Power Company Limited’s (TPCL) Q2FY2024 reported PAT grew by 9% y-o-y to Rs. 1,017 crore, led by
good performance from the renewable energy (RE) portfolio and decent earnings from Odisha discoms
RV  offsetting the decline in coal profits. Core business of generation and T&D account for 84% of Q2FY2024 PAT.
The RE portfolio posted revenue/EBITDA/PAT of Rs. 2,146 crore/Rs. 813 crore/Rs. 186 crore, up 34%/10%/45%
y-o-y with strong earnings growth in RE generation/solar EPC business. TPSSL’s revenue/EBITDA/PAT was
up 28%/3.2x/6.7x q-o-q to Rs. 1,910 crore/Rs. 125 crore/Rs. 74 crore, reflecting higher execution of group
ESG Disclosure Score NEW captive/large projects and q-o-q improvement in EBITDA margin to 6.6% vs. only 2.7% in Q1FY2024. RE
generation revenue/EBITDA/PAT grew by 14%/12%/20% y-o-y to Rs. 916 crore/Rs. 739 crore/Rs. 153 crore, led
ESG RISK RATING by higher PLF and the addition of 330 MW of new capacities. Combined profit from Odisha discoms increased
Updated Aug 08, 2023
40.98 to Rs. 90 crore (vs. Rs. 62 crore/Rs. 64 crore in Q2FY2023/Q1FY2024) with PAT of Rs. 18 crore/Rs. 11 crore/Rs.
35 crore from TPCODL/TPSODL/TPNODL, while earnings from TPWODL declined to Rs. 26 crore (vs. PAT of
Severe Risk Rs. 46 crore in Q2FY2023). Earnings from JV & Associates stood at Rs. 252 crore (down 28% q-o-q) due to a
decline in coal price to $80/bbl (vs. $135-140/tonne in Q2FY2023).
NEGL LOW MED HIGH SEVERE Key positives
0-10 10-20 20-30 30-40 40+ TPSSL’s margin improved to 6.6% in Q2FY2024 vs. 2.7% in Q1FY2024.
Source: Morningstar RE portfolio’s PAT up 45% y-o-y.
Key negatives
Company details Profit share from JV & Associates declined by 28% q-o-q to Rs. 252 crore due to lower coal price.
Market cap: Rs. 81,449 cr Management Commentary
Mundra UMPP will continue to operate under Section 11 till June 2024 and was PAT breakeven with minor cash
52-week high/low: Rs. 277/182 profit.
Started production of the module from the 4GW solar module and cell manufacturing plant and the same would
NSE volume: ramp-up over the next 2-3 months. Cell production is expected to start in Q4FY2024.
106.9 lakh
(No of shares) Capital cost is estimated at Rs. 13,000 crore for 2.8 GW of Pumped Hydro Storage Projects (PSP). All approval is
expected by March 2024 and targets to complete the project in 36 months as no land is required.
BSE code: 500400
The RE portfolio of 5500 MW (38% of installed capacity) with 3200 MW/1000 MW/1300 MW from solar/wind/hydro
NSE code: TATAPOWER and gas. 3750 MW of RE capacities are under implementation (to be completed in the next two years). It targets
70% of RE share by 2030.
Free float: Solar EPC/rooftop order book was at Rs. 15,870 crore/Rs. 2,872 crore vs. Rs. 17,643 crore/Rs. 2,504 crore in
169.8 cr
(No of shares) Q1FY2024. TPCL terminated one projects worth Rs. 1,158 crore because of unfavourable economics.
Other updates – 1) net debt declined by 3% q-o-q to Rs. 36,609 crore, 2) FY2024 capex plan of Rs. 11,000 crore
and has spent Rs. 4,500 crore in H1FY2024, 3) EV charging (public/home/E-bus at 4932/61959/464), 4) replaced
Shareholding (%) 25 lakh metres in the last three years at Odisha discoms, 5) ITPC tariff issue resolved and received $102 mn (Tata
Power share at $51 mn).
Promoters 46.9
Revision in estimates – We have broadly maintained our FY2024-FY2025 earnings estimate and introduce our
FII 10.0 FY2026 earnings estimate in this report.
Our Call
DII 15.7 Valuation – We maintain Buy on TPCL with a revised PT of Rs. 285: TPCL’s focus on business restructuring and
Others 27.5 high-growth RE business and entry into power transmission would play a crucial role for sustained earnings growth
(management targets for 4x rise in its PAT by FY2027E over FY2022) and improved earnings quality. In addition,
management’s business restructuring plans to increase the share of high-growth RE business would drive sustained
Price chart improvement in ESG scores. Hence, we maintain Buy on TPCL with a revised price target (PT) of Rs. 285. At the CMP,
the stock trades at 2.3x/2.1x its FY2025E/FY2026E P/BV.
280
Key Risks
260
1) Slower-than-expected ramp-up of the RE portfolio and expansion in the distribution business, 2) lower-than-
240 expected profitability in the solar EPC business, and 3) volatility in international coal prices.
220
Valuation (Consolidated) Rs cr
200
Particulars FY22 FY23 FY24E FY25E FY26E
180
Revenue 42,816 55,109 51,143 55,671 60,718
Jul-23
Nov-22
Nov-23
Mar-23
OPM (%) 17.5 14.0 24.4 24.3 24.5

Adjusted PAT 1,741 3,336 3,552 3,906 4,553
Price performance YoY growth (%) 35.7 91.6 6.5 10.0 16.6
(%) 1m 3m 6m 12m Adjusted EPS (Rs.) 5.4 10.4 11.1 12.2 14.2
P/E (x) 46.8 24.4 22.9 20.9 17.9
Absolute 2.0 8.5 25.3 10.2 P/B (x) 3.6 2.8 2.6 2.3 2.1
Relative to EV/EBITDA (x) 16.3 15.5 9.7 8.9 7.9
2.8 10.1 20.1 3.7
Sensex RoNW (%) 7.8 13.0 11.7 11.6 12.2
Sharekhan Research, Bloomberg RoCE (%) 6.5 6.1 10.1 11.7 12.3
Source: Company; Sharekhan estimates
November 08, 2023 2

Stock Update
Powered by the Sharekhan
3R Research Philosophy
Steady PAT growth of 9% y-o-y; core business of generation and T&D account for 84% of PAT
TPCL’s Q2FY2024 reported PAT grew by 9% y-o-y to Rs. 1,017 crore (marginally below our estimate of Rs. 1,050 crore),
led by good performance from the RE portfolio and decent earnings from Odisha discoms offsetting the decline in
coal profits. Core business of generation and T&D account for 84% of Q2FY2024 PAT. The RE portfolio posted revenue/
EBITDA/PAT of Rs. 2,146 crore/Rs. 813 crore/Rs. 186 crore, up 34%/10%/45% y-o-y with strong earnings growth in RE
generation/solar EPC business. TPSSL’s revenue/EBITDA/PAT was up 28%/3.2x/6.7x q-o-q to Rs. 1,910 crore/Rs. 125
crore/Rs. 74 crore, reflecting higher execution of group captive/large projects and q-o-q improvement in EBITDA
margin to 6.6% vs. only 2.7% in Q1FY2024. RE generation revenue/EBITDA/PAT grew 14%/12%/20% y-o-y to Rs. 916
crore/Rs. 739 crore/Rs. 153 crore, led by higher PLF and the addition of 330 MW of new capacities. Combined profits
from Odisha discoms increased to Rs. 90 (vs. Rs. 62 crore/Rs. 64 crore in Q2FY2023/Q1FY2024) with PAT of Rs. 18 crore/
Rs. 11 crore/Rs. 35 crore from TPCODL/ TPSODL/TPNODL, while earnings from TPWODL declined to Rs. 26 crore (vs.
PAT of Rs. 46 crore in Q2FY2023). Earnings from JV & Associates stood at Rs. 252 crore (down 28% q-o-q) due to a
decline in coal price to $80/bbl (versus $135-140/tonne in Q2FY2023).
Results (Consolidated) Rs cr
Particulars Q2FY24 Q2FY23 y-o-y (%) Q1FY24 q-o-q (%)
Revenue 15,738 14,031 12.2 15,213 3.4
Total Expenditure 12,647 12,270 3.1 12,270 3.1
Reported operating profit 3,091 1,760 75.6 2,944 5.0
Other Income 292 150 93.9 271 7.4
EBITDA 3,383 1,911 77.0 3,215 5.2
Interest 1,182 1,052 12.4 1,221 -3.2
Depreciation 926 838 10.5 893 3.6
Reported PBT 1,275 21 NA 1,100 15.9
Add: Net movement in regulatory -296 132 NA -210 NA
deferral account balances (net of tax)
Add: Share of Profit of Associates and JV 252 1219 -79.4 351 -28.3
Exceptional income/(expense) 0 0 NA 235 NA
PBT after regulatory deferral account 1,231 1,373 -10.4 1,476 -16.6
and share of profit from JV
Tax 213 438 -51.3 335 -36.3
Reported PAT before MI 1,017 935 8.8 1,141 -10.8
Minority Interest 142 116 22.1 168 -15.8
Reported PAT after MI 876 819 6.9 972 -10.0
Adjusted PAT 876 819 6.9 738 18.7
No. of Equity Shares (cr) 319.6 319.6 0.0 319.6 0.0
Reported EPS (Rs) 2.7 2.6 6.9 3.0 -10.0
Adjusted EPS (Rs) 2.7 2.6 6.9 2.3 18.7
Margins (%) BPS BPS
OPM 19.6 12.5 709 19.3 29
Adjusted NPM 5.6 5.8 -27 4.8 71
Tax rate 17.3 31.9 -1,455 22.7 -535
Source: Company; Sharekhan Research
November 08, 2023 3

Stock Update
TPCL’s entity-wise consolidated performance for Q2FY2024
Source: Company
TPCL’s cluster-wise consolidated performance for Q2FY2024
Source: Company
Odisha discoms’ performance in Q2FY2024
Source: Company
November 08, 2023 4

Stock Update
Tata Power Solar Systems Limited – Highlights
Source: Company
Renewables – Consolidated
Source: Company
Tata Power Regulated - Equity and Assets
Source: Company
Tata Power Debt Profile
Source: Company
November 08, 2023 5

Stock Update
Outlook and Valuation

n Sector Outlook – Regulated tariffs provide earnings visibility; reforms to strengthen balance sheets of
power companies
India’s power sector is regulated by the CERC with an availability-based earnings model (fixed RoE on power generation
assets) and, thus, the regulated tariff model provides strong earnings visibility for power-generation, transmission and
distribution companies. Moreover, the government’s power sector package of over Rs. 3 lakh crore announced in the
recent Union Budget would help power discoms clear dues of power generation and transmission companies. This
would reduce receivables of the power sector and strengthen companies’ balance sheets.
n Company Outlook – Focus on distribution and RE business to drive robust earnings growth
TPCL has a well-planned strategy to shift towards clean energy and targets a 4x rise in its PAT by FY2027E over FY2022.
We believe growth would be largely driven by distribution and RE business. We expect PAT to register a CAGR of 11%
over FY2023-FY2026E with healthy RoE of ~12% in FY2026E.
n Valuation – We maintain Buy on TPCL with a revised PT of Rs. 285
TPCL’s focus on business restructuring and high-growth RE business and entry into power transmission would play a
crucial role for sustained earnings growth (management targets for 4x rise in its PAT by FY2027E over FY2022) and im-
proved earnings quality. In addition, management’s business restructuring plans to increase the share of high-growth
RE business would drive sustained improvement in ESG scores. Hence, we maintain Buy on TPCL with a revised PT of
Rs. 285. At the CMP, the stock trades at 2.3x/2.1x its FY2025E/FY2026E P/BV.
One-year forward P/BV (x) band
3.5
3.0
2.5
2.0
x
1.5
1.0
0.5
0.0
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Apr-23
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Oct-23
P/BV (x) Avg. P/BV (x) Peak P/BV (x) Trough P/BV (x)
Source: Sharekhan Research
November 08, 2023 6

Stock Update
About the company

TPCL is India’s largest integrated private power company present in power generation (capacity of 16,779 MW with
63% from thermal and 37% from renewables), transmission, distribution (largest private sector player with a customer
base of 11.7 million), trading and solar EPC (largest solar EPC player in India).
Investment theme
TPCL’s core earnings are resilient even in the demand down cycle as it gets regulated returns on power generation
and distribution assets. The company’s focus to shift from a B2G to B2C model would drive robust earnings growth
(to be driven by the RE and distribution business) over the next 4-5 years. Potential improvement in ESG rating could
re-rate the company.
Key Risks
Slower-than-expected ramp-up of the RE portfolio and expansion in the distribution business.
Lower-than-expected profitability in the solar EPC business. Likely continued under-recoveries for Mundra UMPP.
Volatility in international coal prices.
Additional Data
Key management personnel
Mr. Natarajan Chandrasekaran Chairman
Dr. Praveer Sinha Managing Director and CEO
Sanjeev Churiwala Chief Financial Officer
Source: Company Website
Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Life Insurance Corp of India 8.5
2 Vanguard Group Inc/The 2.1
3 BlackRock Inc 1.4
4 Nippon Life India Asset Management 1.3
5 General Insurance Corp of India 1.1
6 SBI Funds Management Ltd 0.5
7 Matthews International Capital Man 0.4
8 ICICI Prudential Asset Management 0.4
9 Tata Asset Management Pvt Ltd 0.3
10 Government Pension Investment Fund 0.3
Source: Bloomberg
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
November 08, 2023 7

Update
Update
Sundram Fasteners Ltd
Stock
EV and Export Strategies Secure Buy Rating
Stock
Powered by the Sharekhan 3R Research Philosophy Automobiles Sharekhan code: SUNDRMFAST
Reco/View: Buy  CMP: Rs. 1,260 Price Target: Rs. 1,460 á
3R MATRIX + = -
Result Update
Right Sector (RS) ü
á Upgrade  Maintain â Downgrade
Summary
Right Quality (RQ) ü
We maintain our Buy rating on Sundram Fasteners Ltd (SFL) with a revised PT of Rs 1460 on the
Right Valuation (RV) ü expectation of revival in export revenue from H2FY24, expectation of new orders in the EV segment,
successful execution of existing orders in EV and non-auto space and RM cost tailwind.
+ Positive = Neutral – Negative Reported PAT at Rs 133 cr against an estimated Rs 133 cr on 30 bps beat in EBITDA margin estimates.
Management guided for a better H2FY24 compared to H1FY24.
What has changed in 3R MATRIX Stock trades at P/E multiple of 26.7 and EV/EBITDA multiple of 17.3x its FY26E estimates.
Old New Sundram Fasteners Ltd (SFL) reported inline bottom-line performance in Q2Fy24 owing to a beat-
in in the EBITDA margin. Though SFL missed revenue estimates by 4.2%, it matched bottom-line
RS  estimates on 30 bps beat in EBITDA margin estimates. Exports had a moderate performance due to
a strike in the USA, affecting some schedules, but management shared a strong outlook for H2FY24.
RQ  Some underperformance was observed in the tractor segment, along with destocking, impacting
the topline performance, matching the growth in the underlying industry in the domestic market.
RV â Revenue increased by 0.8% q-o-q to Rs 1422 cr (vs estimate of Rs 1483 cr), led by a 4.8% q-o-q increase
in domestic revenue and a 3.2% q-o-q decline in export revenue. EBITDA increased by 1.9% q-o-q to
Rs 231 cr (vs estimate of Rs 236 cr). With 100 bps q-o-q expansion in gross margin, the EBITDA margin
expanded by 20 bps q-o-q to 16.2% (vs estimate of 15.9%). APAT increased by 3.3% q-o- q to Rs 133
ESG Disclosure Score NEW cr(vs estimate of Rs 133 cr). Beyond that, the ongoing capex program is on track as it indicated for
the beginning of execution of new orders in the ongoing wind energy project from Q3FY24 onwards.
ESG RISK RATING Key positives
20.59
Updated Aug 08, 2023 Gross margin expanded by 100 bps q-o-q to 58.8%.
Revenue from the domestic market increased by 4.8% q-o- q.
Medium Risk
Except for the tractor segment, most of the segments in the domestic market are performing well.
NEGL LOW MED HIGH SEVERE Key negatives
0-10 10-20 20-30 30-40 40+ Other expenses as a percentage of sales have expanded by 90 bps q-o-q and partially netted off the
benefit of gross margin expansion.
Source: Morningstar
Revenue from the export market declined by 3.2% q-o- q.
Company details Muted performance in the tractor industry impacted SFL’s revenue from the tractor industry.
Management Commentary
Market cap: Rs. 26,476 cr H2Fy24 would be better than H1Fy24 on improvement in export segment.
52-week high/low: Rs. 1,334/ 871 On going wind energy project is expected to start deliver revenue from Q3Fy24 onwards.
Raw material cost trend is largely stable and is expected to support EBITDA margin trend.
NSE volume:
1.22 lakh Our Call
(No of shares)
Valuation - Maintain Buy with revised PT of Rs. 1,460: Post-reporting in line with expected bottom-
BSE code: 500403 line performance, the management has shown a better performance in H2FY24 compared to H1FY24 on
continued traction in the domestic market and revival in its export performance. While SFL has cut down its
NSE code: SUNDRMFAST export revenue expectations by 10% (from USD 200mn) for Fy24 due to weak performance in H1FY24 and
delay in schedules due to auto worker strike in the USA but is optimistic on export revenue performance
Free float: in H2FY24 due to ease in destocking and end of auto workers strike in USA. Further, the management is
10.8 cr expecting to continue to outperform the underline domestic industry growth by 2-3% and expects soft RM
(No of shares) cost trend to translate into healthy gross margin expansion. Its ongoing capex program of Rs 1000 cr over
FY23 -25 has been on schedule, and over the period, the management is expecting a rise in contribution
from EV space on execution of new orders; SFL has been working closely with domestic OEMs for import
Shareholding (%) substitution and expected to emerge as a beneficiary of China plus one theme. We broadly identified three
key structural growth drivers for SFL in long term – (1) beginning of execution of ~USD 480 mn EV project
Promoters 48.5 for 6 years from FY26, for which management is expecting an additional revenue of Rs 500 cr per annum
from FY26 (2) beginning of execution of orders in wind energy segment from Q3Fy24 onwards for which
FII 12.8 management is expecting an additional revenue of Rs 45-60 cr in FY24 (3) Management is engaged with the
customers for a potential rise in order book in EV segment. Post incorporating Q2FY24 performance and
DII 17.9 introducing earning estimates for Fy26, We maintain our Buy rating on the stock with a revised PT of Rs
1460 in expectation of revival in export revenue from H2FY24, expectation of new orders in the EV segment,
Others 20.8 successful execution of existing orders in EV and non-auto space and RM cost tailwind.
Key Risks
Price chart Rising commodity prices and pricing pressures from automotive OEM customers can impact its profitability.
The export revenues are exposed to recession risk in the US and Europe.
1500
1350
1200 Valuation (Consolidated) Rs cr
1050 Particulars FY22 FY23 FY24E FY25E FY26E
900 Net sales 4,902 5,663 6,193 7,447 8,162
750
Growth (%) 34.5 15.5 9.4 20.3 9.6
600
EBIDTA 801 853 991 1,378 1,534
Jul-23
Nov-22
Nov-23
Mar-23
OPM (%) 16.3 15.1 16.0 18.5 18.8

PAT 457 500 584 872 990
Price performance Growth (%) 27.2 9.6 16.7 49.3 13.6
FD EPS 21.7 23.8 27.8 41.5 47.1
(%) 1m 3m 6m 12m
P/E (x) 57.8 52.7 45.2 30.3 26.7
Absolute 2.1 5.1 21.0 32.9 P/BV (x) 10.1 8.8 7.7 6.4 5.4
2.9 6.6 15.4 26.1
Sensex RoE (%) 18.4 17.8 18.1 23.1 22.0
November 08, 2023 8

Stock Update
Domestic Sales
Domestic sales increased by 4.8 % q-o-q, with growth coming from OEM and aftermarket segments. Though the
CV segment witnessed destocking in Q2Fy24, the PV and two-wheeler segment performed relatively better.
Most segments showed consistent growth, except for the underperforming tractor segment, which had a negative
impact.
Domestic revenue is distributed across various segments: PV (40%), CVs (35-40%), tractor (10-12%), two-wheeler
(5%).
Non-auto and Exports each contributed 30% to the top line.
Gross margin improved due to soft raw material costs, and it’s expected to continue improving.
Most variable costs, including freight, remained stable, but power costs increased due to tariff changes in Tamil
Nadu.
The underline domestic industry witnessed a weighted average growth of 5-6% y-o-y.
Exports
Exports revenue declined by 3.2% q-o-q in Q2Fy24 due to destocking and auto worker’s strike in the USA.
The foreign exchange rate is broadly stable in the current year compared to previous year.
Export issues related to containers and freight rates have been resolved, and H2FY24 is expected to be better than
H1FY24.
Wind Energy Project
The expansion is progressing well, with optimal utilisation expected in Q4FY24.
Revenue from the wind energy segment is anticipated to be 15-20 crore rupees in Q3FY24 and 30-40 crore rupees
in Q4FY24.
Although inventory correction is occurring in CY23 , the order book schedule for CY2024 is robust in the wind
energy segment.
EV segment
Business development efforts for EV orders are ongoing, and the order book is stable.
The company is making efforts to expand its product portfolio in EV space and looking for a substantial improvement
in the order book in coming period.
Subsidiaries’ performance
Subsidiaries performed well in Q2 as both Chinese and UK subsidiaries witnessing healthy traction in business.
The commercial vehicle segment is doing well in the UK, and the China subsidiary serves the construction segment,
which is not doing well, but growth prospects in the auto sector is promising for Chinese subsidiary.
The management is optimistic and expects profitable growth in subsidiaries in the coming period.
Outlook
SFL aims to grow ahead of the industry in the domestic market, focusing on localisation and increasing content per
vehicle.
Freight prices decreased, while power costs grew marginally, and raw material costs remained stable, leading to
expected margin improvements
The electric vehicle (EV) project is on track, as is the wind energy project.
Wind project is expected to generate additional revenue from Q3Fy24 onwards.
November 08, 2023 9

Stock Update
No significant changes in the product mix are expected in FY24.

