SBI, Titan, Gujarat Gas, Relaxo Footwears, Orient Electric Q2 Results Review: HDFC Securities

HDFC Securities Institutional Equities

SBI - Maxed on NIMs; efficiency gains key to RoA reflation

State Bank of India’s Q2 FY24 outcomes missed estimates because of lower-than-expected non-interest income and higher opex stemming from wage arrears, partly offset by a provision reversal. Loan growth moderated (+12.4% YoY) as domestic margins stabilised at 3.45% (-2 basis points sequentially).

Gross slippages clocked in at 0.5% annualised, partly offset by healthy recoveries/written-offs, resulting in gross non-performing assets trending further lower (2.6%). SBI continued to maintain surplus statutory liquidity ratio and a comfortable loan-to-deposit ratio (~71%), which helped offset sluggish deposit growth; however, a further 5-6 bps impact from deposit repricing is expected to restrict net interest margins at current levels.

We tweak our estimates for a lower credit cost, offset by higher opex and watch out for reversal in cost-to-income trajectory; maintain 'Buy' with a SOTP-based target price of Rs 790 (core bank at 1.4 times March-25 adjusted book per share).

Titan - Core operational performance is broadly in line

While Titan Company Ltd.'s top line grew 36.7% YoY to Rs 125.3 billion, ex-bullion sales grew 16.9% YoY to Rs 107.1 billion (inline; our estimate: ~108 billion).

Consolidated Ebitdam (ex-bullion) contracted 119 bps YoY to 13.2% (our estimate: 12.9%). Jewellery sales (ex-bullion) grew 23% YoY to Rs 92.65 billion (in-line).

Buyer base and ticket sizes both grew in double-digits. Jewellery Ebitm contracted by 134 bps to 13.1% (normalised levels as per management). Non-jewellery marginally fell short of expectations. We largely maintain our FY25/26 earnings per share estimates; however, downgrade the stock to 'Sell' as the recent stock run-up (~19% in six milliion) keeps valuations punchy. Our discounted cash flow-based target price stands at Rs 2,675/share (implying 50 times Sep-25 price/earning).

Gujarat Gas - Decline in input gas cost improves the margin

Our 'Add' recommendation on Gujarat Gas Ltd., with a price target of Rs 453, is premised on-

1. volume growth of only ~9% compound annual growth rate over FY24-26E compared to ~18% volume growth seen over FY19-22;

2. increased pricing competition from alternate fuel in the industrial/commercial segment; and

3. low visibility on spot liquefied natural gas prices in the medium term.

Q2 FY24 Ebita/profit after tax at Rs 5/3 billion came in above our estimates, owing to a higher-than-expected per unit Ebitda margin and volume. Volume stood at 9.32 million metric standard cubic metre per day (22% YoY, +1% QoQ).

Orient Electric - Margin delivery continues to disappoint

Orient Electric Ltd. continues to disappoint both on the revenue and margin fronts. Revenue grew 11% YoY with electrical consumer durable clocking 17% growth on a low base of -26% (two-year CAGR at -7%). Fans have seen a rating change impact in the last 12 months. ECD revenue in last twelve months for Orient was at Rs 19 billion (up +3.5%) versus Crompton Greaves Consumer Electricals Ltd.’s at Rs 50 billion (up +6%) and Havells India Ltd.’ at Rs 33 billion (down 2%). Fans clocked 25% growth and management looks for 20% growth in FY24.

Delays in the festive season and slow pick-up in demand impacted other consumer products. Lighting clocked 1% growth as price erosion (tech-based) in B2C continued to drag while B2B sustained double-digit growth.

Gross margin expanded by 400 bps YoY to 30.3% on a better mix and stable raw material basket. Ebitda margin print continued to be uninspiring and clocked less than 4% margin (-250 bps QoQ) in Q2. ECD Ebit margin remained weak at 8% (Havells/Crompton at 11.6/14%); growth and margin both are missing.

Given the consistent miss in the margin, we cut FY24/FY25 EPS by 5/3%. We the stock on 28 times Sep-25 EPS to arrive at a target price of Rs 240. Maintain 'Reduce'.

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