Stock Recommendations – January 2024

Jyothy Labs Ltd. (JLL) is an Indian FMCG player with products across fabric care, dishwashing, mosquito repellents & personal care.

For Q2FY24, revenue grew by 11% YoY, mainly aided by volume growth of ~9% YoY, while price growth was at 2% YoY. The main segments, fabric care and dishwash (78% of total sales), witnessed a healthy growth of ~11% YoY, while personal care grew by 22%YoY and household insecticides by 3%YoY. Going forward, a strong focus on distribution expansion, market share gains, new product offerings, and penetration of existing products in newer geographies will support volume growth. JLL’s direct reach has crossed 1.1mn outlets from ~0.85mn in FY21. Forays into liquid detergents and the mid-priced detergent powder segment have witnessed good demand. The LUP strategy (low unit packs at a price point of Rs.10-contributes 25-30% of total sales) of the company is working well in rural regions. Declining inflation along with GOI’s strong rural focus will support demand. We expect ~11% revenue CAGR over FY23- 25E.

Gross margin improved by 870bps YoY to 49% due to reductions in input costs and growth in realisation while EBITDA margin improved by 630bps to 18.5%, despite increase in ad-spend (7.8% of sales vs. 6.3% YoY). EBITDA grew by robust 68%YoY, while PAT grew by 81% YoY aided by higher other income and lower interest cost. Input prices have declined materially from their peaks but is witnessing some volatility in recent months. The company has guided EBITDA margin to be ~16-17% for FY24. JLL has chosen a concessional income tax rate beginning in FY27 once the benefits under 80IE have been fully utilised (till FY26). We expect PAT growth of ~32% CAGR over FY23-25E.

Easing inflation, along with strong rural & consumption pushes by the GoI will aid demand. Expanded distribution and a focus on the LUP strategy will support JLL’s volume growth. We revise our target price to Rs.405 (from Rs. 291), valuing at 37x FY25E EPS, considering the strong margins and healthy volumes. However, we maintain our SELL rating due to sharp increase in valuation (JLL currently trades at 1Yr Fwd P/E of 43x vs. 10Yr avg of 28x).

CMP: Rs.474 (as on 20.12.2023)              Target Price: Rs.405

Analyst: Vincent K A

Geojit Financial Services Ltd.


 Jyothy Labs Ltd. –

KNR Constructions Ltd (KNR) is a leading EPC player, largely focusing on national and state highway projects. KNR has successfully executed ~7,500 lane km of road projects across 12 states in India.

The company’s total order book stands at Rs7,453cr including recently won three projects of Rs1,780cr which is 2x Trailing Twelve Months revenue and provides strong revenue visibility for the next two years. We expect order inflow to gain momentum in H2FY24, led by a robust order pipeline of Rs 90,000cr from NHAI. Further, the company is looking to diversify its order book to include railway tunnelling projects, mining projects, and urban infra projects to keep revenue visibility intact. The management has guided FY24 order inflows of Rs 4500cr, despite recently won HAM projects of Rs 2,000cr. Currently, the company has eight HAM projects, of which five projects are under construction and three HAM projects receive appointed date and are financial closure in Q3FY24. We expect healthy order wins to remain the key catalyst for further rerating.

Q2FY24 revenue grew by 11.1% YoY to Rs 941 crore; considering the monsoon led quarter, the execution was healthy. The project executions are picking up pace; the top five projects contributed 50% of the topline during this quarter. The management stated that execution will pick up further and expects a revenue target of Rs4,000cr+ in FY24. Gross margin improved by 347bps YoY to 54.7%, led by benign raw material prices and a contraction in subcontracting expenses of 51.4% YoY. However, the EBITDA margin declined by 462bps YoY to 17.7% due to higher other expenses. Adj. PAT came in at Rs100cr in Q2FY24, registering a de-growth of –7% YoY.

KNR is L1 in two irrigation projects in Telangana worth Rs3,000cr and the award is expected only after new government takes charge. KNR has incurred a capex of Rs60cr in H1FY24 and has guided for ~Rs120cr capex in FY24.

We remain positive on long term basis, given its strong order book, debt-free on standalone level (Consol. D/E 0.2x) and strong execution track record. We maintain Accumulate rating and value the core business at a P/E of 17x on FY25E EPS and BOT/HAM projects at 0.7xP/B to arrive at SOTP target price of Rs330.

CMP: Rs. 258 (as on 20.12.2023)              Target Price: Rs. 330

Analyst: Antu Eapan Thomas

Geojit Financial Services Ltd.