The contribution of non-auto and exports in total revenue is set to increase from FY25 onwards.
A strong performance is expected in FY25 compared to FY24, to reach 50% revenue from non-auto in the near
future.
Inventory correction in the aftermarket is improving, while the tractor segment is expected to remain flat or show
marginal growth in FY24.
The Production-Linked Incentive (PLI) scheme products are in the testing stages and localization is ahead of
requirements.
The company plans to invest 300-350 crore rupees per annum in capital expenditure.
Change in estimates Rs cr
New Earlier % change Introduction
Particulars
FY24E FY25E FY24E FY25E FY24E FY25E FY26E
Revenue 6,193 7,447 6,368 7,447 (2.8) 0.0 8,162
EBITDA 991 1,378 1,083 1,378 (8.5) 0.0 1,534
EBITDA margin (%) 16.0 18.5 17.0 18.5 18.8
PAT 584 872 653 872 (10.6) 0.0 990
EPS 27.8 41.5 31.1 41.5 (10.6) 0.0 47.1
Source: Company, Sharekhan Research
Particulars Q2FY24 Q2FY23 YoY % Q1FY24 QoQ %
Revenues 1,421.8 1,401.7 1.4 1,410.8 0.8
Total operating expenses 1,191.1 1,197.0 (0.5) 1,184.4 0.6
EBITDA 230.7 204.7 12.7 226.4 1.9
Depreciation 54.5 49.3 10.4 51.9 5.0
Interest 7.4 8.1 (8.7) 9.6 (23.3)
Other income 7.3 9.7 (24.9) 4.5 61.9
PBT 176.2 157.0 12.2 169.4 4.0
Tax 43.1 40.2 7.3 40.7 6.1
Adjusted PAT 133.1 116.8 13.9 128.7 3.3
Reported PAT 133.1 116.8 13.9 128.7 3.3
Adjusted EPS 6.3 5.6 13.9 6.1 3.3
Key Ratios (Standalone)

Particulars Q2FY24 Q2FY23 YoY (bps) Q1FY24 QoQ (bps)
Gross margin (%) 45.7 38.9 680 45.0 60
EBIDTA margin (%) 18.5 12.0 650 16.8 160
Net profit margin (%) 7.6 3.3 430 6.5 110
Effective tax rate (%) 30.3 18.5 1,180 31.1 (90)
November 08, 2023 10

Stock Update

n Sector view - Structurally in uptick phase
We stay positive on the structural demand for automobiles in the medium term. We expect recovery across segments
post-normalisation of economic activities, led by pent-up demand from rural, semi-urban, and urban demand
and a favourable macro-outlook. The passenger vehicle (PV) segment is expected to remain strong due to a rising
preference for personal transport. We expect a strong sequential improvement in M&HCV sales to continue, driven
by a rise in e-commerce, agriculture, infrastructure, and mining activities. We expect a recovery in the CV segment to
continue in FY2024E, driven by improved economic activities and better financing availability.
n Company outlook - Strong earnings growth potential
SFL continues to deliver stable performance despite a tough environment. We expect SFL to benefit from an
improved automotive business outlook and a diversified portfolio. Export markets also expect sequential recovery in
US markets, where SFL has significant exposure. The company has a well-diversified customer and product portfolio,
de-risking its business model from dependency on one customer or one product. We expect SFL to benefit from
solid growth traction in the automotive industry with its clients’ well-diversified across segments. Export and non-
automotive segments remain the focus areas with a strategy to de-risk business from cyclicality. We remain positive
on SFL’s business prospects in the future.
n Valuation - Maintain Buy with revised PT of Rs. 1,460
Post reporting in line with expected bottom-line performance the management has guided for a better performance
in H2FY24 compared to H1FY24 on continued traction in the domestic market and revival in its export performance.
While SFL has cut down its export revenue expectations by 10% (from USD 200mn) for Fy24 due to weak performance
in H1FY24 and delay in schedules due to auto worker strike in USA but is optimistic on export revenue performance
in H2FY24 due to ease in destocking and end of auto workers strike in USA. Further, the management is expecting
to continue to outperform the underlying domestic industry growth by 2-3% and expecting soft RM cost trend to
translate into healthy gross margin expansion. Its ongoing capex program of Rs 1000 cr over FY23 -25 has been on
schedule and over the period the management is expecting rise in contribution from EV space on the execution
of new orders, SFL has been working closely with domestic OEMs for import substitution and expected to emerge
as a beneficiary of China plus one theme. We broadly identified 3 key structural growth drivers for SFL in the long
term – (1) beginning of execution of ~USD 480 mn EV project for six years from FY26, for which management is
expecting an additional revenue of Rs 500 cr per annum from FY26 (2) beginning of execution of orders in wind
energy segment from Q3Fy24 onwards for which management is expecting an additional revenue of Rs 45-60
cr in FY24 (3) Management is engaged with the customers for a potential rise in order book in EV segment. Post
incorporating Q2FY24 performance and introducing earning estimates for Fy26, We maintain our Buy rating on the
stock with revised PT of Rs 1460 in expectation of revival in export revenue from H2FY24, expectation of new orders
in EV segment, successful execution of existing orders in EV and non-auto space and RM cost tailwind.
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Stock Update
About company
SFL, incorporated in 1966, is part of TVS Group, headquartered in Chennai. The company manufactures critical and
high-precision components for automotive, infrastructure, windmills, and aviation sectors. The company produces
fasteners, powertrain components, sintered metal products, iron powders, cold extruded parts, radiator caps, water
pumps, oil pumps, and wind energy components. SFL’s customer portfolio includes domestic and international clients.
The revenue mix comprises 52% domestic OEMs, 13% aftermarket, and 35% exports.
Investment theme
SFL is expected to benefit from an improved automotive business outlook and diversified portfolio. Export markets
have also witnessed sequential recovery in US markets, where SFL has significant exposure. The company has a well-
diversified customer and product portfolio, de-risking its business model from done customer or one-product. We
expect strong earnings growth going forward, driven by new client acquisitions and product expansion. Exports
will also be a key driver as the company is expanding its export portfolio to 50% of overall revenue from the current
36% contribution to total revenue. SFL would continue to focus on launching value-added products. SFL has recently
introduced transmission products and is working on hybrid EV products, which would boost revenue and further
reduce dependence on the traditional fastener business. SFL will likely witness an increased share of business with
clients, driven by new product introductions, relatively low-cost advantage, and stringent quality norms. The renewed
focus on the non-automotive segment is expected to grow faster than other segments. We remain positive about
SFL’s business prospects going forward. Aerospace and defence would be emerging growth areas for the company.
Key Risks
Global exposure can bear the impact of fluctuating forex currency.
Pricing pressures from automotive OEM customers can impact profitability.
Additional Data
Mr. Suresh Krishna Chairman
Ms. Arathi Krishna Managing Director
Ms. Arundathi Krishna Joint Managing Director
Mr. R Dilip Kumar Chief Financial Officer
Source: Company
Top 10 shareholders
1 TVS Sundram Fasteners Pvt Ltd 48.36%
2 Amansa Holdings Pvt Ltd 5.39%
3 HDFC Asset Management Co Ltd 4.83%
4 Parikh Govindlal M 2.04%
5 Vanguard Group Inc/The 1.98%
6 TATA Asset Management Pvt Ltd 1.47%
7 ICICI Prudential Asset Management Co Ltd/India 1.25%
8 SBI Life Insurance Co Ltd 1.05%
9 UTI Asset Management Co Ltd 0.97%
10 Franklin Resources Inc 0.82%
Source: Bloomberg

Stock Update
Apollo Tyres Ltd
Strong beat, sanguine outlook
Powered by the Sharekhan 3R Research Philosophy Automobiles Sharekhan code: APOLLOTYRE
3R MATRIX + = -
Result Update
Summary
Reported 160 bps q-o-q expansion in EBITDA margin at 18.5% against an estimate of 15.7%.
Right Valuation (RV) ü Replacement demand is improving in the domestic market, and European markets are bottoming out.
Given the firm’s dominating position in the domestic TBR market, market share gain in the European
+ Positive = Neutral – Negative market, emphasis on premiumisation, and the preference for profitability over simple volume growth, we
retain our Buy recommendation on the stock with a revised PT of Rs. 481.
What has changed in 3R MATRIX Stock trades at P/E multiple of 11.9x and EV/EBITDA multiple of 6.3x its FY26 estimates
Old New With the recovery in replacement demand in the Indian market and market share gain in the European
market , Apollo Tyres (ATL) has reported strong set of operating numbers in Q2FY24 in support of gross
RS  margin expansion and contraction in other expenses. ATL is maintaining a strong focus on profitability and
free cash flow rather than chasing market share gains at the expense of profitability. The key drivers for
RQ  margin expansion are a better product mix, a favourable trend in raw material costs, and an operational
efficiency.RM basket that was down by 2% on q-o-q basis in Q2Fy24 and translated into sharp EBITDA margin
RV  expansion. Revenue increased by 0.6% q-o-q to Rs 6280 cr (against an estimate of Rs 6505 cr), led by a 0.6%
q-o-q decline in revenue from APMEA and a 4.3% q-o-q increase in income from Europe. EBITDA increased
by 10.3% q-o-q to Rs 1160 cr (against estimate of Rs 1018 cr). EBITDA margin expanded by 160 bps q-o-q to
18.5% (against an estimate of 15.7%) on 60 bps q-o-q improvement in RM cost and 100 bps q-o-q contraction
ESG Disclosure Score NEW in other expenses as a percentage of sales. With this solid operating performance , the bottom-line bottom
line grew by 16.8% q-o-q to Rs 474 cr (against an estimate of Rs 379 cr). We remain optimistic about the
ESG RISK RATING company’s growth prospects and expect it to benefit from its strategy of deleveraging its balance sheet,
18.07 improving operating leverage, and focusing on firm capital allocation and cash management in the future.
Key positives
Low Risk It registered EBIT margin expansion in both European and APMEA business as the European business registered
150 bps q-o-q expansion in EBIT margin to 5.3% and APMEA business registered 140 bps q-o-q increase in EBIT
NEGL LOW MED HIGH SEVERE margin to 15.0%.
0-10 10-20 20-30 30-40 40+ Overall 2% q-o-q reduction in RM basket translated into 160 bps q-o-q expansion in EBITDA margin.
Replacement demand in the CV segment is returning.
Source: Morningstar
Key negatives
Company details Replacement demand in PV segment demand in domestic replacement was flattish on yoy basis.
Export was down on y-o-y basis, and the agri market continues to weaken in Europe.
Market cap: Rs. 26,039 cr
Raw material basket is expected to increase by 2-3% in Q3FY24.
52-week high/low: Rs. 441/270 Management Commentary
NSE volume: Replacement demand in CV segment is expected to be strong in coming quarter.
23.7 lakh Continue to focus on profitability and no plan to chase volume growth at the cost of loss of profitability.
(No of shares)
Europen markets are bottoming out except in agri segment.
BSE code: 500877 Our Call
NSE code: APOLLOTYRE Valuation – Maintain Buy rating with revised PT of Rs.481: Post reporting operating performance ahead of
estimates the management has shared optimistic outlook for replacement demand in domestic market and indicated
Free float: for initial sign of revival in the export markets. While the RM basket is expected to inch up by 2-3% in Q3Fy24 the
39.8 cr management plans to mitigate it via judicious product mix and operational efficiency and then go for pricing action if
(No of shares) require as it is not aiming to compromise with profitability for market share gain. Management expects the European
market to recover gradually from H2FY2024 . In light of the current demand situation, management is not planning
for any green field project in the near term and is focusing more on automation, digitization, and debottlenecking
Shareholding (%) to improve production efficiency at its plants. While ATL has been continuously focusing on premium products and
an improvement in the product mix, the soft RM cost trend along with its own cost- control initiatives are likely to
Promoters 37.3 support it in sustaining its high EBITDA margin. Given the firm’s dominating position in the domestic TBR market,
the fact that Vision 2026 is on track, emphasis on premiumisation, and the preference for profitability over simple
FII 22.1 volume growth, we continue to remain positive on the growth prospects of the company. Post incorporating
Q2FY24 performance and introducing earning estimates for FY26 we retain our Buy rating on the stock with revised
DII 17.7 PT of Rs 481.
Key Risks
Others 22.8
ATL derives about 30% of its revenue from European operations, which exposes it to currency risks. Any adverse
movement in the INR-Euro pair would impact its financial performance.
Price chart
550
450
Revenues 20,948 24,568 25,874 27,810 29,984
350
Growth (%) 20.4 17.3 5.3 7.5 7.8
250
EBIDTA 2,574 3,314 4,214 4,551 4,953
150
OPM (%) 12.3 13.5 16.3 16.4 16.5
Jul-23
Nov-22
Nov-23
Mar-23
Adjusted PAT 644 1,082 1,686 1,910 2,182

% YoY growth -32.7 67.9 55.9 13.3 14.3
Price performance Adjusted EPS (Rs) 10.1 17.0 26.6 30.1 34.4
(%) 1m 3m 6m 12m P/E (x) 40.4 24.1 15.4 13.6 11.9
Absolute 7.8 -6.2 15.4 42.1 P/B (x) 2.2 2.0 1.8 1.6 1.4

9.3 -5.1 9.2 35.4
Sensex RoE (%) 5.5 8.4 11.7 11.8 12.0

Stock Update
India Business
In Q2 FY24 the demand rose in oem and replacement segment netted by muted export volumes on you basis . Replacement
and OEM demand grew in excess of double digit . PV demand was flat and CV grew by double digit on yoy basis. Though
export demand is also showing some sign of revival as export volumes grew by 7% on qoq basis. overall volume growth was
5% yoy and pricing action was stable inQ2 FY24.
Good signs of volume growth in CV segment
Rm cost trend is reversed, would be netted off by price mix, product mix and operating efficiency.
Reduced prices in truck bias segment only to react on competition.
ATL has been a leader in CV segment and now leader in PV segment on launch of Vredestein brand in premium segment
RM basket may increase by 2-3% in q3FY24.
Capacity utilization in truck segment stands at 75% and in PV segment at 80 %.
Europe
Market remains subdued in Q2Fy24 as PV mkt declines by 7% yoy and CV market declined by 9% yoy .However Appollo is
performing better than matket and gained market share in PV segment.
Going forward European market is looking good in Q3FY24.
Europe business : Revenue b: Euro 169 mn ( 18% up qoq), EBITDA : Euro 24 mn .
Europe has bottomed out and expect a positive demand curve going forward.
ATL was lacking certain skus and now demand would revive on availability of SKUs.
CV cycle would see uptick in coming quarters . The inventory in PV segment is normal, while Inventory in agri side is slightly
high.
No plan to gain market share via price cut.
UUHP basket is 44% of over sales from 35% earlier.
Margin driver
Cost saving : constant work is going on cost saving and whole focus on enriching product mix. Only going for profitable
growth and not chasing market share at the cost of profitability.
Focussing on upsizing the tyres in India and Europe is supporting the rise in profitability.
ATL is price leader in PV segment.
Vredestein is competing with premium brands in India.
Capex :
Not looking for any kind of growth capex in next 1-2 years . Looking to increase capacity via debottlenecking backed by
digital solutions.
Others
Overall RM inventory stands 2.5 to 3.5 weeks.
Not dependent on single supplier and pricing is fixed on quarterly basis.
Per kg RM cost trend in Q2 FY24: Natural rubber : 160, Synthetic rubber: 145,Carbon black : 114
Overall, 2% fall in RM basket on qoq basis.
If RM would go up by 5% it needs to take 3% price hike.
OHT segment
ATL has converted some existing capacity in OHT.
Currently OHT market is facing headwinds in the American and European market.
Strategically building up business in OHT segment and would gradually increase market share going forward.
OHT share in overall revenue : 12% in Indian busines and 13% in European business.

Stock Update
Outlook
Replacement momentum has been strong and hence looking for double digit growth on yoy basis in replacement demand
in near term.
Expect recovery in domestic markets in CV segment in coming quarters.
Expects demand to recover European markets as demand in PV segment is bottoming out in European market though agri
segment is still facing headwinds.
Can go for price hike if required to save margins on rise in cost.
Continue to drive industry 4.0.implementation and focus on data backed capacity utilization.
Continue to focus on brand building exercise.
India : CV demand is coming back, PV : OE side is showing double digit growth, replacement demand in PV would be better
in q3 and q4
Keep on investing in R&d but would continue to chase profitable growth via catering premium segment. No plan to go back
to mass market segment heavily.
Continue to invest in R&D and brand building exercise.
Interest cost would come down in coming quarters
Q3 FY24 is also expected to be better.
Continue to be judicious on capex and looking for a profitable volume growth.
Earlier New % change Introduction
Particulars
Revenue 27,537 29,684 25,874 27,810 -6.0% -6.3% 29,984
EBITDA 3,970 4,427 4,214 4,551 6.1% 2.8% 4,953
EBITDA margin 14.4% 14.9% 16.3% 16.4%
PAT 1,503 1,817 1,686 1,910 12.2% 5.1% 2,182
EPS 23.7 28.6 26.6 30.1 12.2% 5.1% 34.4
Particulars Q2FY24 Q2FY23 % YoY Q1FY24 % QoQ
Revenue 6,280 5,956 5.4 6,245 0.6
Total Expenses 5,120 5,244 (2.4) 5,193 (1.4)
EBITDA 1,160 712 62.9 1,051 10.3
Depreciation 360 349 3.4 362 (0.5)
Interest 133 132 0.6 135 (2.0)
PBT 680 238 185.3 576 18.0
Tax 206 44 367.8 179 14.6
Share Of profit from Associates 0.15 0.10 NA 0.04 NA
Reported PAT 474 194 143.9 397 19.5
Adj Net Profit 474 194 143.9 406 16.8
Adjusted EPS (Rs) 7.5 3.1 143.9 6.4 16.8
Key ratios (Consolidated)

Gross margin (%) 45.7 38.9 680 45.0 60
EBIDTA margin (%) 18.5 12.0 650 16.8 160
Effective tax rate (%) 30.3 18.5 1,180 31.1 (90)

