The March quarter earnings of India Inc were largely muted jeered by more than a week of inactivity due to the nationwide lockdown. However, some telecom, select cement, pharma companies managed to buck the trend to post solid numbers in Q4 FY20.
"At the index level, on the topline front, ex-financials, the Nifty witnessed a topline decline of 6.4 percent YoY while operating margins came off by 200 bps QoQ to 14 percent in Q4 FY20. Operating margin declined amid gross margin expansion was largely tracking perils of negative operating leverage," said ICICI Securities.
"Consequent operating profit decline was to the tune of 15.4 percent YoY. This coupled with increase in interest and depreciation charge amid lower effective tax rate led to more than 20 percent YoY decline at the adjusted PAT level for Q4 FY20," the brokerage said.
Though overall earnings remained muted in March quarter 2020, some companies from several sectors reported a good set of numbers due to lower raw material prices, price hike of their products, consistent demand for their products despite lockdown etc.
Here are five companies which posted a strong set of earnings in Q4 FY20, which ICICI Securities believe are more fundamental and sustainable in nature.
Aurobindo Pharma: Buy | Target: Rs 920 | Return: 19 percent
Aurobindo Pharma's Q4 FY20 revenues grew 16.4 percent YoY mainly due to 20.5 percent YoY growth in the US. EU business also posted a robust growth of 26.0 percent YoY. EBITDA margins expanded 140 bps YoY to 21.4 percent mainly due to higher gross margins. EBITDA grew 24.5 percent. Adjusted net profit grew 34.8 percent YoY.
Aurobindo possesses one of the best enduring generics ecosystems among peers (vertically integrated model, lower product concentration) to withstand the volatility in the US generics space. Things are looking much more promising at the beginning of FY21 with respite for unit IV, a strong set of Q4 numbers and stable outlook.
The company has also significantly improved its debt position utilising additional cash freed up from foregoing the Sandoz deal. We maintain a buy rating and arrive at a target price of Rs 920.
Balrampur Chini: Buy | Target: Rs 176 | Return: 30 percent
Balrampur Chini reported strong Q4 FY20 results with 31.1 percent growth in revenues led by 40 percent growth in sugar sales & 53.2 percent growth in distillery sales. The higher growth in sugar sales was led by 19.4 percent jump in sugar volumes aided by around 1.7 lakh tonnes (LT) of sugar exports during the quarter. The growth in distillery sales was led by 34.9 percent higher volumes led by commissioning of new 160 KLD distillery in January 2020 & better distillery realisation aided by higher proportion of ‘B’ heavy ethanol.
Balrampur Chini is the most efficient company in the sugar industry with optimum distillery & power capacities, low working capital debt requirement & strong cash flows. Given the sustainable earnings & cash flow generation, we believe working capital debt would further come down by around Rs 560 crore in the next two years. The company has been continuously paying out 35-40 percent through dividend & buybacks. With no further capex requirement, the payout can also increase in future. We remain positive on the stock.
Bharti Airtel: Buy | Target: Rs 700 | Return: 20 percent
Bharti Airtel's Q4FY20 performance was strong on the operating front. Key highlight was robust 12.5 million 4G subscribers net adds in the quarter coupled with tariff hike pass through that led to strong 14.3 percent QoQ growth in ARPU at Rs 154. Consolidated revenue was up 8.1 percent QoQ driven by 16 percent QoQ growth in Indian wireless revenues. Consolidated EBITDA margins were at 42.9 percent (up 70 bps QoQ). The margin expansion was led by Indian margin, up 150 bps QoQ at 42.7 percent, with Indian wireless margins at 39.2 percent, up 330 bps QoQ, largely a function of tariff hike.
We highlight that Bharti Airtel continues to report a gain in revenue market share with stable KPI across and also enjoys a comfortable leverage vis-à-vis peers. We note that while the AGR issue is sub-judice, fundraising has ensured it would be able to serve the same. With a resilient performance amid challenging times, Airtel is one of the better-placed telecom players.
Mahindra & Mahindra: Buy | Target: Rs 600 | Return: 10 percent
M&M reported a healthy operational performance in Q4 FY20. Standalone EBITDA margins dipped 100 bps QoQ to 12.4 percent with 290 bps gross margin expansion being overshadowed by negative operating leverage.
M&M's market leadership (42 percent market share domestically) in the tractor space leaves it well placed to benefit from sectoral tailwinds related to relatively stable demand (remunerative crop prices, government's supportive policies, healthy monsoon progress thus far) while its intensified focus on existing businesses with unclear path to profitability solidifies capital allocation roadmap. We assign buy rating to M&M, valuing it at Rs 600 per share on SOTP basis.
Star Cement: Buy | Target: Rs 105 | Return: 17 percent
Star Cement being the leader in North East with over around 24 percent share remains a preferred play to ride the growth story of the NER region. Also being a brand leader, the company generates EBITDA/tonne of over around Rs 1,400 per tonne, which remains one of the highest among all major players in the industry. On the margin front, the company ended FY20 with EBITDA margins of 23 percent and EBITDA per tonne of Rs 1,438 per tonne (best in the Industry).
Limited capacity in NER resulting in a firm pricing environment, benefit of subsidies from the government are also some factors, which drove healthy margins for the company. The company is virtually debt-free and is now expanding its capacity from 4.3 MT to 6.3 MT over the next two years. With firm retail demand and its capacity expansion, we expect the company to clock EBITDA CAGR of 15.1 percent during FY20-22. Hence, we remain positive on the company from a long term perspective.
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