IGL, Sonata Software, Karur Vysya Bank, Orient Electric, Neogen Chemicals Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Indraprastha Gas - Strong margin performance

Our optimism on Indraprastha Gas Ltd. is based on strong volume growth at ~12% compound annual growth rate over FY23-25E, robust margins with the government allocating gas from the high pressure-high temperature fields to the priority sector, and a strong portfolio of new geographical areas ensuring volume growth visibility.

Q4 FY23 Ebitda stood at Rs 4.7 billion, up +9% QoQ, well above our estimate; however, it declined 7% YoY, owing to higher input gas cost. Adjusted profit after tax stood at Rs 3.3 billion, (-9% YoY, +19% QoQ), above our estimate. The reported volume was at 8.26 million metric standard cubic metre per day (+7% YoY, +2% QoQ).

Sonata Software - Large deals, inorganic growth tailwinds

Sonata Software Ltd. delivered a better-than-expected IT services growth (+8% QoQ CC) while organic growth was 4.5% QoQ. The growth was led by Cloud and Microsoft Dynamics. The management remains optimistic and plans for its IITS revenue to be $500 million by FY26 (implied compound quarter growth rate of ~4%) with Ebitda margins in the early 20s.

The company won three large deals during the quarter which included one deal of $160 million for 10-year IT modernisation in the retail vertical (full ramp-up expected from Q2 FY24).

Karur Vysya Bank - Growth outlook demands front-ended investments

Karur Vysya Bank Ltd. delivered its highest-ever profit after tax, led by a stable net interest margin (~4.4%) and healthy fee income, partly offset by higher opex and credit costs (2% annualised). Gross non-performing asset improved to 2.3% (-39 bps QoQ), with higher write-offs negating elevated slippages (1.5% annualised).

Loan growth (+14% YoY) was led by agri (+18% YoY), micro, small and medium enterprise (+15% YoY) and loans against property (+28% YoY). Karur Vysya Bank continues to focus on retail deposit mobilisation and better crosssell to fuel its loan growth on the back of revamped investments in distribution to deliver its FY24 targeted balance sheet growth (14% YoY). However, we believe that the combination of margin compression (40-50 bps) and higher opex intensity is likely to cap return ratios.

Orient Electric - Weak show continues

Orient Electric Ltd. reported an underwhelming Q4 FY23 print. Revenue fell 13% YoY as electrical consumer durable clocked a 20% fall (Havells India Ltd. ECD fell 14%). Lighting remained strong and was up +12%. Primary sales of fans remained subdued due to-

1. focus of channel partners to clear off non-rated fans inventory;

2. soft consumer demand; and

3. erratic weather.

With non-rated fans inventory having seen liquidation, we expect healthy primary fans volume growth in FY24.

Neogen Chemicals - Value-added products rise in the mix

Our optimism on Neogen Chemicals Ltd. is premised on-

1. increasing contribution of the high-margin custom synthesis management business to revenue;

2. entry into the new-age electrolyte manufacturing business;

3. capacity-led expansion growth opportunity;

4. constant focus on research and development; and

5. improving return ratios and strong balance sheet, going forward.

Q4 Ebitda was in line with our estimate, whereas adjusted profit after tax was 14% below our estimate, owing to higher-than-expected finance costs and tax outgo.

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