Stock Update

n Sector view - Strong recovery eyed
We expect the domestic tyre industry to benefit from a recovery in automobile sales in rural and semi-urban markets,
driven by pent-up demand, preference for personal mobility and faster-than-expected recovery in infrastructure,
mining, and other economic activities. The tyre industry is well positioned to gain momentum in the future, backed
by higher OEM offtake. The ripple effect of OEM demand is likely to result in steady growth for the replacement
demand. Further sharp correction in RM basket augurs well for the surge in profitability.
n Company outlook - Convincing strategy to achieve a profitable growth model
The management has laid down its long-term targets to achieve revenue of US$5 billion by FY2026, an EBITDA margin
profile to reach at least 15%, ROCE of 12-15%, and net debt to EBITDA of less than 2x. The replacement volumes
are expected to recover with a recovery in macro-economic activities. The overseas business is expected to do well
because of a richer product mix and gradual capacity additions.
n Valuation - Maintain Buy rating with revised PT of Rs.481
Post reporting operating performance ahead of estimates the management has shared optimistic outlook for
replacement demand in domestic market and indicated for initial sign of revival in the export markets. While the RM
basket is expected to inch up by 2-3% in Q3Fy24 the management plans to mitigate it via judicious product mix and
operational efficiency and then go for pricing action if require as it is not aiming to compromise with profitability for
market share gain. Management expects the European market to recover gradually from H2FY2024 . In light of the
current demand situation, management is not planning for any green field project in the near term and is focusing
more on automation, digitization, and debottlenecking to improve production efficiency at its plants. While ATL has
been continuously focusing on premium products and an improvement in the product mix, the soft RM cost trend
along with its own cost- control initiatives are likely to support it in sustaining its high EBITDA margin. Given the firm’s
dominating position in the domestic TBR market, the fact that Vision 2026 is on track, emphasis on premiumisation,
and the preference for profitability over simple volume growth, we continue to remain positive on the growth
prospects of the company. Post incorporating Q2FY24 performance and introducing earning estimates for FY26 we
retain our Buy rating on the stock with revised PT of Rs 481.
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Stock Update
About company
ATL is the second largest tyre manufacturer in India. ATL is a diversified player present in India as well as Europe.
APMEA business contributes about 67% to revenue, while European business contributes about 29%. With its recent
entry into the two-wheeler space, ATL has become a full-fledged tyre player across automotive categories, including
passenger vehicles, commercial vehicles, and two-wheelers. The OEM segment contributes about 23% to revenue,
while the replacement segment accounts for of 77%.
Investment theme
ATL is one of the leading tyre companies in India, with a leadership position in the largest truck and bus tyre segment.
The company is also one of India’s leading players in the passenger vehicle segment. Over the past few years, ATL
has been increasing its presence globally and acquiring businesses in Europe, which has opened new markets for the
company and strengthened its R&D capabilities globally. ATL is expected to gain market share in other segments and
multiple geographies (e.g. Vredestein in passenger vehicles and Apollo in truck and bus segments), driven by a strong
brand, R&D, technology, and distribution network. In addition, the company will operationally improve its margin,
aided by the specialisation of the Dutch plant (through a significant uptick in cost competitiveness, given ramping up
production in Hungary), cost reductions through the digitalisation of its businesses, and improvement in passenger
vehicle mix.
Key Risks
ATL derives about 30% of its revenue from European operations, which exposes it to currency risks. Any adverse
movement in the INR-Euro pair would impact its financial performance.
Additional Data
Onkar Singh Kanwar Chairman and Managing Director
Mr Neeraj Kanwar Vice Chairman and Managing Director
Gaurav Kumar Chief Financial Officer
Source: Company
Top 10 shareholders
1 Sunrays Properties & Investments Co Pvt Ltd 31.83%
2 Emerald Sage Investment Ltd 9.93%
3 HDFC Asset Management Co Ltd 8.68%
4 White Iris Investment Ltd 8.04%
5 Classic Industries & Exports Ltd 2.94%
6 Kotak Mahindra Asset Management Co Ltd/India 2.93%
7 Norges Bank 2.33%
8 Vanguard Group Inc/The 2.28%
9 Mehta Ashwin Shantilal 2.23%
10 PTL Enterprises Ltd 1.69%
Source: Bloomberg

Update
Update
Exide Industries Ltd
Stock
In line result, eye on margins
Stock
Powered by the Sharekhan 3R Research Philosophy Automobiles Sharekhan code: EXIDEIND
3R MATRIX + = -
Result Update
Summary
We maintain our Buy rating on the Exide with an SOTP-based PT of Rs 327 in expectation of sustainable
Right Valuation (RV) ü recovery in replacement demand, healthy traction in OEM business and timely execution of its LI ion
project.
+ Positive = Neutral – Negative Reported PAT at Rs 287 cr in Q2FY24 against an of estimated Rs 289 cr.
Management guided for an EBITDA margin range of 14.5% -15% in the medium term.
What has changed in 3R MATRIX The stock trades at P/E multiple of 14.3x and EV/EBITDA multiple of 5.7x its FY2026E estimates.
Old New Exide (Exide Industries) has reported in-line performance in Q2FY24 on improvement in the automotive
segment, traction in the replacement segment and strong order inflow in industrial segment; Exide has
RS  reported in line performance in Q2FY24. With healthy gross margin expansion on a soft RM cost trend,
EBITDA margin also came at 11.8% - in line with estimates. Revenue increased by 0.8% q-o-q to Rs 4107
RQ  cr (vs estimate of Rs 4195 cr) as the company has not taken any price hike in Q2FY24.EBITDA increased by
11.8% q-o-q to Rs 483 cr (vs estimate of Rs 497 cr). EBITDA margin expanded by 120 bps q-o-q to 11.8%
RV  (vs estimate of 11.8%) on 290bps q-o-q expansion in gross margin expansion supported by in-house cost
cutting initiatives. With this operating performance, APAT has increased by 18.6% q-o-q to Rs 287 cr (vs
estimate of Rs 289 cr). As we advance the management is optimistic about the demand scenario and aims for
an EBITDA margin in the range of 14.5-15% in medium term. Further, the Li -ion project in which the company
NEW has already invested Rs 1500 cr is on track, and the first phase is likely to be commissioned by the end of FY26.
ESG Disclosure Score Key positives
ESG RISK RATING Gross margin expanded by 290 bps q-o-q and supported EBITDA margin expansion.
13.38 Demand trend is improving in both automotive OEM and automotive aftermarket segment.
Continued investment in the industrial segment is resulting in healthy order inflow.
Low Risk
Key negatives
NEGL LOW MED HIGH SEVERE Missed revenue estimates by 2.1% q-o-q on lack of price hike.
0-10 10-20 20-30 30-40 40+
Staff cost as % of sales expanded from 5.8% of sales in Q1Fy24 to 6.2% in Q2FY24.
Other expenses as % of sales expanded from 11.8% in Q1Fy24 to 13.1% in Q2FY24.
Source: Morningstar
Company details Order inflow has been increasing from solar, telecom, traction, railways, and infrastructure sector.
The first phase of the 6GWh Li ion project is expected to be completed by the end of FY25.
Market cap: Rs. 22,695 cr Management shared optimistic outlook for the demand in the short to medium term and targets to continue to
deliver profitable growth.
52-week high/low: Rs. 280 / 168
Our Call
NSE volume: Valuation - Maintain Buy with a revised PT of Rs.327: ost reporting in line with estimated performance in Q2Fy24
32.1 lakh
(No of shares) the management has shared an optimistic outlook for volume growth in near to medium term as the replacement
market is gradually recovering and export volumes are show promising prospects. Further the continued rising
BSE code: 500086 investment in industrial segments is generating healthy order flow for its industrial battery segment. With renewed
traction in EBITDA margin front the management is aspiring for an EBITDA margin of 14.5% - 15%. Li ion project is
NSE code: EXIDEIND on track and is first phase is expected to be commissioned by the end of Fy26. The management targets for a quality
product at competitive pricing in LI ion segment. Battery pack assembly business has enjoying healthy order book
Free float: of Rs 600cr-700 cr. While Exide has been investing in new age technologies (Li ion), it assumes that Lead acid battery
45.9 cr segment would also exist in future due to its advantage in certain segments. The management foresees new age
(No of shares) technologies and lead acid technology would co-exist invisible future. We expect the company would continue to
maintain its dominance in the lead acid battery segment led by its strong distribution network, given Exide has
expanded its distribution network f from 48,000 in FY20 to 95,000 in FY23. In addition, the company’s foray into
lithium cell manufacturing holds a strong future in the automotive segment, driven by the expected traction of
Shareholding (%) hybrid and electric vehicles (EV) in India. With the introduction of earning estimates for Fy26E, we maintain our Buy
rating on the stock with SOTP-based PT of Rs 327 (15x core FY26E EPS and Rs 47 for its stake in HDFC life Insurance)
Promoters 46.0 on the expectation of sustainable recovery in replacement demand, healthy traction in OEM business and timely
execution of its LI ion project.
FII 12.8
Key Risks
DII 19.1 Pricing pressures from automotive OEM customers can affect profitability. The fear of geopolitical tension could
potentially affect international business and margins.
Others 22.2
Price chart Valuation (Standalone) Rs cr

300
250 Revenues (Rs cr) 12,382 14,592 15,693 16,999 18,415
Growth (%) 23.3 17.9 7.5 8.3 8.3
200
AEBIDTA (Rs cr) 1,396 1,568 1,852 2,210 2,578
150 OPM (%) 11.3 10.7 11.8 13.0 14.0
Jul-23
Nov-22
Nov-23
Mar-23
Adj Net Profit (Rs cr) 769 904 1,095 1,334 1,582
Growth (%) 1.4 17.6 21.2 21.8 18.6
AEPS 9.0 10.6 12.9 15.7 18.6
Price performance
P/E (x) 29.5 25.1 20.7 17.0 14.3
(%) 1m 3m 6m 12m
P/BV (x) 2.1 2.0 1.9 1.7 1.6
Absolute 3.1 4.0 38.4 61.6
EV/EBIDTA (x) 11.8 10.4 8.3 6.7 5.7
Relative to
4.6 5.2 32.3 54.9 ROE (%) 8.8 8.3 9.4 10.5 11.4
Sensex
ROCE (%) -0.1 8.5 9.6 10.7 11.5
Sharekhan Research, Bloomberg

Stock Update
Q2FY24 performance
In Q2 FY24, Exide Industries invested Rs280 cr in its wholly owned subsidiary, Exide Energy Solutions (EESL). So far,
the company has invested Rs 1530 cr in EESL, including an additional Rs4.4 billion investment in October 2023.
The company is experiencing strong growth in its industrial division due to significant capital infusion from both
public and private sectors in sectors like solar, telecom, traction, railways, infrastructure, and financial services. This
has resulted in a substantial increase in order inflow and sales.
In the automotive division, there has been an improvement in demand from both OEMs (original equipment
manufacturers) and the replacement market, contributing to a recovery in sales volume across various end-user
verticals.
Prudent working capital management along with healthy profits leads to strong cash flow generation. Cash flow in
H1FY24 stood at Rs 1491 cr against Rs 1007 cr in H1FY23.
Overall capacity utilisation is at 80%, and reconfiguration and debottlenecking will address increased demand.
Exports
Industrial exports have excelled by selling quality products at a reasonable price.
Exports will gradually expand with increased reach and improved product quality.
Currently, 9% of revenue comes from exports.
Exports show promise in both automotive and industrial segments, with significant growth potential.
Li-ion Project
The construction of the greenfield giga factory project, which aims to establish a 12 GWh capacity in India in two
phases, is progressing rapidly. The first phase, targeting 6 GWh, is expected to be completed by the end of FY2025.
Commodity prices have fluctuated due to supply and geopolitical factors, but they don’t significantly impact
investment decisions like Li ion project.
End product pricing will depend on commodity price trends at the time of production and delivery of the products
The project has a diversified product portfolio in the alternative energy segment.
Discussions have started with PV and telecom players for engagement and business in future.
Early mover advantage is crucial due to the 12-18 months required for homologation.
The project is set to begin at the end of FY25, with high demand anticipated.
Capacity utilisation is not expected to be an issue volume ramped up due to huge demand.
Exide has a significant opportunity for growth as many OEMs may not opt for in-house manufacturing due to a lack
of scale and technology.
Homologation in LI ion project is already in progress.
Currently the Li-ion batteries is affecting OEMs’ working capital due to stocking, but having local production will
make procurement more convenient for OEMs
Competitive pricing with profitability is expected in LI ion business.
Initial focus is on the domestic market, with plans for exports later.
Stabilizing production is a priority, and the project will unlikely dilute Exide’s performance.
Phase 1 of the project will require approximately 4,500 to 5,000 crore, primarily in equity with some bridge funding.
There is no need to liquidate investments to fund Phase 1 of the project.

Stock Update
Li-ion Pack Business

It has a strong order book ( Rs 600-700 cr), and orders are expected to increase.
However, the timeline of execution has been changing due to OEMs’ production schedule adjustments.
Outlook
Volume growth trend is expected to continue in the near term supported by a gradual revival in after market
segment.
The Li-ion project is on track, and commissioning will happen as scheduled ( by the end of FY25) .
Overall replacement demand increases after 3 years of OEM sales, though it has been impacted recently but now
showing upward movement. Replacement demand is projected to grow quarterly in the coming quarters.
Over the period a certain percentage of the market will shift to Li-ion batteries, while lead-acid batteries will also
increase.
Multiple energy solutions will coexist in the market due to huge demand and specific requirements.
Industrial demand is growing, driven by smart cities, data centres, and power plants.
Exide is a market leader in most of the industrial segments in the domestic market except telecom.
No plans to add unrelated products under the Exide brand.
Annual capex for lead-acid batteries business is Rs 500 crore.
Cost optimisation efforts are ongoing and expected to improve cost efficiency.
Margins are anticipated to return to the 14.5% to 15% range.
Industrial orders are increasing, and the order book is growing.
Particulars
Revenue 15,693 16,999 15,693 16,999 - - 18,415
EBITDA 1,852 2,210 1,852 2,210 - - 2,578
EBITDA margin (%) 11.8 13.0 11.8 13.0 14.0
PAT 1,095 1,334 1,095 1,341 - (0.5) 1,582
EPS 12.9 15.7 12.9 15.8 - (0.5) 18.6

Stock Update
Results (Standalone) Rs cr
Particulars Q2FY24 Q2FY23 % YoY Q1FY24 % QoQ
Revenues 4,107 3,719 10.4 4,073 0.8
Total operating costs 3,624 3,306 9.6 3,640 (0.5)
EBIDTA 483 412 17.1 432 11.8
Depreciation 126 112 12.4 119 5.5
Interest 11.5 6 86.0 9.8 17.9
Other income 39 36 10.1 19 103.9
PBT 385 330 16.7 322 19.4
Tax 98 84 17.1 80 21.9
Reported PAT 287 246 16.6 242 18.6
Adjusted PAT 287 246 16.6 242 18.6
Adjusted EPS 3.4 2.9 16.6 2.8 18.6
Key Ratios (Standalone)

Gross margin (%) 31.1 30.5 60 28.3 290
EBIDTA margin (%) 11.8 11.1 70 10.6 120
Effective tax rate (%) 25.4 25.3 10 24.9 50

Stock Update

n Sector view - Demand picking up in the automotive and industrial sector
The business outlook for the automotive and industrial segments is improving with the normalisation of economic activities.
Automotive demand is recovering strongly in 2W and 4W segments, aided by pent-up demand and increased personal mobility
transport. The industrial part is also witnessing growth, driven by a recovery in the telecom and UPS segments. The potential
demand in the telecom and UPS industry remains buoyant because of increased data usage and digitalisation.
n Company outlook - Strong earnings growth
Exide is expected to maintain its leadership position with auto OEMs and gain market share in the aftermarket segment, especially
from the unorganised sector. We see a strong recovery in automotive battery demand in OEM and replacement demand. Higher
mobility on the road is expected to increase battery demand in replacement markets. Overall, an improving replacement to
OEM mix will boost revenues and margins for Exide. Further, its investment in Li ion project would help it to sustain its growth
in the long term.
n Valuation - Maintain Buy with a revised PT of Rs.327
Post reporting in line with estimated performance in Q2Fy24 the management has shared an optimistic outlook for volume
growth in near to medium term as the replacement market is gradually recovering and export volumes are show promising
prospects. Further, the continued rising investment in industrial segments is generating healthy order flow for its industrial
battery segment. With renewed traction in the EBITDA margin front the management is aspiring for an EBITDA margin in the
range of 14.5% - 15%. Li ion project is on track and is first phase is expected to be commissioned by the end of Fy26. The
management targets for a quality product at competitive pricing in LI ion segment. Battery pack assembly business has enjoyed
healthy order book of Rs 600cr-700 cr. While Exide has been investing in new-age technologies (Li-ion) it assumes that Lead
acid battery segment would also exist in future due to its advantage in certain segments. The management foresee new age
technologies and lead acid technology would co-exist invisible future. We expect the company would continue to maintain its
dominance in lead acid battery segment led by its strong distribution network, given Exide has expanded its distribution network
f from 48,000 in FY20 to 95,000 in FY23. In addition, the company’s foray into lithium cell manufacturing holds a strong future
in the automotive segment, driven by the expected traction of hybrid and electric vehicles (EV) in India. With the introduction
of earning estimates for FY26E, we maintain our Buy rating on the stock with SOTP-based PT of Rs 327 (15x core FY26E EPS and
Rs 47 for its stake in HDFC life Insurance) on an expectation of sustainable recovery in replacement demand, healthy traction in
OEM business and timely execution of its LI ion project.
35
30
25
20
15
10
0
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Nov-23
May-16
May-17
May-18
May-19
May-20
May-21
May-22
May-23
FwD P/E (x) Avg P/E (x) Peak P/E (x) Trough P/E (x)

Stock Update
About company
Exide is one of the leading battery manufacturers in India, catering to automobiles and industrial segments. The
company is present in OEM as well as replacement and export segments. The company manufactures a wide range
of batteries under the brands Exide, SF Sonic, Dynex, and CEIL in the automotive segment ranging from 3AH to 200
AH (four-wheelers, two-wheelers, commercial vehicles, gensets, and home inverter systems) and industrial segment
ranging from 7AH to 3,200 AH (power, solar, railways, telecom UPS, and traction batteries). Exide is the preferred
OEM supplier, having established its brand driven by robust product quality and supply chain management. With a
strong OEM presence and robust distribution network, Exide is assumed to be the market leader in the automotive
replacement segment.
Investment theme
Exide is the largest battery manufacturer in the lead acid battery markets, commanding a leadership position in
the organised market. Having a substantial brand equity and extensive distribution network, we expect Exide to
grow strongly in the battery industry. Exide is working on several cost-control measures to improve profitability, such
as increasing backward integration, diversifying the supplier base, enhancing automation, increasing the share of
renewable power, and enhancing digital initiatives. Exide is also upgrading its technology and working on the import
substitution of raw materials to enable cost reduction. The company is debt-free and generates strong cash flows.
Key Risks
Pricing pressures from automotive OEM customers and steep rise in lead prices (a key raw material) can impact
profitability.
The fear of geopolitical tensions could potentially affect international business and margins.
Additional Data
Mr. Bharat D. Shah Chairman and Independent Director
Mr. R. B. Raheja Vice Chairman and Non-Executive Director
Mr. G. Chaterjee MD and CEO
Mr. A. K. Mukherjee Director Finance and CFO
Source: Company
Top 10 shareholders
1 Chloride Eastern Ltd 45.99%
2 Kotak Mahindra Asset Management Co Ltd/India 5.02%
3 Hathway Investments Pvt Ltd 4.32%
4 Life Insurance Corp of India 2.94%
5 Norges Bank 2.36%
6 Vanguard Group Inc/the 2.09%
7 Franklin Resources Inc 1.78%
8 DSP Investment Managers Pvt Ltd 1.37%
9 ICICI Prudential Asset Management Co Ltd/India 1.30%
10 Aditya Birla Sun Life Asset Management Co Ltd 1.24%
Source: Bloomberg

