Results Daily - Britannia, HCL Technologies & ICICI Lombard Q1FY21 Results Review - HDFC Securities

Britannia: Mr. Varun Lohchab, Head Institutional Research & Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Britannia clocked a robust 26% YoY revenue growth (HSIE 22%) with 22% YoY growth in volume (+4% in 1QFY20 and flat in 4QFY20). Growth in June was 30% YoY, higher than 24% YoY growth in April/May. It was driven by greater traction in packaged food category along with market share gain for Britannia with rising distribution reach. We continue to remain optimistic on the packaged food category in FY21. EBTIDAM expanded sharply by 634bps YoY, led by (1) GM expansion of 124bps YoY, (2) cut down in ASP spend by 200bps YoY and (3) focused cost reduction initiatives. With consumers remaining wary about eating outside, we expect Britannia to continue its growth trajectory over the next 2-3 quarters. The expansion in margins is likely to continue in FY21, driven by benign raw material and industry-wide rationalization in ASP spends. Hence, we increase EPS estimate by 21/13/8% for FY21/FY22/FY23. However, we remain cautious due to rich valuations (44x June-22 P/E), group company investments (via ICD), rising gross debt, and non-current investments. We value BRIT at 40x P/E on June-22E EPS and derive a target price of Rs 3,479. Maintain REDUCE.

HCL Technologies: Mr. Apurva Prasad & Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain BUY on HCL Tech (HCLT), based on growth outperformance (following INFY) ahead, growth visibility (reflected in guidance for the following three quarters), and a stable operating profile supported by P&P business. Key positive attributes include the following: (1) integrated applications & IMS large deal flow and consolidation opportunities (overall 11 transformational deal signings in 1Q); (2) HCLT's prowess in cloud infra business is a strong competitive advantage with enterprises accelerating cloud adoption and higher annuity streams supported by P&P upside; (3) recovery in ER&D, led by semiconductor, telecom & hi-tech, consumer electronics sub-segments, and waning supply-side impediments, (4) BFSI outperformance supported by Temenos partnership ahead (+550bps QoQ outperformance in 1Q). The trade-off of the acquisitive growth model (including IPPs) with organic growth and impacting FCF/return metrics remain key risks ahead. Our target price of Rs 685, 14x Jun-22E EPS (at historical average), follows a nearly unchanged FY22E EPS.

ICICI Lombard: Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

In FY21E, we expect partial working conditions to result in lower new motor vehicle policy sales and renewals. While motor premiums will be lower, we expect CoRs to improve significantly in FY21E as overall activity levels in the economy will be lower. We expect health premiums to grow with some increase in claims but, over time, we expect higher pricing power in health to protect profitability. Additionally, changing regulations in motor are expected to drive down both claims and tariffs, creating supernormal profitability in the short term. We believe that this period (of supernormal profitability) will be short lived, as we expect IRDAI to restrict third party pricing growth, thereby restraining profitability. We believe the market is not factoring in this risk; accordingly, we rate ICICIGI a SELL with an increased target price of Rs 1,090 (DDM derived Mar-22E P/E of 26.9x and a P/ABV of 5.5x).

Source : Equity Bulls

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