Power Mech Projects Ltd. –

Power Mech Projects Ltd, is a leading infrastructure construction company based in Hyderabad with a global presence.

In Q2FY24, the company reported a net revenue of Rs.932Cr., registering 21% YoY growth supported by the Operations and Maintenance (O&M) (20% YoY) and Civil Businesses (35% YoY) segments. The electrical segment remained flat due to a deliberate reduction in order booking plans over concerns about high working capital requirements. The management is confident of achieving a quarterly execution bandwidth of Rs.1,200cr. to Rs.1,800cr.

We believe that, in order to achieve its envisioned recurring long-term service model capable of generating stable income to the tune of Rs.3,000cr. to Rs.3,500cr., the focus on O&M and Mining orders is a step in the right direction. The order book backlog, which is at Rs.53,112cr. is currently skewed towards mining (74.3% of the total order backlog) after receiving the Kotre Basantpur (KBP) order and the SAIL order. The KBP order, which has received its requisite clearances, could bring in 100cr. revenue by Q4FY24, and the SAIL order holds the potential for Rs.350-Rs.400cr. revenue next year. With this influx, the mining business will become a key contributor to the company’s revenue.

The management is confident of the O&M segment which is expected to see large order book additions in the current financial year, on the backs of projects in pipelines which are in advanced stages. Power sector revamp will play a key role in order inflows for O&M, mechanical and civil constructions as the company is tracking over Rs.17,000cr. of new & revival project opportunities.

At 14xTTM revenue, the orderbook backlog provides revenue visibility. The prospect of unlocking potential revenues from the KBP and SAIL mining orders in the near term bodes well for the company. The power sector revamp provides opportunities for large O&M, Civil and Mechanical order inflows. With improving execution bandwidths, better margin profiles and working capital days due to O&M and Mining orders, we believe that the company is set for strong earnings. Hence, we value Power Mech at a P/E of 13.5x on FY25E, and provide an ACCUMULATE rating with a target price of Rs.4,750.

CMP: Rs.4,001 (as on 20.12.2023)                                Target Price: Rs.4,750

Analyst: Vinod TP

Geojit Financial Services Ltd.


Power Mech Projects Ltd. –

Torrent Power Ltd. (TPL) is one of the leading power utility companies in India, with functions across generation, transmission, and distribution. It has operations spread across Gujarat, Maharashtra, UP, and Karnataka.

In the first half of FY24, the PAT grew by 9%YoY and stood at 1,075cr. Improvements in T&D losses and ROE helped the distribution business register an EBITDA of 1,464cr (15% YoY growth). Improved PLF and contributions from the newly commissioned 115MW SECI-V projects helped improve the profitability of renewable business, thereby leading to an 18% YoY growth to 587cr. However, the thermal business saw 13%YoY degrowth in EBITDA on account of lower net gains from the sale of LNG and merchant power.

The company is expected to commission TPLD 300 MW solar project by the end of FY24. We expect further capacity additions in the wind power generation business after its acquisition of Air Power Wind Farm, with a possession of land suitable for the development of a 175 MW renewable project with a high CUF. However, the scheduled commercial operation date (SCOD) of the 300MW SECI -XII wind project could be extended by couple of quarters. Although the PPA for this project was executed at the end of March 23, procedural delays in the adoption of tariffs by the CERC have slowed the pace.

The management has taken a cautious approach to participating in renewable project bids due to the bottom-line implications. It plans to focus on hybrid projects due to the low return profiles of standalone solar and wind projects. Due to the high Capacity Utilization Factor (CUF), hybrid projects ensure that the availability of power is higher. Although it provides a favourable competitive landscape and an opportunity for higher returns, on the flipside, this requires identifying sites that can provide high PLF for both wind and solar projects, which could be limited.

Although buoyant power demand will benefit TPL from its long-term off takers and merchant power markets, we anticipate earnings to grow at a moderate 11% CAGR and BVPS at 17% CAGR over FY23–FY26E. Given the recent sharp increase in the price and high valuation concerns (currently trading at a 50 percent premium to the 3 Yr forward P/B avg. of 1.9X), we value TPL at 2.3XFY26E P/B and arrive at SELL rating with a TP of Rs. 833.

CMP: Rs. 886 (as on 20.12.2023)                                Target Price: Rs.883

Analyst: Vinod TP

Geojit Financial Services Ltd.


Torrent Power Ltd. –

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