Stock Update
Balrampur Chini Mills Ltd
Good performance in seasonally weak quarter
Powered by the Sharekhan 3R Research Philosophy Miscellaneous Sharekhan code: BALRAMCHIN
3R MATRIX + = -
Result Update
Right Valuation (RV) ü Balrampur Chini Mills (BCML) registered good performance in a seasonally weak quarter with a 38%
y-o-y growth in revenues and EBIDTA margins standing high at 10.7%.
+ Positive = Neutral – Negative Management expects a further 10% increase in crushing in SS 2023-24 (over ~16% increase achieved in
SS 2022-23).
What has changed in 3R MATRIX Company targets 31-32 crore litre ethanol production and 28-29 crore litre ethanol sales for FY2024.
Ethanol production will be done from sugar juice and broken rice.
Old New Stock trades at 17x/14x/13x its FY024E/FY2025E/FY2026E earnings. We maintain Buy with a revised PT
of Rs. 520.
RS 
BCML clocked good numbers in a seasonally weak quarter with revenues growing by 38% y-o-y to
RQ  Rs. 1.539.3 crore and EBIDTA margins standing high at 10.7%. The positive show can be attributed
to a 2.5x y-o-y growth in distillery revenues with distillery business contribution increasing to
RV  36% in Q2FY2024 from 20% in Q2FY2023. Increased contribution of distillery business and stable
profitability in sugar business aided overall EBIDTA margins to stand at 10.7% in Q2FY2024 (11.2%
in H1FY2024). EBIDTA stood at Rs. 165 crore in Q2FY2024 versus loss of Rs. 16 crore in Q2FY2023.
Adjusted PAT (excluding one-time gains) stood at Rs. 77.4 crore in Q2FY2024 versus loss of Rs. 32 crore
in Q2FY2023. In H1FY2024, consolidated revenues grew by 34% y-o-y to Rs. 2,929.1 crore; EBIDTA
ESG Disclosure Score NEW margins stood at 11.2% and the adjusted PAT was Rs. 145.4 crore.
Key positives
ESG RISK RATING
35.62 Sugar sales volumes rose 4.2% y-o-y; average blended realisations grew by 5.6% y-o-y to Rs. 37.7 per kg.
Total ethanol sales rose 2.2x y-o-y to 8.8 crore litres; average blended ethanol realisations rose 9%
High Risk y-o-y.
EBIDTA margins stood high at 10.7% in Q2 driven by a better mix and good performance by the sugar
NEGL LOW MED HIGH SEVERE business.
0-10 10-20 20-30 30-40 40+ Key negatives
Source: Morningstar Distillery business’ margin fell to 19.5% in Q2FY2024 from 31.7% in Q2FY2023 due to higher freight charges.
Company details As per BCML’s internal estimates, sugar production in SS 2023-24 is estimated at 33.7 million tonnes
Market cap: Rs. 8,771 cr (36 million tonnes earlier). Post diversion to ethanol, production is expected at 29.5-30 million tonnes.
Domestic consumption is estimated at 28.5 million tonnes.
52-week high/low: Rs. 462 / 321 Management expects a further 10% increase in crushing in SS 2023-24 (over ~16% increase achieved in SS
2022-23) with good increase in area under cane.
NSE volume: Effect of the red rot disease is expected to be lesser as contribution of Co-0238 variant will be reduced by
19.4 lakh
(No of shares) 20% compared to last year. It has been replaced by higher-yield variants. The Co-0238 mix will be reduced
to single digit by FY2025.
BSE code: 500038 BCML is not planning to incur any major capex until the time cane-crushing reaches 12-12.5 crore quintals.
NSE code: BALRAMCHIN Ethanol output for FY2024 will be produced through juice and higher preference will be given to rice in
the off-season.
Free float: Hike in the ethanol prices is expected in another 10-15 days; hike will be in-line with the increase in FRP.
11.5 cr
(No of shares) Management doesn’t expect any significant hike in SAP rate, which is likely to be announced by end of
this month.
Shareholding (%) Revision in estimates – We have fine-tuned our earnings estimates for FY2024 and FY2025 to factor in better
than expected operational performance. We have also introduced FY2026 estimates through this note.
Promoters 42.9 Our Call
View – Retain Buy with a revised PT of Rs. 520: We like the company’s focus on improving growth
FII 15.1 prospects by playing on its strategy of maximising value accruals from each tonne of cane crushed. Further,
DII 22.1 strong growth in the distillery business will help BCML to consistently improve its profitability in the coming
years. With an expected improvement in cash flows, the company is focusing on significantly reducing debt in
Others 19.8 the coming years. Mmanagement has maintained its stance of improving shareholders’ value by generating
higher cash flows in the coming years. The stock trades at decent valuations of 17x/14x/13x its FY2024E/
FY2025E/FY2026E earnings. We maintain our Buy recommendation on the stock with a revised price target
Price chart (PT) of Rs. 520 (rolling it over to Sept-25 earnings).
500 Key Risks
Any decline in sugar production or a change in government policies towards ethanol blending would be a
450 key risk to our earnings estimates.
400
350
Particulars FY23 FY24E FY25E FY26E
300 Revenue 4,665.9 5,795.0 6,519.5 6,930.7
Mar-23
Jul-23
Nov-22
Nov-23
OPM (%) 11.0 14.1 14.9 15.1

Adjusted PAT 284.2 526.3 640.5 700.4
% YoY growth -42.9 93.7 23.9 10.3
Price performance
Adjusted EPS (Rs.) 14.1 26.1 31.7 34.7
(%) 1m 3m 6m 12m P/E (x) 31.6 17.1 14.0 12.8
Absolute 1.0 8.8 5.9 29.3 P/B (x) 3.1 2.7 2.3 2.0
Relative to EV/EBIDTA (x) 19.9 13.2 11.2 10.2
1.8 9.9 1.0 23.1 RoNW (%) 9.6 16.5 17.5 16.5
Sensex
RoCE (%) 9.9 13.8 15.2 15.5

Stock Update
Good performance in seasonally weak Q2 – Revenue growth at 38%; EBITDA margin at 10.7%
BCML’s revenues grew by 38% y-o-y to Rs. 1,539.5 crore, aided by higher volume in sugar and distillery segments
coupled with higher realizations. Revenue came in ahead of our expectation of Rs. 1,291 crore. Revenues of sugar
business grew by 19% y-o-y to Rs. 1,109.4 crore; Distillery business revenues grew by 2.4x y-o-y to Rs. 560 crore. EBIDTA
margins improved to 10.7% against a loss reported in Q2FY2023 (versus our expectation of 11.1%). Sugar business
registered EBIT of Rs. 39.3 crore against loss in Q2FY2023. Distillery business EBIT grew by 50% y-o-y to Rs. 109.3 crore.
EBIDTA came in at Rs. 164.9 crore (versus a loss of Rs. 16 crore in Q2FY2023), while adjusted PAT came at Rs. 77.4 crore
against loss of Rs. 32 crore in Q2FY2023. Other income includes Rs. 31.1 crore profit on sale of land and gain of Rs. 71.3
crore towards revaluation of investment in associates and JVs. Reported PAT came at Rs. 166.3 crore. In H1FY2024,
revenue grew by 33.6% y-o-y to Rs. 2,929 crore, EBITDA margin improved by 990 bps y-o-y to 11.2% and reported PAT
came in at Rs. 240 crore versus loss of Rs. 17 crore in H1FY2023. The board has declared an interim dividend of Rs. 3
per share for FY2024.
Sugar business – Revenue growth at 19%; EBIT margin at 3.5%
Sugar business’ revenue grew by 18.5% y-o-y to Rs. 1,109.4 crore driven by higher sales volume and higher realisation.
Sugar sales volume came in higher by 4.2% y-o-y to 25.61 lakh quintal, while average blended sugar realisations
improved by 5.6% y-o-y to Rs. 37.66 per kg. In H1FY2024, BCML sold 49.41 lakh quintal sugar at average blended
sugar realisation of Rs. 37.27 per kg. BCML had 15.5 lakh quintal sugar inventory, as on September 30, 2023 valued at
an average rate of Rs. 37.6 per kg as compared to 11.9 lakh quintals as on September 30, 2022 valued at an average
rate of Rs. 34.82 per kg. Sugar business EBIT margin stood at 3.5% versus loss in Q2FY2023 benefiting from higher
sugarcane crushing and recovery achieved in the previous season and further aided by lower cane cost and lower
cost of production in H1FY2024.
Sugar business performance Rs cr

Particulars U.O.M Q2FY24 Q2FY23 y-o-y (%) H1FY24 H1FY23 y-o-y (%)
Sales (including export) lakh quintals 25.61 24.57 4.2 49.41 45.84 7.8
Average blended realisation Rs. /kg 37.66 35.65 5.6 37.27 35.63 4.6
Distillery business – Revenue 2.4x higher y-o-y; margins significantly impacted

Revenue of the distillery business grew by 2.4x y-o-y to Rs. 559.7 crore driven by higher volume and higher sales
realisation. Total ethanol sales (including ENA and other products) rose by 2.1x y-o-y to 8.82 crore litre, while average
blended ethanol realisation increased by 9.1% y-o-y to Rs. 57.19 per litre. During the quarter, sales from grain stood at
2.47 crore litre, syrup at 0.14 crore litre, B-heavy at 5.41 crore litre (up by 68% y-o-y), C-heavy at 0.14 crore litre (lower
by 48% y-o-y) and from ENA & others at 0.66 crore litre (higher by 6% y-o-y) In H1FY2024, the company sold 16.2 crore
litre ethanol at average blended ethanol realisation of Rs. 57.71 per litre. EBIT margins fell to 19.5% in Q2FY2024 from
31.7% in Q2FY2023 due to higher transfer pricing of feedstock and adverse mix (margins on grain route ethanol are
lower). In terms of supply to OMCs, BCML supplied 24.69 crore litres ethanol against the contract of 26.74 crore litre
due to lower availability of rice from FCI.
Distillery business performance Rs cr

Particulars U.O.M Q2FY24 Q2FY23 y-o-y (%) H1FY24 H1FY23 y-o-y (%)
Total production Cr. BL 7.34 3.87 89.7 15.63 9.00 73.7
Total sales Cr. BL 8.82 4.11 114.6 16.20 9.29 74.4
Avg. blended realisation Rs./BL 57.19 52.41 9.1 57.71 53.39 8.1

Stock Update
Sugar business outlook

BCML expects higher cane availability in the current season on the back of a ~10% projected rise in sugarcane
crushing driven by the company’s efforts of intensively engaging with farmers to improve the quality of cane, as well
as to increase acreage and yields. Further, Improvement in varietal balance and conducive weather conditions may
lead to enhanced sugar recoveries. Domestic sugar realisation is expected to improve with moderation of inventory.
Expansion of crushing capacity at Kumbhi unit by 2000 TCD is under implementation.
Particulars Q2FY24 Q2FY23 Y-o-Y % Q1FY24 Q-o-Q %
Total revenue 1,539.5 1,113.1 38.3 1,389.6 10.8
Raw material cost 1,170.1 966.4 21.1 1,034.2 13.1
Employee cost 92.9 95.0 -2.2 88.9 4.5
Other expenses 111.6 67.6 64.9 103.3 8.0
Total operating expenses 1,374.6 1,129.0 21.7 1,226.4 12.1
Operating profit 164.9 -15.9 - 163.2 1.0
Other income 7.1 11.7 -39.8 12.2 -42.1
Interest expense 17.2 7.8 - 33.5 -48.7
Depreciation 41.2 28.3 45.5 40.6 1.6
Profit before tax 113.5 -40.3 - 101.3 12.1
Tax 36.1 -8.3 - 33.2 8.8
Adjusted PAT (before MI) 77.4 -32.0 - 68.1 13.7
Minority interest (MI) 6.9 3.0 - 5.4 27.5
Exceptional items 81.9 0.0 - 0.0 -
Reported PAT 166.3 -28.9 - 73.5 -
EPS (Rs.) 8.1 -1.4 - 3.6 -
bps bps
GPM (%) 24.0 13.2 - 25.6 -158
EBIDTA margin (%) 10.7 -1.4 - 11.7 -103
NPM (%) 5.0 -2.9 790 4.9 13
Tax rate (%) 31.8 20.7 - 32.8 -95
Business-wise performance
Particular Q2FY24 Q2FY23 y-o-y (%) H1FY24 H1FY23 y-o-y (%)
Sugar 1,109.4 936.2 18.5 2,225.5 1,850.6 20.3
Distillery 559.7 229.9 - 1,025.7 528.0 94.3
Others 5.3 5.5 -3.4 10.3 12.8 -19.6
Total 1,674.4 1,171.5 42.9 3,261.4 2,391.4 36.4
Less: Inter segment revenue 134.9 58.4 - 332.3 198.2 67.7
Revenue from operations 1,539.5 1,113.1 38.3 2,929.1 2,193.2 33.6
Business-wise PBIT margins

Particular Q2FY24 Q2FY23 y-o-y (bps) H1FY24 H1FY23 y-o-y (bps)
Sugar 3.5 -9.6 - 5.0 -7.9 -
Distillery 19.5 31.7 - 18.9 32.5 -
Others 66.7 47.3 - 64.2 48.7 -

Stock Update

n Sector Outlook – Rise in ethanol output to drive growth
As per the ISMA’s latest estimates for SS-2022-2023, total sugarcane production is estimated at 32.8 mt (net of diversion
to ethanol). Diversion to ethanol will amount to ~4 mt. With consumption expected at 28 mt and exports at ~6
mt, surplus sugar is expected at ~4.2 mt. India achieved a 10% average blending percentage in June 2022, which is
expected to improve in the ongoing sugar season. Sugar realisation is expected to be stable with the government
expected to take care of surplus inventory by allowing sugar exports or higher diversion for ethanol production. The
government aims to achieve 20% ethanol blending by 2024-2025, which would largely solve the problem of excess
sugar over the medium term.
n Company Outlook – Higher ethanol sales to boost profitability in FY2024
BCML’s Q2FY2024 numbers were good in a seasonally weak quarter with revenue growing by 38% y-o-y and EBITDA
margin at 10.7%. The company has undertaken measures such as increasing sugarcane plantation and cane area in
key regions by 8%, playing on varieties to reduce weather vagaries/disease management, and 50% cane crushed
under ratoon management. These efforts helped the company to achieve ~16% increase in crushing in SS 22-23. With
continued efforts, management expects a further 10% increase in crushing in SS 23-24. EBITDA margins are likely to
improve due to better sugar recovery. In terms of ethanol, ethanol production capacity is expected to be at 35 crore
litre post capacity expansion. The company targets 31-32 crore litre production (lower due to FCI rice procurement
issue) and 28-29 core litre sales for FY24.
n Valuation – Retain Buy with a revised PT of Rs. 520
We like the company’s focus on improving growth prospects by playing on its strategy of maximising value accruals
from each tonne of cane crushed. Further, strong growth in the distillery business will help BCML to consistently
improve its profitability in the coming years. With an expected improvement in cash flows, the company is focusing
on significantly reducing debt in the coming years. Management has maintained its stance of improving shareholders’
value by generating higher cash flows in the coming years. The stock trades at decent valuations of 17x/14x/13x its
FY2024E/FY2025E/FY2026E earnings. We maintain our Buy recommendation on the stock with a revised price target
(PT) of Rs. 520 (rolling it over to Sept-25 earnings).
600.0
500.0
15x
400.0
12x
300.0
9x
200.0 6x
100.0
0.0
Nov-17
Jun-18
Dec-18
Nov-23
Oct-16
Jul-19
Oct-22
Sep-15
Feb-21
Sep-21
Apr-23
May-17
Aug-20
Mar-15
Mar-16
Jan-20
Mar-22
Peer Comparison
P/E (x) EV/EBITDA (x) RoCE (%)
Particulars
FY23 FY24E FY25E FY23 FY24E FY25E FY23 FY24E FY25E
Triveni Engineering 20.6 18.2 14.1 14.6 12.5 10.0 16.1 16.0 19.1
Dhampur Sugar Mills 11.0 8.9 7.6 8.1 7.6 6.4 14.2 14.6 15.0
Dhampur Bio Organics 10.9 8.7 7.5 9.2 7.6 7.1 9.1 10.0 10.5
Balrampur Chini 31.6 17.1 14.0 19.9 13.2 11.2 9.9 13.8 15.2
Source: Company, Sharekhan estimates

Stock Update
About company
BCML is one of the largest integrated sugar manufacturing companies in India. The allied businesses of the company
comprise distillery operations and cogeneration of power. The company is headquartered in Kolkata and has 10
sugar factories in UP with a total cane crushing capacity of 80,000 TCD (2,000 TCD expansion under implementation),
four distillery units with a collective capacity of 1,050-kilo litre per day, and eight co-generation units with saleable
co-generation capacity of 175.7 MW. BCML was among the first companies to moderate its dependence on sugar
and venture into distillery and cogeneration. BCML has a strong balance sheet and has historically generated a high
payout for shareholders through dividends and share buybacks.
Investment theme
BCML will be one of the key beneficiaries of reducing cyclicality in the sugar industry. With new distillery capacity
commissioned in Maizapur and Balrampur Units, the company’s distillery capacity for FY2023 will be around 20.5-
21 crore litres, while for FY2024, it will be around 35 crore litres. Higher salience of ethanol in the revenue mix will
improve the cash conversion cycle with debt reduction. With the increase in the ethanol business’s contribution, the
company’s cash flows consistently improve in the coming years. We expect BCML’s revenue and PAT to post a CAGR of
14% and 35%, respectively, over FY2023-FY2026E.
Key Risks
Lower sugar production would impact the company’s revenue and be a key risk to our earnings estimates.
Change in government policies towards ethanol blending would affect the company’s profitability.
Additional Data
Vivek Saraogi Chairman-Managing Director
Pramod Patwari Chief Financial Officer
Manoj Agarwal Company Secretary & Compliance Officer
Top 10 shareholders
1 Nippon Life India Asset Management Company 4.93
2 Kotak Mahindra AMC 2.48
3 Vanguard Group Inc 2.38
4 Dimensional Fund Advisors LP 2.01
5 Aditya Birla sun life AMC 1.82
6 Goldman Sachs Group 1.73
7 Goldman Sachs India Pvt Ltd 1.68
8 Axis AMC 1.65
9 Emirate of Abu Dhabi United Arab Emirates 1.51
10 BlackRock Inc 1.48
Source: Bloomberg

Stock Update
Restaurant Brands Asia Ltd
Strong Q2; footfalls improving
Powered by the Sharekhan 3R Research Philosophy Consumer Discretionary Sharekhan code: RBA
Reco/View: Buy  CMP: Rs. 115 Price Target: Rs. 150 
3R MATRIX + = -
Result Update
Summary
Restaurant Brand Asia (RBA) posted strong performance in Q2 with consolidated revenues rising 19% y-o-y;
Right Valuation (RV) ü EBIDTA margins improved by 421 bps y-o-y to 9%.
India business’ SSSG grew by 3.5% in H1; H2 guidance at 8-10%; FY24 SSSG will be at ~6% and for FY25 it is likely
to be at ~8%.
+ Positive = Neutral – Negative
Indonesia business to break even by FY2024-end; value offering and introduction of chicken in menu is driving
higher traffic for Indonesia business.
What has changed in 3R MATRIX
Stock trades at 25x/16x/12x its FY2024E/FY2025E/FY2026E EV/EBIDTA. We maintain a Buy with an unchanged
Old New price target (PT) of Rs. 150.
RS  RBA delivered good performance in Q2FY2024 driven by strong growth in the India business and recovery
in Indonesia business. India business grew by 23.2% y-o-y, while the Indonesia business grew by 9.4% y-o-y,
RQ  resulting in 19.1% y-o-y rise in consolidated revenue to Rs. 625 crore. India business posted traffic-led SSSG
growth of 3.5%, with 5% q-o-q improvement in ADS. Burger King Indonesia reported 6.5% SSSG growth
RV  and 13% y-o-y ADS growth. Gross margins fell by 41 bps y-o-y to 64.2%, while EBIDTA margin increased by
421 bps y-o-y to 9%. EBITDA grew by 2.2x y-o-y to Rs. 56.2 crore. RBA posted a loss of Rs. 50.7 crore against
a loss of Rs. 55 crore in Q2FY2023. In H1FY2024, revenue grew by 21.9% y-o-y to Rs. 1,235.7 crore, EBITDA
margin expanded by 310 bps y-o-y to 8.5% and loss stood stable y-o-y at Rs. 105 crore. India business has
ESG Disclosure Score NEW 404 operational restaurants (8 net openings in Q2) and Indonesia business has 174 operational restaurants
at Q2FY2024-end.
ESG RISK RATING Key positives
21.2
India business’ SSSG stood at 3.5% (traffic-led growth); ADS grew by 5% q-o-q to Rs. 126 mn.
High Risk Burger King Indonesia SSSG grew by 6.5%, ADS stood at Rs. 19.1 million, up by 13% y-o-y.
Indonesia business clocked a 50% volume growth in chicken and 35% volume growth in value offerings (burgers).
NEGL LOW MED HIGH SEVERE Consolidated EBIDTA margin increased by 421 bps y-o-y to 9%.
0-10 10-20 20-30 30-40 40+ India business’ restaurant/company-level EBITDA margins up by 244/221 bps, respectively.
Source: Morningstar Key negatives
Revenues grew by just 2.3% q-o-q.
Company details Management Commentary
Market cap: Rs. 5,668 cr Value preposition, innovations and introduction of chicken in menu (in Indonesia) aided high single digit-traffic
growth in both India and Indonesia.
52-week high/low: Rs. 138 / 84 India business SSSG stood at 3.5% in H1. Festive season, strong traction to value offerings and low base of last year
will help SSSG to be at 8-10% in H2FY24; overall SSSG to be 6% in FY24 (lower guidance from 10% earlier due to
NSE volume: weak H1); SSSG in FY25 will be ~8%.
27.4 lakh
(No of shares) BK Café’s portfolio is complementing well with burger portfolio and is helping to add incrementally to order
value. Its ADS improved to Rs. 16,000 in Q2 from Rs. 7,000-8,000 earlier.
BSE code: 543248
Gross margins are expected to be at 67% in FY2025 despite increased traction to value offering; it will expand by
NSE code: RBA 2% over FY25-27.
Better operating leverage play will help India business EBIDTA margins to improve in the quarters ahead. Large
Free float: store additions in H2FY23 will add to ADS and profitability in the coming quarters.
41.8 cr
(No of shares) In Indonesia, newly introduced chicken menu volumes rose 50%, while value offerings (burgers) volumes rose
35% in Q2. Indonesia business to cash break even by Q4FY24.
Store addition guidance for India business: 450 stores FY25 and 700 stores by FY2027; Indonesia business - 325
Shareholding (%) stores by FY2027.
Promoters* 15.4 Revision in estimates – We have broadly maintained our earnings estimates for FY2024 and FY2025 and we will
closely monitor the performance in the quarters ahead. We have introduced FY2026 estimates through this note.
FII 39.0 Our Call
DII 22.2 View – Maintain Buy with an unchanged PT of Rs. 150: RBA’s focus on gaining more traffic in India and Indonesia
is helping to achieve positive SSSG in the tough business environment. The company expects SSSG growth to
Others 23.4 improve ahead with a focus on value offerings and better customer experience with innovation and expand the
digital footprints. The India business focus is on improving footfalls through its well-placed strategy to enhance the
operating leverage while in Indonesia the focus is on becoming a profitable venture. We expect cash flows to improve
Price chart from FY2025, when both businesses attain certain maturity and post consistent profitability improvement. The stock
currently trades at 25x/16x/12x its FY2024E/FY2025E/FY2026E EV/EBIDTA. We maintain our Buy recommendation on
150 the stock with an unchanged PT of Rs. 150.
130 Key Risks
110 Any disruption caused by store closures, heightened competition due to the entry of a new brand, or slowdown in
expansion in key markets are some of the key risks to our earnings estimates.
90
70
50
Jul-23
Nov-22
Nov-23
Mar-23
Revenue 2,054 2,572 3,239 4,014

