• KEC International: This company’s Q3FY22 results were a mixed bag, confounding analysts as well. Net profits were down 35% YoY to Rs 94 crore but revenues rose 2% YoY to Rs 3,340 crore saved by the non T&D (transmission and distribution) segment involving railways, civil, cables, and others. KEC’s major business comes from the T&D segment which saw a fall in revenue by 14% YoY to Rs 1,388 crore. Even SAE Towers (a Brazilian subsidiary of KEC) saw an 18% YoY fall in revenues to Rs 220 crore in Q3FY22. What saved the company’s revenues was the robust growth in revenues in the civil and railways segments,  up 81% and 9%, YoY respectively. Looking at growing revenue, ICICIdirect upgraded its target price by 4% to Rs 535, but downgraded its rating to ‘Hold’ from ‘Buy’. The brokerage is of the view that the SAE business will take another year to turn around and start generating a decent margin.  This is because SAE Towers’ projects are slightly delayed due to the ongoing pandemic and unusual rainfall hindering the execution of the projects in the pipeline. SAE’s order intake value for FY22 is around Rs 1,137 crore.

Axis Securities is however positive on the stock and upped its target price by 10% to Rs 555 as it expects margin pressures to subside in FY23. KEC International’s EBITDA margins slipped 190 bps YoY to 7.2% because of an increase in material costs. Also, the brokerage believes that the up order book will start generating revenues from FY 23-24. 

• Pidilite Industries : This company’s Q3FY22 results were a disappointment with profits falling 19.5 % YoY to Rs 359.24 crore. This is despite a 24% YoY jump in revenues to Rs 2,850.72 crore. Revenue growth was broad-based across (C&B) Consumer and Bazaar & (B2B) Business-to-Business with growth in urban areas outpacing rural.  The company’s (C&B) segment, consisting of adhesives & sealants, construction & paint chemical, and art & craft materials, contributes 80% to its revenue, while the B2B segment (industrial adhesive, resins, and pigments) contributes the rest . The reasons for declining margins and profits despite increase in revenue is due to a steep cost inflation. The company passed on only 70-75% of the rise in costs to customers through price hikes. Raw material prices continued to increase, in Q3FY22 VAM (Vinyl Acetate Monomer) was priced at US$ 2000/mt Vs US$ 1,000/mt in Q3FY21. The management expects VAM (Vinyl Acetate Monomer) prices to cool off from March 2022.

ICICIdirect maintained a ‘Hold’ rating on the stock with the previous target price of Rs 2640 , a 5% upside . The brokerage sees Pidilite well placed to benefit from the revival in the domestic real estate industry, which drives demand in its C&B business. Addition of premium products in the portfolio such as Araldite, cost optimisation measures will help drive the EBITDA margin of the company higher. Construction chemical, waterproofing categories are highly under penetrated (<25%) in India. These categories are expected to drive long term growth for Pidilite. The brokerage projects a profit of CAGR of 17% for FY 21-24 with an EBITDA margin in the range of 20-23%.

• Ajanta Pharma:  This company’s Q3FY22 net profit rose 8.6% YoY to Rs 192 crore while the  revenues rose 12% to Rs 838 crore. While EBITDA remained steady YoY at Rs 240 crore, EBITDA margin fell 370bps to 28.6% due to aggressive price erosion in the US Business and rising input costs. Taking cues from this, the management has not set aside any additional funds for capex apart from what is required for maintenance of its facilities for the next 3-4 years. As if on cue, the company plans to return the excess free cash flow back to the shareholders through a share buyback of Rs 352 crore. In the previous quarter, it paid out Rs 82 crore as dividend. The decline in gross margin in the US business was mitigated by generic business in India and Emerging markets, which boasts of higher gross margin. Ajanta Pharma’s key driver of growth is the branded formulation business, with revenues rising 26%YoY to Rs 361 crore. The formulation business accounts for 41% of total revenues. In the emerging market segment, revenues from China fell 1% owing to supply chain disruptions. However, the company posted a robust 87% revenue growth from Africa. Revenue from domestic business, which accounts to 30% of total revenues, grew 18% to Rs 260 crore. Brokerages like ICICI Securities and BOB Capital Markets, despite the company’s troubles in the US market continue to be upbeat about the company’s prospects and stuck  to  their “Buy” rating.

• Indian Hotels Company: An upswing in domestic leisure travel in Q3FY22 finally caused Indian Hotel’s bottomline to return to black for the first time, after six quarters. The stock is up nearly 10.6% in the last one week. Tight operating cost control and a revenue growth of 2X YoY led to the generation of a net profit of Rs 76 crore in Q3FY22 as against a loss of Rs 119 crore in Q3FY21. What’s commendable here is that the company’s domestic revenue per available room recovered to 89% of the pre-Covid levels as against the industry average of 79%. Its occupancies not only recovered to 94% of the pre-covid levels, but also rose to nearly 67% in Q3, up 10 percentage points sequentially. Interestingly, the Q3FY22 revenues from its hotels in Goa and Rajasthan actually grew over Q3FY20 levels with the former posting 26% growth. However, the performance of the company's key markets of Mumbai, Delhi and Bengaluru remain lacklustre. The revenues from its mainstay market of Mumbai and Delhi are still at nearly 70% of the Q3FY20 level. On the international level, revenues from its hotels based in Dubai and Maldives grew 48% and 6% respectively over Q3FY20 levels led by over 25% QoQ rise in room occupancy.

The reduction in its net debt/equity ratio to 0.32X from 0.93X in Q2FY22 thanks to the recent QIP helped shore up its balance sheet strength. While the third Covid wave may once again dampen the prospects of this Tata Group company in Q4FY22, outlook for FY23 looks positive as the company is hopeful of a recovery in its flagship markets as business travel resumes.

• Hero MotoCorp: This two-wheeler maker’s monthly wholesale numbers keep dwindling. Since July 2021, India’s largest two-wheeler maker’s monthly wholesales numbers are falling on an YoY basis. Its stock hit a 52-week low on December 02, 2021 after its November 2021 wholesales data came out. Hero MotoCorp’s January wholesales declined 22% YoY to 3,80,476 units due to the third Covid-19 wave, higher fuel prices and weak demand in rural markets. The wholesale volumes also fell 4% on a month-on-month basis.

The company also witnessed a double-digit YoY fall in its wholesales between October-December, 2021. An important point made by competitor Bajaj Auto’s Executive Director Rakesh Sharma in the Q3FY22 earnings call was on the absence of money or the will to buy a bike amongst 60% of its prospective motorcycle customers. This also throws light upon Hero’s dismal performance and bleak outlook. This two-wheeler maker primarily serves the highly price sensitive consumers through its economy and executive-100 bike segments. The propensity to spend is materially impacted for these segments and the two-wheeler maker might see green shoots of growth only from the latter half of FY23. The management of the company, however, remains hopeful of the future backed by the announcement of a new battery swapping policy in Budget 2022-23. While the incentives are yet to be finalized, the policy might accelerate the adoption of electric two-wheelers in India.