Post budget market outlook: Pre-election rally towards 23,400 on the cards

• We recommend buying the current decline in Nifty for target of 23,400 by June 2024, ahead of the elections.
• Bull market corrections in Nifty are around 8% (multiple cycle average) followed by new highs. As 4.5% correction (from life high of 22,124) is behind us, expect strong support in 20,500-20,800.
• Empirically, in General election year, Nifty has a tendency to bottom out in Feb-March, followed by minimum 14% rally towards general election outcome in each of seven instances over past three decades.
• Sectors to lead: BFSI, Pharma, Oil& Gas, Power, PSU (Banks, power, Oil&gas), Infrastructure.
• Largecaps at cycle lows: Ratio of Nifty / Nifty500 is at bottom of the cycle. Over two decades, ratio bottomed out at 1 on two occasions, followed by Large caps performing in subsequent quarters.
• Breadth: Percentage of stocks above 200-day moving average continues to sustain above 80% even in corrective phase indicating strong underlying strength.
• Taking cognizance of the above factors, we expect Nifty to head for 23,400 by June 2024 and meanwhile form a durable bottom in Feb-March period wherein 20,500-20,800 to act as strong support. 

Interim Budget

• The Interim Budget has relied on capex led socio-economic growth template while ensuring the fiscal prudence.
• The government has effectively leveraged the direct benefit transfer to deliver multiple social benefit schemes focussing on GYAM (Gareeb, Yuva, Annadata and Mahila).
• Capex spending remains one of the focus areas of the government with capex allocation growth of 11.2% YoY in FY25BE to Rs 1.1 lakh crores. We highlight that capex growth is on high base of last 4 years wherein it has tripled resulting in huge multiplier impact on overall economic growth and thus moderation in capex growth is largely on expected lines. The capex to GDP is pegged at all time high of 3.4% (vs. 3.3% in FY24).
• On the fiscal front, the glide path on reducing fiscal deficit has been complied with fiscal deficit likely to go down to 5.1% in FY25E vs.  5.8% in FY24. Medium term target of 4.5% fiscal deficit by FY26 is also on track.
• The union budget has also further boosted Indian debt market outlook given the impending global bond index inclusion. Lower than anticipated fiscal deficit and gross borrowing puts debt market in sweet spot besides making the proposition attractive for banks specially PSUs.
• To sum up, the Union Budget reflects a realistic set of measure to drive growth in Amrutkaal.

Auto Volumes: January 2024: PV segment outshines, tractors lag big time

• Among the OEM’s releasing monthly auto volumes till date; PV segment has emerged as the clear winner registering healthy double digit volume growth on YoY basis.
• Disappointment was witnessed in the tractor segment which witnessed volume decline across both the OEM’s. CV space too witnessed a volume decline especially in the M&HCV segment.
• For Tata Motors, total sales volume for the month came in at 86,125 units, up 6.2% YoY with CV sales were down 2.1% YoY at 32,092 units while PV sales were up 11.9% YoY at 54,033 units. PV EV sales volume grew 39.4% MoM to 6,979 units.
• Mahindra & Mahindra reported decent volume prints for January 2024. Automotive segment volumes grew 14.9% YoY at 73,944 units. SUV segment volumes for the month came in at 43,068 units, up 22.5% MoM. Tractors sales came in muted at 23,948 units down 17.2% YoY.
• For Bajaj Auto, total volumes for January 2024 were up 23.6% YoY to 3.56 lakh units (domestic up 31.3%, exports up 11.7%). The 2-W space witnessed a growth of 26.8% YoY while 3-W was up 6.4% YoY at 47,762 units. On Sequential basis domestic sales were healthy (up 21%) while exports witnessed a decline.
• Escorts Kubota reported muted sales volume for the month. Total tractor sales were at 6,185 units down 7% YoY. CE volumes grew 16.2% YoY at 525 units.

Bajaj Finance (CMP - Rs 6,780, Mcap - Rs 4,19,020 crore)

• Bajaj Finance has reported continued healthy growth, however higher provision impacted earnings momentum. AUM growth cane at 35% YoY to Rs 3.1 lakh crore, driven by traction across segments. Housing subsidiary continue to deliver on healthy growth on AUM (+32% YoY) as well as profitability (+31% YoY).
• Management is targeting to keep customer accretion momentum steady ahead. Led by AUM growth, NII grew 29% YoY, however, 22% YoY uptick in opex and 48% YoY growth in provision kept PAT growth trajectory at 22% YoY to Rs 3,639 crore.
• Guidance on credit cost at 175-185 bps ahead remains a tad higher which indicates cautious stance on asset quality.
• Appointment of Anup Saha as deputy MD provides confidence on leadership, however, exit of Rakesh Bhatt (currently ED) remains a dampener.
• At current price, the stock is trading at ~5x FY25E ABV which is lower compared to historical average, however, given liquidity constraints and increasing caution on asset quality, valuation looks reasonable.