EBITDA Margin (%) 5.4 9.1 11.2 12.0
Price performance
Adjusted PAT -242 -167 -86 -32
(%) 1m 3m 6m 12m
Adjusted EPS (Rs.) -4.9 -3.4 -1.7 -0.6
Absolute -6.7 -2.1 6.9 -5.8 P/B (x) 6.9 8.6 9.9 10.5
-5.9 -1.1 2.0 -12.0
Sensex
RoCE (%) -6.6 -4.6 0.1 3.9
Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

Stock Update
Good Q2 – Revenue growth at 19% y-o-y; EBITDA margin up by 421 bps y-o-y
RBA’s consolidated revenues grew by 19.1% y-o-y to Rs. 625 crore; ahead of our expectation of Rs. 598 crore. India
business grew by 23.2% y-o-y, while Indonesia business grew by 9.4% y-o-y. India business SSSG grew by 3.5% led by
traffic growth, ADS at Rs. 126,000 increased from Rs. 120,000 in Q1FY24. Indonesia business (Burger King) SSSG grew
by 6.5%, ADS at Rs. 19.1 million, increased by 13% y-o-y. Gross margin fell by 41 bps y-o-y to 64.2%, while EBIDTA
margin increased by 421 bps y-o-y to 9% aided by decline in employee cost and other expenses (as a percentage of
sales), EBITDA margin came in higher than our expectation of 6.7%. EBITDA grew by 2.2x y-o-y to Rs. 56.2 crore. The
company posted a loss of Rs. 50.7 crore against a loss of Rs. 55 crore in Q2FY2023. We had expected the loss to be at Rs.
62 crore. The company opened 8 restaurants (net) in Q2FY2024, taking the total count to 404 operational restaurants
in India as on Sep 30, 2023. In H1FY2024, revenue grew by 21.9% y-o-y to Rs. 1,235.7 crore, EBITDA margin expanded
by 310 bps y-o-y to 8.5% and loss stood stable y-o-y at Rs. 105 crore.
Strong growth in India business
Revenue came in at Rs. 453.5 crore, registering 23.2% y-o-y growth. SSSG stood at 3.5%, led by traffic growth, while
ADS grew by 5% q-o-q to Rs. 126 million. Store level EBIDTA margins improved by 244 bps y-o-y to 10.7% (pre-Ind AS
level). The company EBIDTA margins improved to 5.4% in Q2FY2024 versus 3.2% in Q2FY2023. RBA opened eight stores
(net) in Q2 (10 restaurants opened and closed 2), taking the total to 404 operational restaurants as on September 30,
2023, including 297 BK Café. Further, 46 restaurants are under construction, with this, RBA is on track to achieve 450+
restaurant count by FY2024 and 700 by FY2027. RBA has maintained reduced its SSSG guidance for FY2024 to ~6%
(10% earlier) and maintained 8% guidance for FY2025. Gross margin will improve to 67% in FY2024 and will improve
by another 200 bps between FY2025-FY2027.
Multiple initiatives driving India business growth
RBA continued its Value for Money (VFM) focus with 99 Tasty Meals Campaign to drive traffic. The company added
price point of Rs. 149 for Chicken Meals.
In Q2 FY24, RBA launched the Mexican Whopper which had cheesy Mexican salsa & crunchy nachos to provide a
Mexican flavour experience to guests.
It added 11 BK Cafés in Q2FY2024 taking the total to 297 at Q2FY2024-end. Total Café ADS stood at ~Rs. 16,000 for
Q2FY2024.
RBA rolled out ‘King’s Journey’ digital experience restaurants with Self Ordering Kiosks, App Ordering and Table
Service. The company is targeting 100% rollout by FY2025.
Recovery in Indonesia business
Burger King revenues came in at Rs. 171.4 crore, registering 9.4% y-o-y growth. ADS improved to IDR 19.1 million in
Q2FY2024 versus IDR 16.9 million in Q2FY2023 (grew by 13% y-o-y). SSSG came in at 6.5%. Popeyes revenue came in
at IDR 27 billion, with ADS at IDR 26.3 million. RBA closed 17 underperforming Burger King restaurants in Q2, thus, the
total store count at Q2FY2024-end stands at 162 for Burger King and 12 for Popeyes. Restaurant’s loss stood at Rs. 1.7
crore in Q2FY2024 versus Rs. 10.2 crore in Q2FY2023. Company level loss came in at Rs. 14.9 crore versus loss of Rs. 27.2
crore in Q2FY2023. RBA aims for ~325 restaurants in Indonesia by FY2027.
Multi-pronged strategy in Indonesia
Build Relevance & Credibility of Chicken Menu through Winning Taste in Crispy Chicken and Spicy Chicken, which
addressed taste and portfolio gaps in key motivator and 360° marketing campaign, which led to 50% volume
growth in chicken and 21% higher incidence.
Focus on establishing leadership in burgers through Value, Innovation and Premium led to a 35% volume growth
in burger and 11% higher incidence driven by Cheese Whopper Jr.
Innovating on desserts to gain share, with King Fusion reporting 2.35x volume growth and incidence doubled.

Stock Update
Revenue from operations 624.9 524.8 19.1 610.8 2.3
Material cost 223.6 185.7 20.5 219.6 1.8
Employee cost 103.9 95.5 8.7 96.9 7.3
Other expenditure 241.1 218.4 10.4 246.0 -2.0
Total expenditure 568.7 499.6 13.8 562.5 1.1
EBITDA 56.2 25.1 - 48.3 16.4
Other income 3.3 10.7 -69.3 7.1 -53.9
Interest expense 31.5 24.1 31.0 30.7 2.6
Depreciation 78.6 66.8 17.7 78.7 -0.1
Reported PAT -50.7 -55.1 -8.0 -54.1 -6.3
Adjusted EPS (Rs.) -1.0 -1.1 -8.3 -1.1 -6.3
GPM (%) 64.2 64.6 -41 64.0 17

EBITDA Margin (%) 9.0 4.8 421 7.9 109
NPM(%) -0.1 -0.1 2 -0.1 1
Geography-wise performance Rs cr
India business
Revenue (Rs. crore) 453.5 368.0 23.2 422.1 7.4
Restaurant EBITDA (Rs. crore) 48.4 30.3 59.7 33.8 43.2
Company EBITDA (Rs. crore) 24.3 11.6 - 10.2 -
Restaurant EBITDA margin (%) 10.7 8.2 244 8.0 266
Company EBITDA margin (%) 5.4 3.2 221 2.4 294
Indonesia business
Revenue (Rs. crore) 171.4 156.7 9.4 188.7 -9.2
Restaurant EBITDA (Rs. crore) -1.7 -10.2 - 0.4 -
Company EBITDA (Rs. crore) -14.9 -27.2 - -12.5 -
Restaurant EBITDA margin (%) -1.0 -6.5 - 0.2 -
Company EBITDA margin (%) -8.7 -17.4 - -6.6 -

Stock Update

n Sector view - Long-term growth prospects of the QSR industry are intact
Organic same-store-sales of QSR companies is likely to be muted due to weak consumer sentiments as higher
inflationary pressures affected demand, while revenue growth is expected to be largely driven by strong store
expansion. We expect growth to be muted in H1FY2024 but expect it to gradually recover prior to the festive season.
Having said that, QSR’s long-term growth prospects are intact and QSRs are poised to beat the food services industry
on higher demand for out-of-home consumption, market share gains from unorganised players, increased online
delivery and food technology, menu innovation driving new demand, and incremental demand on account of offers
and discounts. With robust growth drivers, QSRs are likely to grow strongly, outpacing other sub-segments in the
food service industry in the coming years.
n Company outlook - Multiple strategies in place to drive profitability in the medium term
In H1FY2024, RBA’s revenue grew by 21.9% y-o-y, EBITDA margin expanded by 310 bps y-o-y and loss stood stable
y-o-y at Rs. 105 crore. RBA has robust store expansion plans and aims to exit FY2027 with a count of 700 restaurants in
India from 404 restaurnts currently. A strong store expansion plan, differentiated menu strategy, and robust traction
on a digital platform will help revenue to register a 25% CAGR over FY2022-FY2026E and EBIDTA margins to reach
~12% by FY2026 from 5.4% in FY2023. Further, the introduction of BK Café and scale-up in the Indonesia business will
drive the next league of growth for the company.
n Valuation - Maintain Buy with an unchanged PT of Rs. 150
RBA’s focus on gaining more traffic in India and Indonesia is helping to achieve positive SSSG in the tough business
environment. The company expects SSSG growth to improve ahead with a focus on value offerings and better customer
experience with innovation and expand the digital footprints. The India business focus is on improving footfalls
through its well-placed strategy to enhance the operating leverage while in Indonesia the focus is on becoming a
profitable venture. We expect cash flows to improve from FY2025, when both businesses attain certain maturity and
post consistent profitability improvement. The stock currently trades at 25x/16x/12x its FY2024E/FY2025E/FY2026E
EV/EBIDTA. We maintain our Buy recommendation on the stock with an unchanged PT of Rs. 150.
Peer Comparison
Companies
Jubilant Foodworks 86.6 92.9 60.7 31.8 32.3 25.8 17.0 15.0 19.0
Devyani International 75.2 - 54.1 32.2 27.8 19.6 17.6 16.0 22.6
Restaurant Brands (Burger King) - - - 50.9 25.2 16.1 -6.6 -4.6 0.1

Stock Update
About company
RBA (formerly known as Burger King India) is the National Master Franchisee of the BURGER KING® brand in India and
Indonesia. The company was incorporated in 2013 and launched its first restaurant in India in November 2014, with a
target to open 700 restaurants by FY2027. RBA also operates BK Cafés™ that primarily serve coffees, shakes, and other
beverages. As of September 30, 2023, the company operated 404 Burger King restaurants in India, including 297 BK
Cafés and 174 restaurants (162 Burger King and 12 Popeyes) in Indonesia. The company’s strategic pillars are its value
leadership, brand positioning, specialised menu, and disciplined growth, among others.
Investment theme
RBA is emerging as one of the emerging and fastest-growing QSR players in India with a market share of less than
5% in the India’s QSR market. Long-term franchisee agreement with Burger Kings, differentiated and localisation of
menu provides an edge over its peers to scale up fast in the domestic market. This along with additional growth levers
coming in from the introduction of BK Café and expansion in the Indonesian market will help the company to achieve
strong and consistent revenue growth in the medium to long run. Improvement in new store fundamentals, better
mix, and enhancing profitability of Indonesia business will drive earnings in the coming years. Strong earnings growth
with negative working capital will help in driving higher cash flows in the coming years.
Key Risks
Slowdown in demand: Any slowdown in the demand environment would impact revenue growth.
Increased raw-material costs: A significant increase in key raw-material prices would impact profitability.
Increased competition: Increased competition in the QSR category would act as a threat to revenue growth.
Additional Data
Shivakumar Dega Chairman and Independent Director
Rajeev Varman Executive Director-Chief Executive Officer
Sumit P. Zaveri Group Chief Financial Officer & Chief Business Officer
Madhulika Rawat Company Secretary & Compliance Officer
Source: Company
Top 10 shareholders
1 ICICI Prudential Life Insurance Co Ltd 6.21
2 Amansa Investments Ltd 5.70
3 FMR LLC 5.20
4 Fidelity Investment Trust 5.19
5 Nippon Life India AMC 4.35
6 Valiant Maritius Partners Ltd 3.12
7 Amansa Holdings 3.02
8 Quant Money Managers Ltd 2.83
9 Tata AMC 2.77
10 Newport Asia Partners Fund 2.38
Source: Bloomberg

Stock Update
Va Tech Wabag Ltd
Better order mix to drive growth
Powered by the Sharekhan 3R Research Philosophy Capital Goods Sharekhan code: WABAG
3R MATRIX + = -
Result Update
Va Tech has shifted its strategic focus from the low-margin European business and shifted towards high-margin
Right Valuation (RV) ü EP and O&M projects, which led to margin expansion but lower revenue. Therefore, PAT lagged estimates as
+ Positive = Neutral – Negative OPM beat was offset by revenue miss.
Order backlog stands at Rs. 10,942 crore (3.9x TTM revenue) and order pipeline is promising across India, Russia,
What has changed in 3R MATRIX Middle East, and other African countries.
Va Tech’s focus on technologically advanced EP projects and increasing share of O&M contracts would improve
Old New margins, cash flows, and working capital cycle. We build in revenue/adjusted PAT CAGR of ~9%/~15% over
FY2023-FY2026E. The stock trades at an attractive P/E of ~9x its FY2026E EPS.
RS  We maintain Buy with an unchanged PT of Rs. 630, given its strong order inflow, promising pipeline, and margin
tailwinds.
RQ 
VA Tech Wabag Limited’s (Va Tech) consolidated performance was a mixed bag during Q2FY2024. Revenue
RV  declined y-o-y, while operating profit and bottom-line improved considerably due to higher proportion of
Engineering and Procurement (E&P) projects in the revenue mix and reduced European exposure. Sales fell
~11.4% y-o-y to Rs. 665 crore. Sales were lower due to the company’s strategic divestment of two European
entities last year and shift in strategic focus towards E&P projects. Operating profit was up 60.2% y-o-y
ESG Disclosure Score NEW to Rs. 86 crore due to the decline in raw-material cost and lower employee expenses. Operating margin
showed an improved trend, driven by increased proportion of high-margin E&P projects in the revenue
ESG RISK RATING
39.08 mix and reduced European exposure; it increased by 579 bps y-o-y to 12.9%. Following strong operating
performance, net profit increased by ~29% y-o-y to Rs. 60 crore. Order backlog at the end of the quarter
High Risk stood at Rs. 10,942 crore (excluding framework contracts). Order intake has been robust at around Rs. 765
crore during the quarter.
0-10 10-20 20-30 30-40 40+ OPM rose by 579 bps y-o-y to 12.9%, driven by a decline in input cost and lower employee expense.
Source: Morningstar Key negatives
Sales lagged estimates and declined y-o-y due to its strategic focus on E&P projects and reduced European
Company details
exposure.
Market cap: Rs. 3,317 cr Management Commentary
52-week high/low: Rs. 545/268 Management believes that as the company has a begin execution of large orders towards the end of Q2FY2024,
revenue in H2FY2024 will be greater than H2FY2023 and revenue generated in FY2024 will be greater than FY2023.
NSE volume: The company believes middle market will pick up pace and is expected to come up with large orders focused on
5.5 lakh
(No of shares) water. The company has placed bids for orders more than USD1 billion.
BSE code: 533269 Management expects the company’s order book to grow at a rate of 15-20% over the next few years. The company
believes current margins are sustainable as the company is shifting focus on high-margin E&P and Operation and
NSE code: WABAG Maintenance (O&M) projects.
Going ahead, management believes the company will also focus on the O&M business as these projects provide
Free float:
5.0 cr long-term consistent revenue, lower risk, and good margins.
(No of shares)
Revision in estimates – We have fine-tuned our FY2024-FY2025 earnings estimates. We have introduced our FY2026
earnings estimates in this report.
Shareholding (%) Our Call
Promoters 19.1 Valuation – Maintain Buy with an unchanged PT of Rs. 630: VA Tech has been exhibiting a good operating
performance, driven by a better order mix and improved execution efficiencies. The company’s order book is robust
FII 15.6 and, with a promising order pipeline, the company should deliver healthy revenue growth. Further, the company
is focused on margin improvement and cash flow generation and is on the cusp of a healthy growth trajectory in
DII 3.5
the medium to long term. The company is optimistic about growth opportunities present in desalination, ZLD, and
Others 61.7 water treatment solutions in both domestic and export markets. A well-funded and strong order book with healthy
revenue visibility provide comfort in execution and collections going ahead. At the CMP, the stock trades at a P/E
Price chart of ~9x its FY2026E earnings, which we believe is attractive, given an optimistic outlook on business and earnings.
Hence, we maintain our Buy rating on the stock with an unchanged price target (PT) of Rs. 630.
650
Key Risks
550 Lumpiness in order book execution could impact its revenue and cash flows.
450 Non-conversion of two framework contracts (11-12% of the order book) into executable orders would lead to a
decline in the order book.
350
Mar-23
Nov-22
Nov-23
Jul-23
Rs. crore FY23 FY24E FY25E FY26E

Revenue from Operations 2,960 2,833 3,337 3,876
Operating Profit Margin (%) 10.7 12.3 12.6 12.9
Price performance Adjusted PAT 230 240 289 353
(%) 1m 3m 6m 12m Adjusted EPS (Rs.) 36.9 41.5 46.5 56.7
P/E (x) 258.5 12.9 11.5 9.4
Absolute 19.1 2.6 25.7 95.1
P/BV (x) 2.1 1.7 1.2 2.2
Relative to EV/EBITDA (x) 10.8 9.4 7.7 6.5
19.9 4.1 20.5 88.7
Sensex RoCE (%) 17.6 18.9 21.2 24.8
Sharekhan Research, Bloomberg RoE (%) 14.6 14.1 15.8 19.2

Stock Update
Order book mix has 42% of O&M contracts

The order book has Rs. 4,814 crore of O&M contracts, a large part of which is from the municipal segment. O&M
revenue has also started to show an upward trend with DBO orders slowly moving into the O&M phase and, hence,
the company will see further expansion of the same in the next few years. The order book has ~31% of international
orders.
Q2FY2024 investor update and conference call highlights
Decline in revenue: The company reported lower revenue on a y-o-y basis mainly due to strategic divestment of
two Europe entities last year and shift in strategic focus towards E&P projects.
Revenue outlook: Management believes that as the company has begun execution of large orders towards the
end of Q2FY2024, revenue in H2FY2024 will be greater than H2FY2023 and revenue generated in FY2024 will be
greater than that in FY2023.
Improvement in EBITDA margin: The company reported improved EBITDA margin mainly due to a higher
proportion of E&P projects in the revenue mix and reduced European exposure.
Orders from the Middle East: The company believe that the middle market will pick up pace and is expected
to come up with large orders focused on water. The company has placed bids for orders more than USD1 billion.
Management believes that the company will be able to convert some of these orders, which will be reflected in
revenue growth for the next few years.
Guidance: Management expects the company’s order book to grow at a rate of 15-20% over the next few years
with 70% contribution from municipal orders and 30% from industrial orders. The company believes that current
margins are sustainable as the company is shifting focus on high-margin E&P and O&M projects.
Chennai Project: The new Chennai project has an execution period of 42 months with two-thirds cost allocated
to the EPC segment; one-third is allocated to O&M, which the company will service over the next 20 years with an
escalation clause built-in in the contract. For the construction part of EPC, the company will hire subcontractors
for the execution of this lower margin part of contract.
O&M: Going ahead, management believes the company will also focus on the O&M business as these projects
provide long-term consistent revenue, lower risk, and good margins.
Particulars Q2FY24 Q2FY23 YoY Q1FY24 QoQ
Revenue 665 750 -11 553 20
Operating Profit 86 54 60 66 31
Depreciation 2 2 -6 2 24
Interest 17 17 -1 16 6
Other Income 15 23 -33 26 -40
PBT 83 57 44 74 12
Tax Expense 23 13 73 14 58
Adjusted PAT 60 47 29 50 20
EPS (Rs.) 9.7 7.5 29 8.0 20
Margins BPS BPS
OPM (%) 12.9 7.2 579 11.9 108
NPM (%) 9.0 6.2 282 9.0 -1
Tax Rate (%) 25.0 23.0 202 25.0 0

Stock Update

n Sector Outlook – Investments by governments and private sectors will play a vital role
Wastewater technology is primarily used by municipal authorities to treat wastewater in various Indian cities.
Rising urban population in major Indian cities has created a demand for wastewater treatment facilities to balance
the population with the availability of fresh water. In the coming years, desalination is expected to be a prominent
technology in Indian cities for water filtration due to the rising scarcity of fresh water. The global water treatment
industry has undergone a sea change over the past decade. This is on account of rising awareness about water scarcity,
innovations in water treatment technologies, and investments by governments and private sectors in this segment.
The global water and wastewater treatment market is estimated to reach a size of USD211 billion by 2025 at a CAGR
of 6.5% over 2019-2025. India’s water and wastewater treatment (WWT) technology market is partially consolidated,
with major players accounting for a moderate share of the market. Key players in the market include Veolia, Suez,
Thermax Limited, VA Tech, and DuPont. Rising demand for water treatment facilities across the world will have a
positive impact on the market’s growth in the coming years.
n Company Outlook – Creating enduring value
VA Tech has a strong order book of over Rs. 11,000 crore (~4x its TTM consolidated revenue), funded by the Centre,
multilateral agencies, or sovereign entities, which provide comfort on cash collections and execution. The company
has managed to curtail rising working capital requirements by bidding for quality orders, which are either backed by
the government or multi-lateral agencies. The company is well placed to receive a continuous flow of orders having
a strong project execution track record and marquee clients, led by its asset-light business model and strengthening
balance sheet profile.
n Valuation – Maintain Buy with an unchanged PT of Rs. 630
VA Tech has been exhibiting a good operating performance, driven by a better order mix and improved execution
efficiencies. The company’s order book is robust and, with a promising order pipeline, the company should deliver
healthy revenue growth. Further, the company is focused on margin improvement and cash flow generation and
is on the cusp of a healthy growth trajectory in the medium to long term. The company is optimistic about growth
opportunities present in desalination, ZLD, and water treatment solutions in both domestic and export markets. A
well-funded and strong order book with healthy revenue visibility provide comfort in execution and collections go-
ing ahead. At the CMP, the stock trades at a P/E of ~9x its FY2026E earnings, which we believe is attractive, given an
optimistic outlook on business and earnings. Hence, we maintain our Buy rating on the stock with an unchanged PT
of Rs. 630.

