IDBI Capital, a brokerage company, has issued a buy call on the stocks of Britannia Industries and Rail India Technical and Economic Service (RITES). The brokerage has set a target price of Rs 4,507 and forecasts a gain of +24 percent from the current market price for Britannia Industries, while IDBI Capital has set a target price of Rs 369 and estimates a gain of +25 percent from the current market price for RITES.
2QFY22 results of Britannia Industries
IDBI Capital in its research has said that "Britannia (BRIT) 2QFY22 result was below our estimates. Revenue growth at 6%YoY on a high base of 12% is healthy. However, a steep contraction in gross margin led to a higher than expected decline in PAT. Positively, BRIT expects to offset the impact of inflation both by taking price hikes (to the tune of 1/3rd) and grammage reduction (2/3rd) by the end of FY22. During 2QFY22 BRIT has taken a 4% price hike and expects benefit from grammage reduction to flow in 2HFY22."
The brokerage has also clarified that "Distribution expansion is tracking well. BRIT expects rural to outperform urban through distribution expansion and penetration. In rural; market share gains stood at 2.5x vs urban during 2QFY22. Modern trade grew 10% higher than traditional channels. However, the company expects lower volume growth due to inflation and reduction in grammage during 2HFY22."
Key highlights and investment rationale for Britannia Industries according to IDBI Capital
Domestic business remained resilient: Consolidated revenue grew 6%YoY (on a base of 12%YoY in 2QFY21) driven by 6%YoY growth in the domestic business while revenue from subsidiaries (consolidated less standalone) declined 5%YoY. BRIT has taken a 4% price hike during the quarter. In the international market; Nepal grew in high double digits led by market share gains.
Inflationary raw material impacts operating margins: Gross margin contracted 502bp to 37.5% driven by material inflation in palm oil (54%YoY), industrial fuel (35% YoY) and packaging material (30%YoY). EBITDA declined 17%YoY to Rs 5.6bn. A decline in Adjusted PAT at 23%YoY is higher due to Rs 350mn tax benefit in the base quarter.
Maintain BUY: As per the revised business outlook on inflation; we have trimmed our EPS estimate by 6- 13% in FY22-23E. We have introduced FY24E in our estimates. We maintain our bullish view on the company. Our revised TP stands at Rs 4507 with a BUY rating.
Q2FY22 results of RITES
According to the brokerage's research report "RITES (RITE) Q2FY22, PAT came 14%/ 20% higher than our / consensus estimate. Beat in the result is led by better execution (revenue) in the Export segment, as shipment of the orders has commenced. Here revenue stood at Rs3410mn vs Rs7mn QoQ vs nil YoY, RITE expects its FY22E revenue and PAT to reach FY20 levels and FY23E to witness growth in the business. Q2FY22 order inflow is at Rs2.6bn and Order book at Rs64bn equals 3x TTM Revenue."
IDBI Capital has stated in its research report that "RITE has announced a second interim dividend of Rs4/sh for FY22 and till date dividend announced is at Rs6 for FY22. We have introduced FY24E financials and rolled forward TP to FY24E at Rs369 (valued at 12x PER). Maintain BUY rating on the valuation (trades at its historical average at 10x FY24E EPS) and a dividend yield of 7-8%."
Key highlights and investment rationale for RITES according to IDBI Capital
Q2FY22 Snapshot: Q2FY22 Revenue stood at Rs7.6bn (+72%YoY / +113% QoQ). This is led by better higher Exports revenue at Rs3.4bn vs Rs7mn QoQ. Consultancy / Leasing execution was up 5% /22% YoY at Rs2.6bn / Rs0.3bn. Consolidated EBITDA margin stood at 28.6% vs 29% YoY and was higher QoQ of 27.3%. EBITDA increased by 69% YoY at Rs2.1bn. PAT stood at Rs1.7bn (+32% YoY / +124% QoQ).
Order book provided visibility: H1FY22 Order book is at Rs64bn (equals 3x TTM Revenue) comprising of Consultancy /Exports/ Lease/ Turnkey/ REMC at Rs2.5bn /Rs10bn/ Rs1bn/ Rs28bn/ Rs1bn. New opportunity is expected from metro consultancy order and 2-3 international orders of USD100mn each.
Segmental composition: With Exports back on track, RITE is aiming for Rs7-7.5bn revenue in FY22E. Consultancy segment is growing and RITE expects revenue to increase at 10% pa over the next 3-4 years. For Turnkey segment, the company expects revenue to improve on QoQ and stabilize in Q4FY22. Going forward, the company is targeting to improve margins at ~3% for turnkey.
The above stocks are picked from the brokerage report of IDBI Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.