Britannia Industries (NS:)

Britannia’s Q1FY24 revenue/EBITDA/PAT growth of 9/38/36% was strong but below expectations. Transactions grew 9% YoY while volumes were flat, reflecting huge down-trading pressure. Britannia took price corrections to defend its market share as competitive intensity rose (particularly from local/regional brands). GM expands 500bps YoY to 42% (45% in Q4) on softening RM inflation while high employee/other expenses resulted in limited (365bps) expansion in EBITDA margin to 17% (20% in Q4).

Revenue growth will be volume-led (price hike will be in base) in H2FY24 thereby, all eyes will be on volume recovery. Volume acceleration will require additional push (consumer offers, marketing, etc.) thereby, the operating margin will see limited expansion room. We cut our FY24-26 earnings by 2%-3% and value Britannia at 40x P/E on Jun-25 EPS to derive a target price of INR 4,300. Maintain REDUCE.

Godrej Consumer Products Ltd. (NS:)

GCPL’s Q1FY24 print was operationally in line with consolidated revenue/EBITDA/PBT growing by 11/28/28%. However, one-off costs related to the RCCL acquisition, forex loss on Naira devaluation, and higher tax led to a miss in earnings. The organic India growth of 6% was largely volume-led (10% growth), aided by double-digit growth in home care. The HI growth was supported by (a) extended season (b) market development activities and (c) the performance of the non-mosquito portfolio.

Internationally, too, Indonesian business continues to witness recovery. The softening RM basket aided GM recovery, which expanded by 715bps to 53.7% while EBITDAM expanded by 270bps YoY to 19.8% (largely in-line) as GCPL stepped up media spends (+290bps YoY). GCPL will continue to focus on (1) category development in the existing portfolio (2) expanding TAM in India and (3) simplifying international operations, which shall aid volume growth and margin expansion. We maintain our EPS estimates. We value the stock at 40x on Jun-25 EPS to derive a TP of INR 1,025. Maintain ADD.

Balkrishna Industries (NS:)

Balkrishna Industries (BKT) Q1 FY24 PAT, at INR3.1bn, came in ahead of our estimate of INR2.6bn, led by higher other income even as EBITDA lagged estimates. Q1 tonnage declined 19% YoY and was lower than expected due to the plant shutdown at Bhuj on account of the cyclone. While Q2 will have the spillover benefit for a weak Q1, management maintained that demand continues to be weak globally due to the impact of heat waves and recessionary trends in key regions.

As a result, management has refrained from giving any volume guidance for FY24. We factor in BKT’s margin to improve to 25% in FY24 (from 20% in FY23) on the back of reduced input costs, normalization of freight rates, and favorable Euro-INR hedge rate at INR 87-88 vs INR 85.3 for FY23 and expect it to improve to 27% for FY25, as operating leverage benefits are likely to kick in.

However, cost pressures like (1) competitive headwinds and (2) continuous investments in its brand may result in downside risks to our estimates. However, despite factoring in most positives, the stock at 25.6x FY25E appears expensive. Maintain REDUCE with a revised TP of INR2,148 (INR2,083 earlier), as we roll forward to June-25 EPS (no change in target multiple).

The Ramco Cements (NS:)

We maintain REDUCE rating on The Ramco Cements with an unchanged target price of INR 830/share (12x Mar-25E EBITDA). We estimate TRCL to deliver 26% EBITDA CAGR during FY23-25E (strong volume offtake, energy cost reduction, and op-lev gains). We estimate gearing to remain elevated (net debt/EBITDA >2.5x) as we model expansion in AP and Karnataka. In Q1FY24, while Ramco reported strong 29% YoY volume growth, NSR fell 5% QoQ. This negated the input/freight cost reduction gains. Thus, unit EBITDA fell ~INR 100 per MT QoQ to INR 783 per MT.

Emami (NS:)

Consolidated revenue grew by 7% (in-line) with domestic/international revenues growing by 7/8% YoY. Organic revenue/volume growth was c.4% and flat YoY. Emami’s revenue performance was impacted by unseasonal rain as a 16% growth in the non-summer portfolio was offset by a 5% decline in the summer portfolio. Navratna fell 8% while pain management, healthcare and BoroPlus grew in double digits. GM expanded by 240bps YoY to 65.4% on soft input costs. However, higher A&P spends and employee costs limited EBITDAM expansion to 60bps, which came in at 23%. EBITDA grew by 10% YoY (HSIE 7%).

Emami plans to reinvest a large part of GM expansion in brand building, while still expecting EBITDAM to expand by 200-250bps YoY in FY24. The company remains cautiously optimistic about demand recovery, given (1) softening inflation, which could aid rural demand (2) brand investments and (3) near-normal monsoon. We remain cautious about core business growth, given the limited scope to add new consumers in niche categories. We value the stock at 20x P/E on Jun-25E EPS to derive a TP of INR 400. Maintain REDUCE.

Alkyl Amines Chemicals Ltd (NS:)

We maintain SELL on Alkyl Amines (AACL) with a price target of INR 2,140 (WACC 12%, terminal growth 5%). Demand headwinds and competition from Chinese manufacturers could result in a correction in per kg margins. The stock is currently trading at ~48x FY25E EPS. We believe that the current valuation already factors in positives from potential volume growth, after doubling of the acetonitrile plant capacity and ~40% additional capacities of the aliphatic amines plant. EBITDA/APAT was 11/6% below our estimates, owing to higher-than-expected other expenses, offset by lower-than-anticipated depreciation, lower-than-expected finance cost, and higher-than-anticipated other income.

Mahanagar Gas (NS:)

Our ADD recommendation on Mahanagar Gas (MGL) with a target price of INR 1,170 is premised on (1) lower volume growth compared to peers and (2) long-term volume growth visibility remaining low since no new geographical areas (GA) were won in the 9/10/11th round of CGD bids. However, their recent acquisition of Unison Enviro’s (UEPL) three GAs remains a key monitorable. Q1FY24 EBITDA, at INR 5.2bn, and APAT, at INR 3.7bn, came well above our estimates, owing to higher-than-expected per unit EBITDA margins. Volumes came broadly in line.

Neogen Chemicals Ltd (NS:)

Our BUY recommendation on Neogen Chemicals (NCL) with a target price of INR 1,808/sh is premised on (1) increasing contribution of the high-margin CSM business to revenue (2) entry into the new-age electrolyte manufacturing business (3) capacity-led expansion growth opportunity (4) constant focus on R&D and (5) improving return ratios and strong balance sheet, going forward. Q1 EBITDA/APAT were 20/41% below our estimates owing to a 13% fall in revenue, higher-than-expected other expenses, finance costs and tax outgo.