Stock Update
About the company

VA Tech is known for its innovative and successful solutions in the water engineering sector around the globe. The
company is a systems specialist and full-service provider focusing on the planning, installation, and operations of
drinking and wastewater plants for the local government and industry in growth markets of Asia, North Africa, the
Middle East, and Central and Eastern Europe. The company represents a leading multinational player with a workforce
of over 1,600 and has companies and offices in more than 20 countries.
Investment theme
VA Tech has unique technological know-how, based on innovative, patented technologies, and long-term experience.
For over 95 years, the company has been facilitating access to clean and safe water to over 500 million people. The
company is a globally known organisation with decades of rich experience, over 6,000 projects across multiple sectors,
and state-of-the-art plants in over 20 countries. The company is on a strong earnings growth trajectory going ahead,
with concerns of high leverage led by increasing working capital now behind it. The company’s well-funded strong
order book provides comfort on execution and collections going ahead. Further, the government’s focus is expected
to remain on water-related investments, providing healthy order intake tailwinds for the company going ahead.
Key Risks
Slowdown in economic activity might impact order intake visibility and a delay in execution of existing order
book might impact revenue booking.
Non-conversion of two framework contracts would reduce the executable order book.
Additional Data
Rajiv Mittal Chairman and Managing Director
Pankaj Malhan Deputy MD and Group CEO
Skandaprasad Seetharaman Chief Financial Officer
R. Swaminathan Company Secretary and Compliance Officer
Source: Bloomberg
Top 10 shareholders
1 Jhunjhunwala Rekha Rakesh 8.0
2 Norges Bank 4.0
3 Varadarajan Subramanian 3.5
4 Federated Hermes Incorporation 3.2
5 KBI Global Investors Limited 2.5
6 SBI Funds Management Limited 2.5
7 Baser Home Finance Private Limited 2.4
8 KBI Water Fund 2.3
9 Federated Hermes Investment Funds 2.1
10 Sengupta Amit 1.8
Source: Bloomberg

Stock Update
Alicon Castalloy Ltd
Robust order book
Powered by the Sharekhan 3R Research Philosophy Automobiles Sharekhan code: ALICON
3R MATRIX + = -
Result Update

We maintain our Buy rating on Alicon Castalloy Limited (ACL) with a target price of Rs. 999 on the
Right Valuation (RV) ü robust order book, expecting improvement in operating margin led by better product mix and its
+ Positive = Neutral – Negative focus on EV projects.
Reported APAT at Rs 18.2cr in Q2FY24 against estimate of Rs 17.1cr.
Order book continues to be strong and reached to Rs 8687 cr for Fy23 – 29E.
Stock trades at P/E multiple of 10.8x and EV/EBITDA multiple of 5.5x its Fy26 estimates.
With the the commencement of new components’ supply and the decline in the legacy business
Old New along with the improvement in product mix, Alicon has reported broadly inline performance
RS  in Q2FY24. Revenue increased by 7.6% q-o-q to Rs 381 cr (against an estimate of Rs 385.4cr)
on the back of a 11.8% q-o-q increase in domestic revenue and a 6.4% q-o-q decline in export
RQ  revenue. With 30 bps q-o-q contraction in gross margin and excluding the impact of ESOP cost
( Rs 3.66 cr), the Adjusted EBITDA increased by 9% q-o-q to Rs 49.9 cr ( against an estimate of Rs
RV  50.6 cr) and adjusted EBITDA margin expanded by 20 bps q-o-q to 13.1% (against an estimate of
13.1%). With this operating performance adjusted, APAT increased by 12.9% q-o-q to Rs 18.2 cr
(against estimate of Rs 17.1 cr). In the future the management has guided for a 10-12 % increase
in revenue in FY24 on commencement of new programs in H2Fy24 and aims for a income of Rs
Company details 2200 cr by FY26.
Market cap: Rs. 1,326 cr Key positives

Adjusted EBITDA margin expanded by 20 bps q-o-q to 13.1%; hence, the management is on track in
52-week high/low: Rs. 1,111 / 645
achieving its target of 100 bps expansion in EBITDA margin in FY24.
NSE volume: Added eight new products in the export market and one new product in the domestic market
26,039
(No of shares) Product mix is shifting towards CV and PV segments.
BSE code: 531147 Key negatives
NSE code: ALICON Correction in aluminium price is impacting topline growth.
International business registered 6.4% q-o-q decline in revenue.
Free float:
0.7 cr Management Commentary
(No of shares)
On track to achieve 100 bps expansion in EBITDA margin in FY24.
H2FY24 would be better than that of H1FY24 on introduction of new components.
Continue to focus on technology-agnostic solutions.
Shareholding (%) Our Call
Promoters 55.7 Valuation – Maintained Buy with unchanged PT of Rs 999: Post reporting inline performance in
Q2Fy24 the management has guided for an optimism in the business from H2Fy24 as it targets a 10-
FII 0.1
12% revenue growth in FY24 and aims for revenue of Rs 2200 cr by Fy26. Alison has been continuously
DII 8.8 endeavouring to gain new business and add new customers because of its expertise in aluminium alloy
castings and long association with leading OEMs. Management assumes that new orders would offer
Others 35.4
higher margins compared with existing orders. ACL is continuously shifting its focus on 4W business
to improve its revenue mix and, hence profitability. Post incorporating Q2Fy24 performance and
introducing earning estimates for FY26 E, We maintain our Buy rating on the stock with a target price
(TP) of Rs. 999 on healthy revenue visibility due to robust order book, the expectation of improved
Price chart operating margin led by better product mix and focus on EV projects.
1200 Key Risks
1100
1000 Alison has significant exposure to international markets. Any slowdown or cyclical downturn in any of
900 the locations where it has a strong presence can impact its business and profitability.
800
700
600 Valuation table FY21 FY22 FY23P FY24E FY25E FY26E
Revenues (Rs cr) 849 1,078 1,401 1,575 1,817 2,111
Nov-22
Mar-23
Jul-23
Nov-23
Growth (%) 27.0 30.0 12.4 15.3 16.2

AEBIDTA (Rs cr) 83 112 153 192 240 279
OPM (%) 9.8 10.4 10.9 12.2 13.2 13.2
Adj Net Profit (Rs cr) -2 24 51 67 98 122
Price performance Growth (%) - 112.7 30.9 45.8 24.6
AEPS -1.2 15.0 31.9 41.8 60.9 75.9
(%) 1m 3m 6m 12m
P/E (x) 54.8 25.8 19.7 13.5 10.8
Absolute -3.1 -4.4 1.8 -4.7 P/BV (x) 4.3 3.0 2.7 2.4 2.1 1.7
Relative to EV/EBIDTA (x) 19.5 14.0 10.5 8.3 6.6 5.5
-1.5 -3.3 -4.4 -11.4
Sensex ROE (%) 6.4 11.0 13.0 16.4 17.4
Sharekhan Research, Bloomberg ROCE (%) -10.5 7.0 10.3 11.2 13.7 14.7

Stock Update
Q2Fy24 performance
Revenue break up in Q2Fy24 : Auto segment : 94%, Non auto segment : 6%.
Focus on engine-agnostic technology and value addition is supporting the transformation in the company.
Product mix is shifting towards CV and PV segments.
Received new order 170 cr in Q2Fy24 and hence, the order book stands at Rs 8687 cr with an execution period
of 6 yearsyears from fy23 to FY29.
Added one parts from an existing customer for heavy-duty truck in the domestic market.
Revenue growth was impacted due to corrections in aluminium prices.
Revenue mix: Two wheelers: 43%, PVs: 29% and CVs: 20%.
Export
Energy prices have stablized and availability of natural gas is improving in European markets, hence European
business is showing improvement.
Added 8 new parts in Q2FY24.
20 % of revenue came from from exports in Q2Fy24.
Outlook for exports has been improving.
The management indicates that overall exports would contribute 31% to the topline in FY24 ( including indirect
exports) compared to 27% in FY23.
Evs
EV segment contributed 7% to the topline in Q2FY24 compared to 3.5% in Q2Fy23.
The company has started developing a prototype for JLR.
# Has been in discussion with big global players for EV parts.
Outlook
The management expects an improvement in revenue in H2 FY24 compared to H1 FY24 due to the introduction
of new products.
Management targets 10-12% growth in revenue in FY24 and revenue of Rs 2200 cr by FY26.
Continuously focussing on new products and new customers.
Focussing on enriching the revenue mix via increasing revenue share from the PV and CV segment and reducing
dependence on the wheeler segment.
Expecting an addition of a prestigious global customer in the EV segment.
No significant Esop charges are expected from FY25 onwards.
Guided for a capex of Rs 90 cr in FY24.

Stock Update
Particulars Q2FY24 Q1FY23 % yoy Q1FY24 % qoq
Net Sales 381.0 377.3 1.0 354.1 7.6
Total operating costs 331.1 334.5 (1.0) 308.2 7.4
AEBIDTA 49.9 42.8 16.8 45.8 9.0
Depreciation 18.2 15.6 16.4 18.4 (1.0)
Interest 10.1 7.3 38.5 9.5 7.3
Other Income 0.8 0.7 7.7 0.8 (5.6)
PBT 22.3 20.5 9.0 18.8 18.9
Tax 4.2 5.2 (19.0) 2.7 54.3
Reported net profit 14.5 15.3 (5.5) 12.8 13.4
Adjusted net profit 18.2 15.3 18.4 16.1 12.9
Adjusted EPS 11.3 9.5 18.4 10.0 12.9
Key ratios (Consolidated)

Gross margin (%) 50.1 48.6 140 50.4 (30)
EBIDTA margin (%) 13.1 11.3 180 12.9 20

Stock Update

n Sector Outlook – Beneficiary of recovery in automobile sales
The auto sector is expected to maintain steady growth in FY2024, though volume growth may moderate due to
a high base. Further, a rise in premiumisation would augur well for profitability. The rise in demand for high-end
products results in an opportunity for value addition for ancillary players. Introducing new technologies, ongoing
launch of new products, implementation of new emission norms, and safety norms are assisting ancillary players to
revitalise their revenue streams. Moreover, EV adoption is the fastest in Europe, which is likely to be positive for Alicon.
We retain our positive view of the sector.
n Company Outlook – Strong earnings growth
We expect Alicon to benefit from an improved business outlook from automotive and non-automotive segments,
given demand recovery due to the normalcy of economic activities. In addition, the execution of Alicon’s multi-year
order wins provides strong growth visibility in the future. Alicon expects the execution of new orders will further
increase the revenue run rate in the subsequent years. The company is likely to benefit from its established market
position in the aluminium-casting auto component sector, driven by established client relationships and operations
in India, Austria, and Slovakia. The company is expected to benefit from the strong growth prospects of its key clients,
such as Hero MotoCorp, Bajaj Auto, and Maruti Suzuki.
n Valuation – Maintained Buy with unchanged PT of Rs 999
Post reporting inline performance in Q2Fy24 the management has guided for an optimism in the business from
H2Fy24 as it targets a 10-12% revenue growth in FY24 and aims for revenue of Rs 2200 cr by Fy26. Alicon has been
continuously endeavouring to gain new business and add new customers because of its expertise in aluminium alloy
castings and long association with leading OEMs. Management assumes that new orders would offer higher margins
compared with existing orders. ACL is continuously shifting its focus on 4W business to improve its revenue mix and,
profitability. Post incorporating Q2Fy24 performance and introducing earning estimates for FY26 E, We maintain our
Buy rating on the stock with a target price (TP) of Rs. 999 on healthy revenue visibility due to robust order book, the
expectation of improved operating margin led by better product mix and focus on EV projects.
Change in earning estimates (Rs cr)

Particulars
Revenue 1,575 1,817 1,605 1,864 (1.8) (2.5) 2,111
EBITDA 192 240 191 246 0.6 (2.5) 279
EBITDA margin (%) 12.2 13.2 11.9 13.2 13.2
PAT 67 98 70 107 (3.9) (8.1) 122
EPS 41.8 60.9 43.5 66.3 (3.9) (8.1) 75.9

Stock Update
About the company

Alicon pioneered low-pressure die casting (LPDC) and gravity die-casting (GDC). The company caters to the
requirements of domestic as well as overseas clients and has a well-diversified base of marquee clients. The cylinder
head is one of the essential products manufactured by the company and accounts for the lion’s share of its revenue.
Other products manufactured include brackets, crankcases, head covers, manifolds, and brackets. Around 93% of
Alicon’s revenue comes from the auto segment, while the non-auto segment constitutes the remaining 10%. The
company derives about 79% of its revenue from domestic operations, while 21% comes from exports, which include
overseas business.
Investment theme
Alicon is expected to benefit from an improved business outlook from the automotive and non-automotive segments,
given demand recovery due to the normalcy of economic activities. In addition, the execution of Alicon’s multi-year
order provides strong growth visibility in the future. Alicon expects new order execution to ramp up in the subsequent
years. Alicon is likely to benefit from its established market position in the aluminium-casting auto component sector,
driven by established client relationships and operations in India, Austria, and Slovakia. The company is expected to
benefit from the strong growth prospects of its key clients, such as Hero MotoCorp, Bajaj Auto, and Maruti Suzuki. We
maintain our Positive stance on Alicon’s business outlook.
Key Risks
Alicon has significant exposure to international markets. Any slowdown or cyclical downturn in any of the locations
where it has a strong presence can impact it’s business and profitability.
Additional Data
Rajeev Sikand Group CEO
Vimal Gupta Group CFO
Andreas Heim Managing Director – ILLICHMANN
Top 10 shareholders
1 Nastic Trading P Ltd 42.0
2 Enkei Corp 13.8
3 Rai Shailendrajit Charanjit 6.9
4 Axis Asset Management Co Ltd/India 6.3
5 Sikhand Rajeev 3.5
6 IDFC Mutual Fund/India 2.2
7 U C Rai Holdings Pvt Ltd 2.1
8 Pamela Trading Pvt Ltd 1.8
9 Skyblue Trading & Investment Pvt Ltd 1.6
10 Mithras Trading LLP 0.8
Source: Bloomberg

Viewpoint
Viewpoint
Sobha Ltd
3R Research Philosophy Healthy Q2; Outlook remains strong
Powered by the Sharekhan 3R Research Philosophy Real Estate Sharekhan code: SOBHA
Reco/View: Positive  CMP: Rs. 790 Upside potential: 20% á
3R MATRIX + = -
Result Update
Right Valuation (RV) ü We stay Positive on Sobha Limited and expect a 20% upside, given comfortable valuations and a healthy
growth outlook in residential realty business.
+ Positive = Neutral – Negative Sobha continued to attain a higher quarterly sales run-rate despite nil new project launches. Healthy
collections aided in further slashing net debt.
Consolidated revenues lagged estimates, while OPM surprised positively leading to beat on operating
Old New and net profit. We expect OPM to see a further improvement from Q4FY2024.
Launch pipeline stays strong at 15 msf for the next two years. For H2, the pipeline has a GDV of Rs. 11,000-
RS  12,000 crore.
RQ  Sobha Limited (Sobha) continued to attain the highest-ever quarterly sales of Rs. 1,724 crore (up 48%
y-o-y, ninth straight quarter of sequential increase) while collections remained healthy at Rs. 1,450
RV  crore (up 9% y-o-y, real estate cash inflow up 17% y-o-y at Rs. 1260 crore). Net cash inflow generation
remained healthy at Rs. 129 crore, aiding further net debt reduction by Rs. 129 crore. On the financial
performance, consolidated revenues at Rs. 741 crore (up 11% y-o-y) lagged our estimate while it
ESG Disclosure Score NEW surprised positively with OPMs of 10.2% (up 298 bps q-o-q). Overall, consolidated operating profit/
net profit were down 20% y-o-y and 22% y-o-y at Rs. 75 crore/Rs. 15 crore, although they beat our
ESG RISK RATING estimates. Company maintained healthy a launch pipeline of 15 msf for the next two years. For H2,
22.95 launch pipeline is at 6-7 msf with GDV of Rs. 11,000-12,000 crore, which includes 3.45 msf project
launched in Bangalore in the first week of October. On financial performance, it is expected to see
Medium Risk improvement in OPMs from Q4FY2024.
0-10 10-20 20-30 30-40 40+

Sobha achieved the highest-ever quarterly sales and healthy y-o-y growth in collections.
Source: Morningstar Net cash flow of Rs. 129 crore aided in q-o-q net debt reduction bringing down D/E to 0.58x.
Key negatives
Company details Consolidated revenues were up 10% y-o-y at Rs. 741 crore but lagged our estimates.
Market cap: Rs. 7,488 cr No new launches were done in H1FY2024.. However, from Q3 onwards, new launches should gather pace.
52-week high/low: Rs. 801 / 412 Management Commentary

Company retained launch guidance of 15 msf over two years which includes 3.45 msf Neopolis, Bengaluru
NSE volume: project, which was launched during first week of October. Hence for balance fiscal year, it targets to
6.9 lakh
(No of shares) launch 6-7 msf of projects having GDV of Rs. 11,000-12,000 crore. Over the next 3-5 years, 15-20% p.a.
sales growth can be targeted.
BSE code: 532784
Company has Rs. 11,000 crore of revenues to be recognised of which 80% of sales was done from FY2022
NSE code: SOBHA with higher margins than previous projects. From Q4FY2024, margins are expected to see improvement.
Free float: It is looking to add more are in Gift City. It is witnessing good growth in Bangalore, has built pipeline in
4.5 cr NCR. It is looking for opportunities in Pune and Hyderabad markets.
(No of shares)
Revision in estimates – We have fine-tuned our estimates for FY2024-FY2026.
Our Call
Shareholding (%)
Valuation – Retain a Positive view with a 20% upside potential: Sobha has been able to generate strong
Promoters 52.3 sales booking led by sustenance sales in existing projects. The same was also aided by improved pricing and
a better geographical mix. Further, strong FCF generation has aided in continuous reduction in net debt.
FII 11.2 However, revenue booking from new projects is likely to commence from FY2025, reflecting in the P&L with
DII 15.0 higher OPMs. The company continues to have a strong launch pipeline over the next two years along with a
strong land bank for future monetisation. The stock has appreciated ~15% since we increased our price target
Others 21.6 in our real estate sector report dated September 11, 2023. At CMP, the stock trades at an EV/EBITDA and P/B
of 12x/2.3x its FY2026E earnings, providing a favourable risk-reward. Hence, we stay Positive on the stock and
Price chart expect a 20% upside.
850 Key Risks
Delay in execution, higher commodity prices, and a weak macroeconomic environment are key risks to our call.
700
550
400
250 Revenue 3310 3596 4584 5363
Mar-23
Jul-23
Nov-22
Nov-23
OPM (%) 11.2 10.5 14.3 14.8

