ITC: ITC’s Q2 print was a tad below expectations with agri and paper dragging overall performance. Cigarette net revenue/EBIT growth was at 9/8% each, with volume growth at c.5% (inline). The relative stability in taxes backed by deterrent action by agencies on illicit trade continued to support cigarette recovery. We model cigarette revenue/EBIT growth of 7% over FY24-FY26. FMCG growth decelerated in Q2 to 8% YoY due to a high base effect (+15% 2-year CAGR), Nestle (NS:) clocked 10%. FMCG EBITDA margin expanded by 150bps YoY to 11% while EBITDA grew 25% YoY. Paper performance was impacted due to low-priced Chinese supplies, muted export demand and a sharp reduction in global pulp prices. Hotel revenue was up by 21%. ITC’s overall revenue/EBITDA was up by 3% YoY each, and most segments’ favourable base was behind. The recent stock run-up (~30% in LTM) and limited earnings surprise scope given higher base limit further rerating potential. We maintain our estimates and value ITC on a SoTP basis to derive a TP of INR 450. The implied target P/E is 24x Sep-25E EPS. Maintain ADD.

UltraTech Cement (NS:): We maintain BUY on UltraTech (UTCEM) with an unchanged target price of INR 10,110 (16.5x Sep-25E consolidated EBITDA). We continue to like UTCEM for its robust growth and margin outlook and balance sheet management. It delivered industry-leading 16% YoY volume growth YoY. NSR rose 1% QoQ. Opex rose 3% QoQ on op-lev loss and higher employee/maintenance costs. Unit EBITDA, thus, declined by INR 62 per MT QoQ to INR 956 per MT. Cool-off in fuel and freight costs cushioned the margin decline QoQ. The company noted that Q3 realization has gone up 5% QoQ and expects further fuel cost reduction in Q3. It is also bolstering its green power capability, reducing its clinker factor. Its phase-2 expansion of ~24.4mn MT is on track for commissioning during FY25/26E.

Nestle India: Nestle reported an in-line Q3CY23 print as revenue grew by 9% while margins (both GM/EBITDAM) expanded. Domestic revenue growth of 10% YoY (HSIE 11%) was broad-based across categories and channels. Prudent pricing was supported by mix and volume (around low-single-digit volume growth). With a stable RM basket and higher net realization, GM expanded by 380bps YoY to 56.5% (57% two years back). While uneven rain and deficit rain can impact prices of maize, sugar, oilseed, spices and green coffee, a healthy winter flush to keep milk prices stable. EBITDA margin expanded by 250bps YoY to 24.8% on better cost control. EBITDA grew by 22% YoY (HSIE 20%). Nestle has announced a sub-division of the face value of shares to INR 1/share. Nestle continues to focus on distribution strengthening, category expansion and capacity building. We remain positive on OOH products and sustain growth for in-home products. We maintain our EPS estimates. We value Nestle at 52x P/E on Sep-25E EPS to derive a TP of INR 20,000. With a rich valuation, the absolute upside is limited in the medium term. Maintain REDUCE.

Astral: We upgraded our rating on Astral to ADD with a revised target price of INR 2,040/sh (60x its Sep-25E EPS). Astral continues to deliver a strong show in its plumbing segment. It also expects to scale up its adhesives & paints (A&P) performance. The bathware segment is gaining traction and Astral expects to turn EBITDA positive by Q4FY24. In Q2FY24, Astral’s consolidated revenue/EBITDA/APAT rose 16/53/90% YoY, driven by the strong show in both plumbing and A&P segments. Astral is adding plumbing capacities (across Guwahati, Hyderabad and Kanpur over the next two years), and an adhesive plant in Dahej.

Persistent Systems (NS:): Persistent Systems (PSYS) posted industry-leading sequential growth and its highest-ever deal TCV (both new and renewal). PSYS’ consistency in its deal velocity provides high visibility for growth ahead (factored 14/17% growth in FY24/25E in USD terms). PSYS’ strong revenue growth of 3.1% QoQ and 14.1% YoY in Q2FY24 and 15.6% growth in H1FY24 coupled with strong bookings trajectory will take PSYS’ growth premium to tier-1 IT to 10pp in FY24E. PSYS’ positives include consistency in winning large deals (vs. tier-1 competition), large client mining progression (USD 5mn+ accounts 2.5x in three years), growth in T50, sequential improvement in cash generation (>70% OCF/EBITDA targeted for FY24E). PSYS’s (1) strong digital prowess enabled by a high certification pool (>14.7k certifications in Microsoft (NASDAQ:), AWS, Google (NASDAQ:) Cloud, Salesforce, IBM (NYSE:)), (2) focused vertical approach, and (3) recent leadership additions will support its growth ahead as the company targets doubling revenue in the next four years. Margin upside to accrue from utilization improvement (~100bps scope for margin improvement), margin improvement in the H-Tech vertical, and operational efficiencies aggregating to 150bps potential for margin improvement in two years. Maintain BUY on PSYS (top pick in mid-tier IT), with TP of INR 6,705, based on 32x Sep-25E EPS, factoring 24% EPS CAGR over FY23-26E.

Cyient (NS:): Cyient reported soft growth in the DET segment (+1% QoQ CC) but margin performance was impressive (at a decade high). The DET growth was driven by the transportation, sustainability, and automotive verticals, offset by softness in communications verticals. The growth in DET will be led by (1) continued traction in aerospace driven by MRO, upgrades, and defense spending, (2) a strong deal pipeline and five large deal wins, (3) order intake of USD 184mn (+40% YoY), and (4) investments in EV and mobility. The DET margin expanded for the fourth consecutive quarter and was up 400bps YoY. For FY24E, the management expects growth at the lower end of the guidance (15-20% YoY CC) and expects an EBIT margin of ~15-16% (expansion of ~150-250bps). The lower end implies ~2.5% CQGR for H2. We increase our FY24/25E EPS estimates by 5/3% due to better margins. We maintain our ADD rating with a target price of INR 1,870, based on 20x Sep-25E EPS. The stock is trading at 25/21x FY24/25E, a discount of ~32% to LTTS.

Mastek (NS:): Mastek reported better revenue performance (+4.4% QoQ CC) while the margin was below estimate. The organic revenue growth was 2.7% QoQ CC, led by a revival in US growth (+5% QoQ organic) and continued traction in the UK government. The management has indicated that the NHS recovery is taking longer than expected and will recover in FY25E. The deal pipeline continues to remain strong but the decision-making is slow. The order book for the quarter stood at USD 224mn up 20% YoY, fueled by wins in healthcare and life sciences (US) and UK government departments. The acquisition of MST (salesforce) and BizAnalytica (data cloud and gen AI capability) in the US has set the stage for growth. The focus will be on driving growth led by the US (low base), penetration of UK government departments and steady ME. The EBITDA margin in the quarter was impacted due to wage hikes and acquisition, the desired operating range is ~17-19%. We have marginally tweaked the revenue/EPS estimates for FY25/26E and maintain our ADD rating, with a TP of INR 2,500 based on 16x Dec-25E EPS. The stock is trading at 23/17x FY24/25E.

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