Bank of Baroda (CMP - Rs 245, Mcap - Rs 1,26,750 crore)

• Bank of Baroda reported healthy numbers. Advances grew 13.6% YoY to Rs 10.49 lakh crore, with retail growth at 22% YoY. Deposit accretion seems to moderate at 8.3% YoY owing to shedding of bulk deposits.
• Margins remained steady at 3.23% (+4 bps QoQ), however, muted traction in fee income, MTM loss in treasury and increase in opex led to de-growth in operating profit. Decline in provision kept earnings momentum healthy at 18.8% YoY to Rs 4,579 crore.
• Asset quality improved with slippage at 95 bps and 24 bps QoQ decline in GNPA ratio at 3.08%.
• Growth guidance at ~14% and margin target at 3.15% in FY24E kept unchanged.
• With majority of deposits repricing largely over, margins are expected to remain steady. Management keeps guidance for margins kept unchanged at 3.15% (with variation at +/-5 bps). Expect RoA to remain in the range of 1.1-1.2% in FY24-26E. At current valuation of ~1x FY25E BV remains attractive.

Larsen & Toubro (CMP: Rs 3,450, Market Cap: Rs 4,74,000 crore)

• L&T reported a decent set of Q3FY24 results. The order inflow for 9MFY24 stood at Rs 2,30,662 crore, up 49% YoY. International orders at Rs 1,37,894 crore constituted 60% of the total. The inflows for Q3FY24 stood at Rs 75,990 crore, up 25% YoY. The consolidated order book is at Rs 4,69,807 crore as on Q3FY24 up 22% YoY. The company ordering prospects are up 22% YoY to Rs 6,27,000 crore mainly emanating from infrastructure and hydrocarbon segment.
• Standalone basis revenues at Rs 31,600 crore, up ~14% YoY. Margins came lower in the infrastructure segment on account of legacy projects and mega projects not entering the threshold levels. The NWC continues to remain at very comfortable levels of 16.6%. On the guidance front, Order inflow growth is revised to 20% + for FY24, revenues in high teens and EBIDTA margins in the range of 8.25-8.%% (Core E&C).
• Given the strong ordering activity and pick up in execution, L&T is very well placed to exceed its guidance on order inflow and revenues.

Maruti Suzuki India Ltd: Reports stable Q3FY24, Guides for muted volume growth in FY25E on high base

• Sales volume for the quarter stood at 5.01 lakh units, up 8% YoY. Net sales for Q3FY24 came in at Rs 31,860 crore with corresponding ASPs at Rs 6.36 lakh/unit, down 1% QoQ. SUV share of sales in total domestic PV sales volume stood at ~37%.
• EBITDA margins for the quarter came in at 11.7%, down 120 bps QoQ. Consequent PAT in Q3FY23 came in at Rs 3,130 crore, up 33% YoY.
• The company expects domestic PV industry to clock sales volume of ~4.2 million units in FY24E and thereafter grow to ~4.3 million units in FY25E amidst high base (YoY growth of
• Margins are slated to improve amidst stable RM price basket, cost initiatives and recently incorporated price hike.
• It expects to commence production of its maiden EV model in CY24.
• We have a positive view on the company with long term investment horizon as it has announced a mega capex plan of ~Rs 1.25 lakh crore over next 7-8 years (capacity increase from ~20 lakh units to ~40 lakh units amidst ~10 new model launches).
• Maruti Suzuki share price trades at ~20x PE on FY26E.

Shree Cement

• Operational performance for Shree Cement during the quarter remained strong with better than industry volume growth and significant improvement in margins.
• Revenue increased by 20.4% YoY (+6.9% QoQ) to Rs 4,900.8 crore, led by 10.7% YoY (+8.7% QOQ) growth in cement sales volumes to 8.9 mt.
• Blended EBITDA/ton expanded to Rs 1,388/ton (+57.4% YoY, +30.8% QoQ), largely led by increase in premium product sales, lower fuel cost, increase in green power share and reduction in lead distance.
• With the recent commissioning of new 3.5 mtpa cement capacity in Rajasthan and another 3 mtpa under execution, the company’s total cement capacity will increase to 56 mtpa by FY24 end. Company aims to reach 75 mtpa cement capacity by FY27.
• We believe that company will continue to grow better than industry in the coming years also led by capacity expansions and better market mix. We estimate ~12% volume CAGR over FY23-26E.
• Valuation at 15.5-16x EV/EBITDA on FY26E looks attractive given the company’s continuous journey of better than industry volume growth and profitability.