Adjusted PAT 104 137 355 468
% YoY growth -39.8 31.1 159.7 32.0
Price performance
Adjusted EPS (Rs.) 11.0 14.4 37.4 49.4
(%) 1m 3m 6m 12m P/E (x) 71.7 54.7 21.1 16.0
Absolute 10.6 35.9 64.7 26.7 P/B (x) 2.9 2.8 2.6 2.3
11.5 37.2 59.5 20.3 RoNW (%) 4.2 5.4 13.2 15.5
Sensex
RoCE (%) 6.1 7.1 11.6 13.2

Viewpoint
Operational performance beat estimates

The company reported consolidated net revenues of Rs. 742 crore, up 10.6% y-o-y (down 18.4% q-o-q) for Q2FY2024,
which was 14% lower than our estimates. Revenues from real estate increased by 20% y-o-y (down 27% q-o-q) at Rs.
544 crore while contract & manufacturing was down 10% y-o-y (up 18% q-o-q) at Rs. 198 crore. Sales volume/sales
value and sobha’s share of share value were up 26.1%/48.1%/32.7% y-o-y respectively. OPM at 10.2% (-397 bps y-o-y)
was higher than our estimate of 7.7%. Consolidated operating profit declined by 20.4% y-o-y (up 15.4% q-o-q) at Rs.
75.4 crore, while net profit was down 22% y-o-y (up 24% q-o-q) at Rs. 14.9 crore. Both operating and net profit came
in higher than our estimate by 13%. Net operational cash flows (up 38% y-o-y at Rs. 268 crore) remained strong. Net
debt reduced by Rs. 129 crore in Q2FY2024 to Rs. 1440 crore with net debt to equity of 0.58x.
Key Conference Call Takeaways

Guidance: The company retained launch guidance of 15 msf over two years which includes 3.45 msf Neopolis,
Bengaluru project, which was launched during first week of October. Hence for balance fiscal year, it targets to
launch 6-7 msf of projects having GDV of Rs. 11,000-12,000 crore. Over the next 3-5 years, 15-20% p.a. sales growth
can be targeted. The company has Rs. 11,000 crore of revenues to be recognised of which 80% of sales was done
from FY2022 with higher margins than previous projects. From Q4FY2024, margins are expected to improve. On a
project basis, it is able to do 35% margin in some of the projects launched over last 2-3 years that will hit revenue
recognition in future. It is looking to add more are in Gift city. It is witnessing good growth in Bangalore, has built
pipeline in NCR. It is looking for opportunities in Pune and Hyderabad markets.
Q2FY2024 highlights: Sobha achieved pre-sales of Rs. 1724 crore and sales volume of 1.69 msf despite no new
project launch. Q2 was the straight 9th quarter of sequential increase in pre-sales. Bangalore contributed 1.01 msf
sales totalling Rs. 932 crore. Kerala achieved highest sales during H1 compared to FY2023 with two new tower
released for sale. Gift city is generating positive demand where it crossed 1 lakh sq ft of sales for the first time
with sales value of Rs. 49.5 crore. NCR contributed 20.6% in sales. Q2 was the 12th straight quarter of positive cash
flow generation and debt reduction. Total income for Q2 stood at Rs. 774 crore in which it handed over 0.67 msf.
EBITDA stood at Rs. 108 crore with 13.9% margin and PAT at Rs. 13 crore.
Cash flows: In H1, it generated Rs. 2805 crore OCFs of which real estate contributed Rs. 2408 crore. During Q2, total
OCFs stood at Rs. 1450 crore of which Rs. 1260 crore came in from real estate. Real estate construction outflow
stood at Rs. 1068 crore and Rs. 536 crore for H1 and Q2 respectively. Net cash inflow stood at Rs. 129 crore for Q2.
Neopolis: The company had released 825 units in Neopolis project out of total 1875 units. It was able to sell 40%
of the released units at an average price of Rs. 11,500 psf.
Contract business: Majority of previous projects has been completed.

Viewpoint
Net sales 741.2 670.0 10.6% 907.9 -18.4%
Other income 32.4 20.6 57.3% 31.3 3.4%
Total income 773.6 690.6 12.0% 939.2 -17.6%
Total expenses 665.8 575.2 15.7% 842.5 -21.0%
Operating profit 75.4 94.8 -20.4% 65.4 15.4%
Depreciation 19.3 17.9 7.9% 18.3 5.7%
Interest 63.9 63.1 1.2% 61.1 4.5%
Profit Before Tax 24.7 34.4 -28.3% 17.3 42.7%
Taxes 9.7 15.2 -36.0% 5.2 85.8%
PAT 14.9 19.2 -22.2% 12.1 24.0%
Adj PAT 14.9 19.2 -22.2% 12.1 24.0%
EPS (Rs.) 1.6 2.0 -22.2% 1.3 24.0%
BPS BPS
OPM (%) 10.2% 14.1% -397 7.2% 298
NPM (%) 2.0% 2.9% -85 1.3% 69
Tax rate (%) 39.4% 44.2% -477 30.3% 914

Viewpoint

n Sector View – Residential market on a growth trajectory
The real estate sector, especially the residential market, is expected to be in the limelight going ahead, as it benefits
from central and state governments’ favourable policies pertaining to the affordable housing segment. Rising income
levels and affordability levels are expected to drive sales for quality organised developers. Further, organised players
are expected to benefit from ample inorganic opportunities in the sector, which is leading to consolidation in the
sector. The sector is also expected to benefit from low interest rates, which provide twin benefits of driving demand
and reduced funding costs. Overall, we are positive about the residential segment of the real estate market for the
reasons mentioned above.
n Company Outlook – Scaling up with diversification
Sobha has a total residential inventory of 20.63 msf comprising ongoing and forthcoming projects. Sobha has diversified
into other cities (like Gurugram and GIFT City in Gujarat), which will help reduce its dependence on Bangalore. The
company estimates Rs. 4,157 crore of positive cumulative cash flows from its completed unsold inventory and ongoing
projects. We expect Sobha to benefit from higher launches, timely execution, and improving sentiments in real estate,
led by government efforts. However, weak operating margins in contractual business, attachment of land parcels by
ED and contractual business claim remain key overhang.
n Valuation – Retain a Positive view and expect an upside of 20%
Sobha has been able to generate strong sales booking led by sustenance sales in existing projects. The same was also
aided by improved pricing and a better geographical mix. Further, strong FCF generation has aided in continuous
reduction in net debt. However, revenue booking from new projects is likely to commence from FY2025, reflecting
in the P&L with higher OPMs. The company continues to have a strong launch pipeline over the next two years along
with a strong land bank for future monetisation. The stock has appreciated ~15% since we increased our price target
in our real estate sector report dated September 11, 2023. At CMP, the stock trades at an EV/EBITDA and P/B of 12x/2.3x
its FY2026E earnings, providing a favourable risk-reward. Hence, we stay Positive on the stock and expect a 20%
upside.
Peer Comparison
P/E (x) EV/EBITDA (x) P/BV (x) RoE (%)
Particulars
FY24E FY25E FY24E FY25E FY24E FY25E FY24E FY25E
Oberoi Realty 23.4 20.1 17.3 14.9 3.1 2.7 14.5 14.7
DLF 63.3 57.4 66.9 59.0 3.7 3.5 6.0 6.3
Sobha 54.7 21.1 25.9 15.0 2.8 2.6 5.4 13.2
Puravankara 31.8 16.9 16.7 13.1 0.5 0.4 5.5 10.2

Viewpoint
About company
Sobha, headquartered in Bangalore, primarily focuses on residential and contractual projects. With three decades of
experience, Mr. P.N.C. Menon founded Sobha Limited in August 1995. In 2006, Sobha went public through its initial
public offering. The Bengaluru-based group has been engaged in the construction and development of real estate
for the past 26 years. As on September 30, 2021, the company had developed 1147.2 lakh sq. ft., of which around 75%
is in Bengaluru. The group also has a presence in Thrissur, Chennai, Pune, Gurugram, Coimbatore, Calicut, Mysuru, and
Cochin.
Investment theme
Over the past two decades, Sobha has created a brand image for itself with its ability to sell and execute projects
despite headwinds faced by the sector. The company’s balance sheet remains healthy unlike most companies in the
sector, ensuring timely and consistent delivery of products. The company has a huge land bank, majorly paid-up, and
a strong project pipeline for future growth. Sobha’s backward-integration model aids in safeguarding its OPM and
timely delivery. The company is in a sweet spot to benefit from revival in the real estate sector.
Key Risks
Geographical concentration risk due to major presence in Bangalore. However, the company has been now
diversifying in other regions to reduce the risk.
Macroeconomic risks such as lower affordability, higher supply, increased interest rates, and rising commodity
prices affect business growth outlook.
Changes in government policies lead to near-term uncertainty in the sector.
Additional Data
Mr. Ravi PNC Menon Chairman
Mr. Jagadish Nangineni Managing Director
Mr. Yogesh Bansal Chief Financial Officer
Top 10 shareholders
1 Nair Sobha Menon 30.29
2 Menon P N C 18.29
3 Anamudi Real Estate Pvt. Ltd. 9.99
4 Franklin Resources 6.91
5 Schroders PLC 5.76
6 Ravi P N C Menon 3.36
7 Vanguard Group 1.99
8 L&T Mutual Fund Trustee 1.90
9 PGIM India AMC 1.67
10 DNB ASA 1.23
Source: Bloomberg

Viewpoint
Viewpoint
Carysil Ltd
Strong Q2; Growth outlook intact
Powered by the Sharekhan 3R Research Philosophy Building Materials Sharekhan code: CARYSIL
3R MATRIX + = -
Result Update
Right Valuation (RV) ü We stay Positive on Carysil and expect an upside of 25% rolling forward our valuation to September
2025E earnings and considering favourable valuations.
+ Positive = Neutral – Negative Q2 numbers beat expectations on strong growth in Quartz sink revenues from export markets. OPMs
surprised positively at 20.1%, led by geo mix and stable raw material prices.
It expects an annual revenue run-rate of Rs. 720-750 crore from Q3, while it has retained consolidated
revenue guidance of Rs. 1000 crore and a 20%+ OPM target for FY2025. Domestic revenue target of Rs.
200 crore in FY2025 stays intact.
What has changed in 3R MATRIX Carysil has begun manufacturing faucets and built-in appliances. It acquired a US-based Kitchen Top
fabrication company with an annual revenue potential of Rs. 120-140 crore.
Old New
Q2FY2024 numbers beat expectations. Consolidated revenues rose 17.5% y-o-y at Rs. 164 crore
RS  (5% higher than estimate) led by 25% y-o-y growth in quartz sink revenues (volume & realization
grew 17% y-o-y and 7% y-o-y). Export revenues rose 21% y-o-y (up 17% q-o-q) to Rs. 129 crore while
RQ  domestic revenues were up 5.5% y-o-y (up 9% q-o-q). It surprised positively on OPM at 20.1% (up 402
bps y-o-y) mainly driven by higher gross margins (up 369 bps y-o-y). Overall, consolidated operating
RV  profit and net profit at Rs. 33 crore (up 47% y-o-y) and Rs. 15.4 crore (up 67% y-o-y) beat our estimate.
The company retained its annual revenue run-rate target of Rs. 720-750 crore from Q3 and its FY2025
revenue target of Rs. 1000 crore (mix of organic and inorganic growth) with 20%+ OPM. It commenced
manufacturing of faucets and built-in appliances during the quarter and acquired United Granite LLC,
a US-based Kitchen Top fabrication company which has annual revenue potential of Rs. 120-140 crore.
Company details
Key positives
Market cap: Rs. 1,864 cr Revenues from Quartz sinks grew 25% y-o-y aided by strong volume growth of 17% y-o-y.
52-week high/low: Rs. 740 / 431 Export revenues rose 21% y-o-y and 17% q-o-q.
Key negatives
NSE volume:
0.98 lakh Appliances & others reported muted revenue growth of 3.5% y-o-y at Rs. 16 crore.
(No of shares)
Domestic revenues were marginally higher by 5.5% y-o-y at Rs. 35 crore. Although Rs. 200 crore domestic
BSE code: 524091 revenues for FY2025 remain intact.
NSE code: CARYSIL Management Commentary
The company expects to hit the annual revenue run-rate of Rs. 720-750 crore from Q3FY2024. It retained
Free float:
1.5 cr its Rs. 1,000 crore revenue target for FY2025 with 20%+ EBITDA margins. It retained its domestic revenue
(No of shares) target of Rs. 200 crore in FY2025. The domestic business would have 17-18% OPMs.
It is in advanced talks with large customer which if concluded would contribute in Q4FY2024. Stainless
steel sink IKEA orders to commence from Q4.
The company was able to gain market share and add new customers while being cost efficient. The
Shareholding (%) overhang of customer stock is over.
Revision in estimates – We have increased our net earnings estimates for FY2024-FY2025 factoring UGL
Promoters 43.8
acquisition and marginally higher OPMs.
FII 0.6 Our Call
DII 7.1 Valuation – Retain Positive view; expect 25% upside: Carysil is expected to benefit from a strong rebound
in export revenues as demand improves in the UK and the US while its domestic revenues ramp-up aided by
Others 48.5 the in-house manufacturing of appliances and rise in B2B revenues. Strong demand outlook is complemented
by doubled capacities of quartz/stainless steel sink capacities and continuous expansion in other product
adjacencies (kitchen appliances and bathware). We introduce our FY2026E earnings in this note. We estimate
its consolidated net earnings to clock a CAGR of 37% during FY2023-FY2026E, driven by strong growth across
Price chart its key verticals. The stock is currently trading at a P/E of 17x/14x its FY2025E/FY2026E EPS, which provides
ample room for rerating with improvement in earnings trajectory. Hence, we retain our Positive view on the
800 stock and expect a 25% upside rolling forward our valuation to September 2025E earnings.
700 Key Risks
Slowdown in global demand, especially in key US, UK and European markets. Slowdown in domestic demand,
600
rise in interest rates, and fluctuations in foreign currency are other key risks.
500

Mar-23
Jul-23
Nov-22
Nov-23

Revenue 593.9 733.7 958.6 1,135.7
OPM (%) 18.1 19.8 20.6 20.8
Adjusted PAT 52.4 75.0 107.2 133.6
% YoY growth -19.1 43.2 42.9 24.6
Price performance
Adjusted EPS (Rs.) 19.6 28.0 40.1 49.9
(%) 1m 3m 6m 12m P/E (x) 35.5 24.8 17.4 13.9
Absolute 6.7 1.0 18.3 31.7 P/B (x) 6.0 4.9 3.9 3.1
7.5 2.4 13.1 25.2 RoNW (%) 18.8 22.2 25.4 24.9
Sensex
RoCE (%) 13.9 15.5 18.0 18.5

Viewpoint
Key Conference Call Takeaways

Guidance: The company expects to hit the annual revenue run-rate of Rs. 720-750 crore from Q3FY2024. Material
costs are expected to remain stable and margins to sustain in Q3. It retained its Rs. 1000 crore revenue target for
FY2025 with 20%+ EBITDA margins. It retained its domestic revenue target of Rs. 200 crore in FY2025. Domestic
business would have 17-18% OPMs. It is in advanced talks with large customer, which if concluded would contribute
in Q4FY2024. Stainless steel sink IKEA orders to commence from Q4.
Outlook: In H1, global economy began to recover. Home improvement market is improving rapidly. It saw
improved inflow of new orders and increasing prospects and stability in raw material prices. It remains focused on
its organic and inorganic growth strategy going forward. It \has been re-organising domestic network and pricing
strategy which is expected to start seeing positive results in domestic revenues from Q3. The company was able
to gain market share and add new customers while being cost efficient. The overhang of customer stock is over.
United Granite LLC acquisition: Following successful acquisition of three UK-based companies, it announced
fourth acquisition in USA, United Granite LLC (UGL). UGL is engaged in fabrication of kitchen tops for retail,
residential and commercial projects in USA. Currently, it is operating at 60% capacity utilization which will be
ramped up over coming quarters. It has been generating 7-11% margins, which would be increased to 15% in
coming quarters. UGL can generate 15-16 million dollar revenues (Rs. 120-140 crore) at peak capacity utilization. It
follows an asset light model and has gross block of Rs. 20 crore.
Q2FY2024 highlights: Consolidated revenues was up 17.5% y-o-y to Rs. 164 crore, Operating profit was up 46.8%
y-o-y at Rs. 32.9 crore with OPM expansion of 402 bps y-o-y to 20.1% and PAT was up 67% y-o-y to Rs. 15.4 crore.
Gross debt stood at Rs. 216 crore with D/E of 0.66x and cash of Rs. 12.5 crore. Sequential dip in realisation is on
account of higher sale in USA (FOB basis, more profitable) compared to Europe (CIF-based where insurance and
freight is added).
Faucet: It commenced assembly line of faucets.
Appliances: It has started manufacturing and assembling of built-in appliances in Q3.
Net sales 163.6 139.2 17.5% 141.7 15.5%
other income 1.2 0.3 361.2% 1.2 -1.6%
Total income 164.8 139.5 18.2% 142.9 15.3%
Total expenses 130.7 116.8 11.9% 115.6 13.0%
Operating profit 32.9 22.4 46.8% 26.1 26.4%
Depreciation 7.7 6.2 24.4% 7.2 6.8%
Interest 4.7 3.8 24.3% 4.5 4.4%
Profit Before Tax 21.8 12.7 71.0% 15.6 39.6%
Taxes 6.2 3.3 85.2% 3.9 56.4%
PAT 15.6 9.4 66.0% 11.7 33.9%
Exceptional items 0.0 0.0 0.0
Minority Interest 0.2 0.2 3.6% 0.1 99.6%
Adj PAT after JV/MI 15.4 9.2 67.1% 11.6 33.4%
EPS 5.8 3.5 67.1% 4.3 33.4%
BPS BPS
OPM(%) 20.1% 16.1% 402 18.4% 174
NPM(%) 9.5% 6.8% 279 8.2% 131
Tax rate (%) 28.3% 26.1% 216 25.3% 304

Viewpoint

n Sector View – Healthy long-term growth tailwinds in home improvement space
Global market for kitchen sinks is valued at $3.2 billion in 2021 and is anticipated to register a CAGR of 4% over
2021-2025. Of the total global non-stainless steel sink market, over 60% is Quartz sink. Approximately 75% of Quartz
Sink are manufactured using the Schock technology. Focus on modernisation, rising per capita income and thriving
residential construction activities would boost the demand for the sector. The kitchen appliances market is witnessing
a CAGR of 6% over 2020-2027 and is expected to reach a market size of $378 billion by 2027. The global faucet market
is witnessing a CAGR of 8% over 2020-2027 and is expected to reach a market size of $40 billion by 2027.
n Company Outlook – Healthy demand and capacity expansions to drive growth
Carysil has been consistently expanding production capacities over the years led by a spurt in both exports and
domestic demand. The company doubled its quartz sink manufacturing capacity to 10 lakh units in FY2023 through
the brownfield route. Further, it also doubled stainless steel sink manufacturing capacity from 90,000 units to 180,000
units for which commercial production began from March 2023. it has acquired 60,000 square meters of land near
its existing plant in Bhavnagar, Gujarat for future expansion. It has started faucet assembly line of 1 lakh faucets from
Q2FY2024. The company has well-positioned itself to cater to rising domestic and exports demand led by consistent
capacity expansions.
n Valuation – Retain Positive view; expect upside of 25%
Carysil is expected to benefit from a strong rebound in export revenues as demand improves in the UK and the US
while its domestic revenues ramp-up aided by the in-house manufacturing of appliances and rise in B2B revenues.
Strong demand outlook is complemented by doubled capacities of quartz/stainless steel sink capacities and
continuous expansion in other product adjacencies (kitchen appliances and bathware). We introduce our FY2026E
earnings in this note. We estimate its consolidated net earnings to clock a CAGR of 37% during FY2023-FY2026E,
driven by strong growth across its key verticals. The stock is currently trading at a P/E of 17x/14x its FY2025E/FY2026E
EPS, which provides ample room for rerating with improvement in earnings trajectory. Hence, we retain our Positive
view on the stock and expect a 25% upside rolling forward our valuation to September 2025E earnings.

