Larsen & Toubro: Larsen & Toubro (LT) delivered a stable Q3FY23, with revenue/EBITDA/APAT beating our estimates by 4.2/0/4.8% respectively. Tendering during the quarter was strong with the award-to-tender ratio at 56% (vs. 57/34% in Q3FY22/Q2FY23). EBITDA margin, at 10.9% (-52/53bps YoY/QoQ), was impacted on account of merger integration costs in LTI Mindtree (NS:) and higher staff costs in the services portfolio. The Hyderabad metro saw ridership improving to 394k per day from 355k in Q2FY23. As of Dec’22, LT received INR 1bn in the form of state government assistance from the Telangana government with another INR 9bn expected in Q4FY23. Given: (1) the record-high order book (OB) of INR 3.9tn; (2) bottoming out of infra margins; and (2) the improving health of the Hyderabad metro project, we maintain BUY with an increased TP to INR 2,432/sh (22x core Dec-24 EPS).
Tech Mahindra (NS:): Tech Mahindra (TECHM) posted a soft quarter relative to tier-1 IT peers. Key positives included (1) enterprise segment crossing the USD 1bn quarterly revenue threshold and outlook on retail and manufacturing verticals within the enterprise segment; (2) new deal bookings of USD 795mn TCV in Q3 providing near-term growth visibility and historically Q4 bookings having included large deals; (3) larger deals on cost optimization expected in the CME vertical even as deal closure timelines become prolonged and renewals face compression; and (4) margin levers of sub-contracting (the highest vs. peers), offshoring and account rationalization likely to improve the operating trajectory (albeit at a gradual pace than anticipated earlier). TECHM’s underperformance is explained by its growth and profitability underperformance vs. peers in FY23E. However, in an environment with industry tailwinds (attrition and cost of delivery normalizing), the delta on earnings for TECHM can also be higher than peers in FY24E. Near-term deterrents of extended furlough in Q4 and limited operating leverage due to account rationalization and T5 impact limit the upside case. Valuation, at 15x FY24E and 13x FY25E (vs. 10Y average
Nippon Life India Asset: NAM clocked a 7/10% QoQ growth in revenue/PAT on the back of sequential improvement in revenue yields even as market share in the high-margin equity segment was stable at 6.2%. We are encouraged by the improvement (+52bps QoQ) in SIP market share at 7.3% and argue this is key for long-term franchise strength and sustainability. Additionally, we expect NAM to capitalize on its rising credibility to raise HNI/institutional capital. We tweak our FY23E/24E earnings estimates by 3/1% to factor in higher yields in the debt segment and build in FY22-25E revenue/NOPLAT CAGRs of 13.7/18.2%%. We maintain ADD with an unchanged TP of INR350 (24x Sep-24E EV/NOPLAT + cash and investments).
Sagar Cements (NS:): We maintain our ADD stance on Sagar Cements (SGC), with a revised TP of INR 230/share (7.5x its Mar-25E consolidated EBITDA). We like Sagar for (1) its rising regional diversification, (2) its increased focus on green fuel and power consumption, and (3) blended cement production. In Q3FY23, healthy demand in the south and the ramp-up of Jeerabad and Jajpur plants drove the volume, while elevated fuel costs and negative EBITDA contribution from Jajpur pulled the margin down, leading to a net loss. Sagar expects its energy cost to decline by INR 100-125 per MT QoQ in Q4. The Andhra Cements acquisition is expected to be completed in Q4FY23E, driving up capacity to 11mn MT.
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