Aurobindo Pharma (ARBP)
To account for weaker margins, we decrease our estimated FY24/25E EPS by 7%/3% and upgrade to "BUY" from "Accumulate" with a revised target price of Rs. 565 (formerly Rs. 550) based on 12x Dec 2024E earnings. The US and EU markets had good revenue growth of 7% YoY for Aurobindo Pharma (ARBP), while EBITDA was flat despite increasing R&D spending and decreased GMs. We anticipate a better margin trajectory than in FY24. Sales growth in the US, however, depends on quick specialised approvals as well as a stabilisation of pricing pressure in the base business. With investments in vaccines, injectables, biosimilars, and PLI, which are anticipated to be reflected starting in FY24, we believe ARBP has numerous growth drivers in place. Stock is currently trading at 10x FY25E P/E at CMP. Given an upgrade to "BUY"
Voltas (VOLT IN): Rating: BUY | CMP: Rs850 | TP: Rs980
As a result of 1) margin contraction in the UCP segment (-90bps YoY Q3FY23), high cost inventory, and price competition, 2) losses in the EMPS business (-Rs461mn), and 3) ongoing losses in Voltas Beko, we lower our estimates for FY23, FY24, and FY25 adjusted earnings by 27.2%, 10.3%, and 5.7%, respectively (-Rs326mn). Due to worries about losing market share in RAC and one-time losses in EMPS, Voltas' (VOLT) share price has fallen by about 35% YTD in fiscal year 23. Despite this, we think there is little downside risk. Due mostly to aggressive pricing from rivals, the company recorded a market share of 22.5% in YTD Dec-22 (vs. 25.8% YTD Nov-21 & 22.8% YTD Sep-22). The management anticipates strong volume increase during the approaching summer season, but warns that not raising prices will hurt profitability.
We still enjoy VOLT.
Indian Railway Catering and Tourism Corporation (IRCTC IN): Rating: HOLD | CMP: Rs644 | TP: Rs694
We increase our ticketing volume estimates, which have shown resilience despite 2S reversal amid rising online penetration, by 2%, 6%, and 7%, respectively. We also continue to see growth in non-convenience revenue. IRCTC IN's results were largely in line with expectations, with revenues of Rs9,181mn (PLe Rs8,791mn) and an EBITDA margin of 35.5% (PLe 36.2%). We anticipate growth challenges going forward and anticipate sales/PAT CAGR of 9%-11% over FY23E-FY25E. This is because the majority of the benefits of the catering price increase and rail network expansion will be felt in FY23E. In the absence of significant growth levers, we think that IRCTC's present valuations are expensive at 51x and 45x our projections for FY24E and FY25E EPS, respectively. As a result, we continue to retain the stock's HOLD rating with a DCF-based target price of
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