Ambuja Cement

• Ambuja Cements’ standalone margins and profitability came tad lower than expectations as some of the clinker units were under planned maintenance which led to an impact of ~Rs 150/t during the quarter. However, the impact is expected to be recovered in Q4FY24.
• Sales volume grew by ~6% YoY which led to revenue growth of 7.5% YoY. EBITDA/ton improved 26% YoY to Rs1,043 (vs expectation of ~Rs 1,150/ton) on lower power & fuel cost. Subsequently, EBITDA grew by 33% YoY and PAT grew by 39% YoY.
• Going ahead, Ambuja has a strong focus on increasing its capacity to improve its overall market share. Company’s consolidated cement capacity stands at 77.4 mtpa at present and aims to reach total consolidated cement capacity of 110 mtpa by FY27 (expansion of 20 mtpa is already under execution and another 12 mtpa is approved by board).
• The capacity additions will help company to grow its cement sales volumes in double digits (~10% CAGR) over FY24-26E.
• In terms of focus on improvement in margins, management is talking about further cost-saving of ~Rs 400/t via optimization in raw material procurement & lead distance and increase in share of green power.
• Though further recovery in volumes and margins is expected over the next 2-3 years, Stock is trading at 17x EV/EBITDA on FY26E basis which looks priced in the positives.

Sun Pharma

• Revenues grew ~10% YoY to Rs 12,157 crore driven by US and India. US formulations grew 15% YoY to Rs 3,974 crore driven by specialty portfolio. Taro also grew in high single digits on a YoY basis. India Formulations witnessed YoY growth of 11% to Rs 3,779 crore driven by new product launches (28 launches) and increased market share.
• EBITDA stood at Rs 3,477 crore (including other operating revenues), up 13%, with resulting EBITDA margin of 28.1%. Adjusted net profit (excluding the exceptional items) was Rs 2,594 crore, up 19.7%.
• Sun Pharma’s Q3FY24 performance continued to thrive on remunerative businesses of US (Specialty in particular) and domestic formulations.

Dr Reddy

• DRL’S Q3FY24 performance was steady (7% Revenues and EBITDA growth) and driven by continuing traction in the complex launches in the US especially the anti-cancer drug gRevlimid.
• The management has guided for 25 launches in the next two years in the US, many of which will be complex launches. Europe growth was also solid on the back of continued launch momentum.
• India growth was below-par but the management aspires to grow at 1.5x IPM growth on the back of new launches especially in the chronic category including the diabetology and obesity management.
• Overall, we believe DRL’s capability of complex launches on a consistent basis across geographies to be the key determinant for overall performance.

Hidden Gem

Exide Industries (CMP: ₹330; MCap: Rs 28,000 crore; Rating: BUY; Target Price: Rs 380, Potential Upside: 15%)

Scope to lift margins in base business, sizeable foray in new energy space structurally positive

• Exide Industries (EIL) is a part of the duopolistic organized Indian lead acid battery market with a presence across automotive & industrial applications. Its segment mix stood at ~70%/30% for automotive & industrial application respectively. It also has a dual presence in Li-On battery space; first through assembly operations (1.5 GWh, Nexcharge) & second through Li-On Cell manufacturing venture.
• Exide reported steady Q3FY24. On standalone basis, Topline for the quarter came in at Rs 3,841 crore, up 12.8% YoY. EBITDA in Q3FY24 stood at Rs 440 crore with EBITDA margins at 11.5% (down 30 bps QoQ). PAT in Q3FY24 stood at Rs 240 crore (up 8% YoY). In the Automotive division, EIL witnessed uptick which was broad-based, with most end-user markets showing signs of demand recovery. While in the industrial segment, EIL benefitted from large investments in sectors such as Renewables, Telecom, Infrastructure (Power, Railways etc).
• With increasing application across industrial segment (data centres, 5G adoption, renewables), steady auto replacement demand and export opportunity (China+1 trend), we expect even its base Lead Acid battery business to grow at steady state in near to medium term.
• Going forward, we have built 10% sales CAGR over FY23-26E. With stable raw material prices, operating leverage at play and increasing thrust on exports we expect margins to improve to 12.5% by FY26E. Resultant PAT growth over FY23-26E is pegged at ~16% CAGR. EIL continues to be capital efficient in this domain with RoIC’s>20%.
• On the Li-On Cell manufacturing front, EIL has entered into a technical collaboration with SVOLT with total capex outlay of ~Rs 6,000 crore for a 12 GWH capacity with 1st phase of 6 GWH slated to be operational in CY25E at a capex outlay of ~Rs 4,000 crore. With margins in cell manufacturing to be mid-teens and capital efficiency to the core we believe it to be structurally positive for the company ushering a new stream of profitable growth with longevity. It will also help company to de-risk itself from the inherent EV risk for its base Lead acid battery business.
• We have a positive view on the stock tracking wider opportunity play in Li-Ion domain. We assign BUY rating on the stock. We value EIL at SOTP-based target price of Rs 380 (Rs 280 for base business at 17x FY26E EPS, Rs 70 for investments, stake in subsidiary and 1x FY26E P/S - Li-On Cell sales). Further company continues to remain debt free with healthy B/S with cash & cash eq. of Rs 625 crores. It also has stake in HDFC Life worth ~Rs 5,200 crores which provides cushion for upcoming sizeable capex.