50
45
40
35
30
25
20
15
10
0
Jul-18
Jul-19
Jul-20
Jul-21
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Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Nov-23
Apr-18
May-18
May-19
May-20
May-21
May-22
May-23
Sep-18
Jan-19
Mar-19
Sep-19
Jan-20
Mar-20
Sep-20
Jan-21
Mar-21
Sep-21
Jan-22
Mar-22
Sep-22
Jan-23
Mar-23
Sep-23
1yr fwd P/E Peak 1yr fwd P/E Trough 1yr fwd P/E Avg 1yr fwd P/E

Viewpoint
About company
Carysil was incorporated in 1987 and is engaged in the manufacturing of Composite Quartz Sinks. The Company
started its operations with the help of technical collaboration with “Schock & Co.”, Germany. The Company has its
manufacturing plant located in Bhavnagar, Gujarat, India and has a total installed production capacity of 10 lakhs
Quartz Kitchen sinks per annum. It is also into manufacturing of Stainless-Steel Kitchen Sinks having capacity of 1.8
lakhs sinks with a core focus on high end “Quadro Sinks” and PVD Sinks. The company has wide range of built-in
Kitchen Appliances under its “Carysil” Brand, having varieties of Kitchen Chimneys, Dishwashers, Cook-tops, Built-in
Ovens, Wine - Chillers etc. The Company also offers Bathroom solutions like Premium Sanitary ware, Washbasins, and
Composite 3D Tiles to name a few, under its “Sternhagen” Brand.
Investment theme
Carysil gets a distinct advantage with Schock technology as it acts as a high entry barrier for other players to gain
access to the technology which includes go-ahead from existing players. Carysil is expected to benefit from strong
rebound in export revenues with demand rebound in key markets such as UK and US while its domestic revenues
ramp up aided by in-house manufacturing of appliances and rise in B2B revenues. The strong demand outlook is
complemented by doubled capacities of quartz/stainless steel sink capacities and continuous expansion in other
product adjacencies (kitchen appliances and bathware).
Key Risks
Slowdown in global demand especially in key US, UK and European markets.
Slowdown in domestic demand, rise in interest rates and fluctuations in foreign currency are other key risks.
Additional Data
Mr. Chirag A. Parekh Chairman and Managing Director
Dr. Sonal Ambani Independent Director
Mr. Anand Sharma CFO & COO
Top 10 shareholders
1 Parekh Chirag Ashwin 32.25
2 Abakkus Emerging Opportunities Fun 6.14
3 ACRYCOL MINERALS LTD 5.16
4 Parekh Jatin Ramniklal 4.31
5 Kacholia Ashish 3.74
6 Parekh Shetal Chirag 2.05
7 INVESTOR EDUCATION & PROTECTN FD 1.57
8 NAIK TEJAL JAGDIS 0.37
9 State Street Corp 0.19
10 Sanghrajka Mala Mehulkumra 0.14
Source: Bloomberg

Viewpoint
Viewpoint
Himatsingka Seide Ltd
Steady Q2 with good operating performance
Powered by the Sharekhan 3R Research Philosophy Textiles Sharekhan code: HIMATSEIDE
3R MATRIX + = -
Result Update
Right Valuation (RV) ü Himatsingka Seide Limited (HSL) delivered good performance in Q2FY2024 as steady capacity utilisation
across divisions aided a 20% y-o-y revenue growth, while softening of input costs led to sharp EBITDA
+ Positive = Neutral – Negative margin expansion to 19.9%.
In H2FY2024, the management expects demand to be stable across geographies. With the start of the
new season, cotton prices are expected to stay stable in H2FY2024.
Net debt rose by ~Rs. 70 crore q-o-q to Rs. 2,579 crore. Management targets to reduce debt below Rs.
2,000 core over the next three years.
What has changed in 3R MATRIX Stock trades at discounted valuations of 8.0x/6.5x its FY2024E/25E EV/EBITDA. Any substantial debt
reduction in the near future augurs well. We stay Positive and expect an upside of 24%.
Old New
HSL’s Q2FY2024 numbers were good with an over 20% y-o-y revenue growth to Rs. 739 crore, sharp
RS  EBITDA margin expansion to 19.9% from 4.3% in Q2FY2023 and reported PAT at Rs. 28.8 crore versus
loss of Rs. 34 crore in Q2FY2023. Revenue growth was driven by higher capacity utilisation across
RQ  divisions, while improvement in profitability was on the back of cooling raw material prices and
marginal easing of energy costs. The spinning, sheeting and terry towel divisions’ capacity utilisation
RV  stood at 99%, 67% and 67%, respectively. In H1FY2024, revenues grew by 13.6% y-o-y to Rs. 1,421.3
crore, EBITDA margin improved to 20.8% from 3% in H1FY2023 and PAT came in at Rs. 58 crore (as
against a loss of 89 crore in H1FY2023). HSL forayed into the domestic market in Q2FY2024 with the
launch of the Himeya Brand. Net debt stood at Rs. 2,579 crore at Q2FY2024-end.
Key positives
Spinning, sheeting and terry towel divisions capacity utilisation improved to 99%, 67% and 67% from
Company details 75%, 53% and 53% in Q2FY2023, respectively.
Market cap: Rs. 1,410 cr Gross /EBITDA margins expanded to 56.5%/19.9% from 39%/4.3% in Q2FY2023.
HSL forayed into the Indian market with the launch of Himeya Brand at Q2FY2024-end.
52-week high/low: Rs. 166 / 68
Key negatives
NSE volume: Net debt rose by Rs. 67 crore q-o-q to Rs. 2,579 crore at Q2FY2024-end.
9.0 lakh
(No of shares) Management Commentary
HSL is witnessing a stable demand environment across the US, Europe and other markets, with an upward
BSE code: 514043 bias. Management expects to deliver stable operating performance in H2.
NSE code: HIMATSEIDE In the medium-long term, management expects capacity utilisation across division to rise to 90% (less
than 3 years) driven by expanding client base, strong brand portfolio, signing of a UK-FTA, China +1
Free float: strategy and domestic demand push.
5.2 cr The Himeya brand is positioned to cater to customers across price points and categories. The outlay
(No of shares)
to develop the domestic business will not be significant as the company plans to leverage existing
manufacturing facilities and distribution network. HSL aims to achieve ~Rs. 1,000 crore revenue from the
domestic market over the next 5 years.
The management indicated that cotton prices have remained range bound q-o-q and softened y-o-y. In
H2FY2024, management expects the prices to remain stable.
Shareholding (%)
Net debt increased by ~Rs. 70 crore q-o-q to Rs. 2,579 crore. The company plans to reduce debt by Rs.
Promoters 47.6 100-200 crore every year (Net debt expected to reduce by Rs. 400 crore in 2 years) and targets it to reduce
it below Rs. 2,000 crore in next three years.
FII 7.3 Revision in estimates – We have fine-tuned earnings estimates in FY2024 and FY2025 to factor in lower-
than-expected revenues and higher-than-expected EBIDTA margins in Q2FY2024. We have introduced
DII 1.2 FY2026E earnings through this note.
Others 43.9 Our Call
View – Stay Positive; expect 24% upside: HSL is witnessing progressive improvement in performance in
FY2024 post a dull show in FY2023 as multiple headwinds hit performance. Gradual recovery in the export
demand, expanding client base, growing presence across new markets and cooling of input prices would
drive revenue growth and margin expansion in the near term. The stock has corrected by 10% from its high
Price chart and is currently trading at discounted valuations of 8.0x/6.5x/5.2x its FY2024E/25E/26E EV/EBITDA (10X/6X/5X
its FY2024E/25E/26E earnings). High debt on books remains the key overhang for the stock. If the company
170 manages to substantially de-leverage its balance sheet over in 2-3 years, it will provide a good support to the
valuations. With strong industry tailwinds, we retain a Positive stance with a potential upside of 24% over the
140 next 12 months (rolling over to September-25 EV/EBITDA).
110 Key Risks
Any delay in performance recovery or sudden volatility in raw material prices will act as key risks to our
80 earnings estimates.
50
Mar-23
Jul-23
Nov-22
Nov-23

Revenue 2,678 3,088 3,482 3,932
EBITDA margin (%) 10.1 16.3 17.2 17.7
Adjusted PAT -64 140 226 308
Price performance
Adjusted EPS (Rs.) -6.5 14.2 23.0 31.3
(%) 1m 3m 6m 12m P/E (x) - 10.1 6.2 4.6
Absolute 7.8 15.1 65.9 43.3 P/B (x) 1.0 0.9 0.8 0.7
8.6 16.2 61.0 37.1 RoNW (%) -4.4 9.3 13.5 16.1
Sensex
RoCE (%) 3.9 9.1 11.2 13.2

Viewpoint
Good Q2 – Revenue growth at 21% y-o-y; sharp margin expansion

HSL’s revenues grew by 20.5% y-o-y to Rs. 739.1 crore, against our expectation of Rs. 666 crore, aided by expanding
client base and growing presence across new markets. Spinning, Sheeting and Terry towel division capacity utilisation
was high and largely stable q-o-q at 99%, 67% and 67% respectively. Gross margin and EBITDA margin expanded
sharply from 39% and 4.3% in Q2FY2023 to 56.5% and 19.9%, respectively led by cooling of raw material prices,
marginal easing of energy costs and better operating efficiencies. EBITDA margin came in-line with our expectation of
20.2%. EBITDA grew by 5.6x y-o-y to Rs. 147.3 crore, while adjusted PAT came in at Rs. 29 crore against a loss of Rs. 34
crore in Q2FY2023. PAT came ahead our expectation of Rs. 25 crore. In H1FY2024, revenue grew by 13.6% y-o-y to Rs.
1,421.3 crore, EBITDA margin improved to 20.8% from 3% in H1FY2023 and PAT came in at Rs. 58 crore (against a loss
of 89 crore in H1FY2023). HSL forayed into the domestic market with the launch of Himeya Brand at Q2FY2024-end.
Net Debt stood at Rs. 2,579 crore as on 30 September 2023 versus Rs. 2,512 crore as on 30 June 2023.
Key conference call highlights

Stable demand in H2; multiple long-term levers in place: The company is witnessing stable demand
environment across US, Europe and other markets, with an upward bias. Management expects to deliver stable
operating performance in H2. In the medium-long term, management expects capacity utilisation across division
to rise to 90% (less than 3 years) driven by expanding client base, strong brand portfolio, signing of UK-FTA, China
+1 strategy and domestic demand push.
Aim to scale-up India business: Himeya brand is positioned to cater to customers across price points (cater
to low, mass and premium segments not just a luxury brand) and categories. Outlay to develop the domestic
business will not be significant as the company plans to leverage existing manufacturing facilities and distribution
network. HSL would focus on improving brand visibility and strengthening brand distribution to scale up the
domestic business. There is no requirement to increase capacity to cater to domestic demand, HSL plans to
debottleneck the existing capacities within the annual maintenance capex budget. HSL is focussed on growing
market presence in India and aims to achieve ~Rs. 1,000 crore revenue from the domestic market over the next 5
years. The company is planning to operate with upto 3 brands in India in the medium term (currently HSL has two
brands in India – Atmosphere and Himeya).
Raw material prices to remain stable in H2: Management indicated that cotton prices have remained range
bound q-o-q and softened y-o-y. In H2FY2024, management expects the prices to remain stable.
Focus on debt reduction continues: With no large capex planned in the coming years, HSL would continue to
focus on deleveraging. Net debt has reduced by Rs. 194 crore y-o-y in Q2FY2024. The company plans to reduce
debt by Rs. 100-200 crore every year (Net debt expected to reduce by Rs. 400 crore in 2 years).
Client additions aided gross revenues: The company has seen significant client addition post the launch of
terry towel division, which helped HSL to enter new geographies and channels. Gross revenue addition from
client addition is robust, with 5-6x jump in client mix over the past 3 years.

Viewpoint
Revenues 739.1 613.5 20.5 682.1 8.4
Raw material cost 321.7 374.4 -14.1 286.6 12.2
Employee cost 77.6 66.7 16.4 75.9 2.3
Other expenses 192.6 145.9 32.0 172.0 12.0
Total operating cost 591.9 587.0 0.8 534.5 10.7
EBITDA 147.3 26.5 - 147.7 -0.3
Other income 9.0 26.2 -65.6 4.4 -
Interest & other financial cost 72.4 67.9 6.6 66.4 9.1
Depreciation 40.9 41.3 -1.2 41.4 -1.2
Profit Before Tax 43.1 -56.6 - 44.4 -3.0
Tax 14.3 -22.7 - 15.2 -6.2
Reported PAT 28.8 -33.9 - 29.1 -1.3
EPS (Rs.) 2.9 -3.4 - 3.0 -1.3
bps bps
GPM (%) 56.5 39.0 - 58.0 -151
EBITDA margin (%) 19.9 4.3 - 21.7 -172
NPM (%) 3.9 -5.5 942 4.3 -38
Tax rate (%) 33.2 40.1 -693 34.3 -114

Viewpoint

n Sector Outlook – Gradual recovery on cards; long-term growth prospects intact
In the past few quarters, inflation, rising interest rates and geopolitical disturbances dented exports of textile
companies. However, with improvement in the export demand, textile companies are likely to see gradual recovery.
In the long term, growth prospects of the Indian textile industry are strong, aided by augmentation of capacity with
value-added products, China + 1 factor, the government entering into a trade agreement with various countries,
incremental benefits from the PLI scheme, and market share gains in export markets. Textile companies would benefit
and report higher profitability with the government extending the RoSCTL scheme until March 2024 and keeping
rates unchanged. Margins are expected to improve in the quarters ahead due to lower raw-material prices and supply
cost.
n Company Outlook – Recovery from H2FY2024
After a weak performance in FY2023, HSL delivered good operating performance in H1FY2024, registering ~14% y-o-y
revenue growth (driven by higher capacity utilisation) and sharp improvement in profitability (led by easing of input
cost inflation). The company expects the momentum to continue in the coming quarters, which will aid in recovery of
operating performance in FY2024. The company has maintained its medium-term outlook of gaining good demand
from key markets due to the China +1 factor, increasing market share, and likely signing of an FTA with the UK. Margin
improvement will be driven by softening of raw material prices and better operating efficiencies. Further, the company
is focusing on generating higher cash flows, which will be utilised to reduce debt. We expect revenue to clock a 14%
CAGR over FY2023-26E and EBITDA margin to improve significantly from 10% in FY2023 to ~18% in FY2026.
n Valuation – Retain Positive stance; expect 24% upside
HSL is witnessing progressive improvement in performance in FY2024 post a dull show in FY2023 as multiple
headwinds hit performance. Gradual recovery in the export demand, expanding client base, growing presence
across new markets and cooling of input prices would drive revenue growth and margin expansion in the near term.
The stock has corrected by 10% from its high and is currently trading at discounted valuations of 8.0x/6.5x/5.2x its
FY2024E/25E/26E EV/EBITDA (10X/6X/5X its FY2024E/25E/26E earnings). High debt on books remains the key overhang
for the stock. If the company manages to substantially de-leverage its balance sheet over in 2-3 years, it will provide a
good support to the valuations. With strong industry tailwinds, we retain a Positive stance with a potential upside of
24% over the next 12 months (rolling over to September-25 EV/EBITDA).
Peer Comparison
Particulars
Welspun India 72.5 23.8 18.8 22.0 12.0 9.9 5.9 13.1 15.1
KPR Mill 32.7 26.5 20.4 21.8 17.1 13.6 24.3 25.7 28.4
Himatsingka Seide - 10.1 6.2 15.2 8.0 6.5 3.9 9.1 11.2
Source: Company, Sharekhan estimates

Viewpoint
About company
HSL, founded in 1985, is a vertically integrated home textile player. The company manufactures, retails, and distributes
bedding, baths, drapery, upholstery, and lifestyle accessories. In terms of operations, the company’s business is divided
into manufacturing and retail and distribution. The company has manufacturing facilities in India and has retail and
distribution businesses in North America, Europe, and Asia. Based on acquisitions made by the company over the
years, it presently holds licenses for leading brands such as Calvin Klein Home, Tommy Hilfiger Home, Barbara Barry,
and Royal Velvet. With over 15+ home textile labels, both owned and licensed, the company has one of the largest
portfolios of home textiles brands with an annual revenue of close to Rs. 2,700 crore.
Investment theme
HSL will be one of the key beneficiaries of the rising demand for Indian home textiles in export markets. Leveraging on
its experience in the US market and vertically integrated business model, the company is focusing on strengthening
its presence in European and Middle East markets. In the past five years, the company has spent around Rs. 1,300
crore-1,500 crore to expand its bed sheet capacity to 61 MMPA and set up a new terry towel capacity of 25,000 TPA.
The company posted a strong performance in FY2022 due to higher demand and improved market share in key
markets. However, FY2023 numbers were weak as inventory correction with global retailers, slowing demand and
high input costs put a toll on its operating performance. The company is witnessing progressive improvement in
FY2024 and expects recovery in operating performance during the year.
Key Risks
Any decline in export revenue due to lower demand from international clients or a significant increase in raw-
material prices would act as a key risk to our earnings estimates.
Any volatility in key raw-material prices such as cotton prices can affect the company’s profitability.
Additional Data
D. K. Himatsingka Chairman
Shrikant Himatsingka Managing Director & Group CEO
Sridhar Muthukrishnan Company Secretary & Compliance Officer
Top 10 shareholders
1 Himatsingka Aditya 2.55
2 Jupiter Fund Management 1.77
3 Himatsingka Ranjana 1.39
4 JUPITER INDIA FUND 1.30
5 ICICI Prudential AMC 1.16
6 Prakash Veluru Girinatha 1.02
7 Himatsingka Vikram 1.01
8 Dimensional Fund Advisors 0.27
9 Himatsingka Priyadarshini 0.24
10 American Century Cos Inc 0.06
Source: Bloomberg

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent industry
growth), increasing investments, higher entry barrier, and favorable government
policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse government
policies affecting the business fundamentals and global challenges (currency
headwinds and unfavorable policies implemented by global industrial institutions)
and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record, Healthy
Balance sheet/cash flows, differentiated product/service portfolio and Good corporate
governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as natural
calamities resulting in near term uncertainty, Company specific events such as factory
shutdown, lack of positive triggers/events in near term, raw material price movement
turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of key
management personal, questionable corporate governance, high commodity prices/
weak realisation environment resulting in margin pressure and detoriating balance
sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations are
trading at discount to industry leaders/historical average multiples, Expansion in
valuation multiple due to expected outperformance amongst its peers and Industry
up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of roadblocks
such as corporate governance issue, adverse government policies and bleak global
macro environment etc warranting for lower than historical valuation multiple.
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Investor’s Eye

November 08, 2023

For Private Circulation only

Right Quality (RQ) ü Summary

OPM (%) 17.5 14.0 24.4 24.3 24.5

November 08, 2023 2

November 08, 2023 3

TPCL’s entity-wise consolidated performance for Q2FY2024

TPCL’s cluster-wise consolidated performance for Q2FY2024

Odisha discoms’ performance in Q2FY2024

November 08, 2023 4

Tata Power Solar Systems Limited – Highlights

Tata Power Regulated - Equity and Assets

Tata Power Debt Profile

November 08, 2023 5

Outlook and Valuation

November 08, 2023 6

About the company

November 08, 2023 7

OPM (%) 16.3 15.1 16.0 18.5 18.8

November 08, 2023 8

November 08, 2023 9

 No significant changes in the product mix are expected in FY24.

Key Ratios (Standalone)

November 08, 2023 10

Outlook and Valuation

One-year forward P/E (x) band

November 08, 2023 11

November 08, 2023 12

Adjusted PAT 644 1,082 1,686 1,910 2,182

Relative to EV/EBITDA (x) 12.3 9.4 7.4 6.9 6.3

November 08, 2023 13

November 08, 2023 14

Key ratios (Consolidated)

November 08, 2023 15

Outlook and Valuation

One-year forward P/E (x) band

Source: Sharekhan Research

November 08, 2023 16

November 08, 2023 17

Price chart Valuation (Standalone) Rs cr

November 08, 2023 18

November 08, 2023 19

Li-ion Pack Business

November 08, 2023 20

Key Ratios (Standalone)

November 08, 2023 21

Outlook and Valuation

One-year forward P/E (x) band

Source: Sharekhan Research

November 08, 2023 22

November 08, 2023 23

Right Quality (RQ) ü Summary

OPM (%) 11.0 14.1 14.9 15.1

November 08, 2023 24

Sugar business performance Rs cr

Distillery business – Revenue 2.4x higher y-o-y; margins significantly impacted

Distillery business performance Rs cr

November 08, 2023 25

Sugar business outlook

Business-wise PBIT margins

November 08, 2023 26

No significant changes in the product mix are expected in FY24.