Marico (NS:): Marico posted an all-around revenue recovery with a miss on margin (in-line EBITDA). Revenue/EBITDA grew by 35/13% (HSIE 21/14%). Domestic revenue and volume growth were robust at 37/25%, 13/10% 2-year CAGR, reflecting superior execution. PCNO continued its steady growth momentum, while VAHO saw demand improve for all its brands. Saffola sustained its growth, aided by improved penetration and rising demand for healthy cooking. International, too, saw a recovery, led by SAARC and MENA markets, clocking a growth of 25% (9% 2-year CAGR).
However, high RM inflation impacted margins (GM down >500bps YoY) sharply, despite the improved product mix. Marico ramped up its A&P expenses (up 37% YoY) as the company continued to be aggressive in new launches, but cost-saving initiatives in other areas limited the impact on EBITDA margin (dip 300bps YoY). We expect the growth momentum to sustain, and the pressure on margins to ease in FY22, owing to soft RM prices and cost savings. We maintain EPS estimates for FY22/FY23. We value Marico at 40x P/E on Mar-23E EPS to derive a target price of INR 460. Maintain ADD. Dalmia Bharat: Dalmia Bharat (DBEL) reported a strong 4QFY21 performance, led by robust volume growth and healthy pricing.
Consolidated net sales/EBITDA/APAT grew 15/12/245% QoQ (32/53/2312% YoY) to INR 32.8/7.8/6.3bn respectively. FY21 performance also showed robustness despite COVID impacting 1HFY21 as net sales/EBITDA/APAT grew by 10/32/452% to INR 105.2/27.8/12.3bn respectively. We continue to like the company for its continued strong volume and margin performance. Despite the major ongoing expansion, the balance sheet remains well under control. We maintain our estimates and BUY rating with an unchanged target price of INR 1,770 (12x Mar’23E consolidated EBITDA). IndiaMART InterMESH Ltd (BO:): IndiaMart Intermesh (IndiaMart) posted in-line performance but strong growth in cash collection (+32% YoY) indicates strong renewals.
Our positive view is based on (1) strong scalability in the business (+22% revenue CAGR over FY21-24E), (2) robust network effect leading to +28/23/32% YoY increase in traffic/registered buyers/business enquiries on the platform, (3) multi-year growth opportunity as only ~1.2% of the addressable MSMEs pay for listing services, (4) superior execution capabilities with continued margin expansion over the past four years (doubled in FY21), (5) asset-light business model with embedded non-linearity, and (6) 100% organic traffic leading to negligible spend on advertising. Our TP of INR 9,400 is based on 58x EV/EBITDA (DCF implied) at 1.4x the average multiple, supported by revenue/EPS CAGR of +22/18% over FY21-23E.
Persistent Systems (NS:): We maintain BUY on Persistent Systems (PSYS). It is among our top picks in the sector, based on industry-leading growth profile, improving deal wins, and strong 4Q performance (despite Alliance seasonality). PSYS’ growth leadership is premised on (1) strong new deal wins (USD 237mn new win ACV in 2HFY21) and increasing focus on client mining with larger deals stabilising the portfolio churn, (2) acceleration in Alliance business ahead, supported by portfolio and GTM strategy of T1 account, (3) technology differentiation and continued focus on partnerships (Salesforce, AWS, Red Hat) and sourcing for growth thrust, and (4) leadership augmentation (Salesforce, Europe, BFSI delivery). PSYS’ operational improvement in FY21 is sustainable with an upward bias supported by efficiencies, utilisation, and offshore. Our target price of INR 2,350 values PSYS at 25x Mar-23E, supported by 26% EPS CAGR over FY21-23E and >40% RoIC.
Zensar Technologies (NS:): Zensar’s revenue continued to be under pressure (-3.4% QoQ CC) but its fall was in line with our estimate. The decline was broad-based with major verticals like Hi-Tech (top account), Consumer (Retail) and Banking (Project closure) registering a sequential drop in revenues. The company has been struggling to grow over the past five quarters and revenue declined by 12.0% YoY CC in FY21. Under the new CEO, the company is going through a complete strategy reset, with a clear focus on reviving growth. The emphasis will be on increasing the partnership ecosystem (hyperscalers), investing in the sales engine, and optimising talent. The company will also look for acquisitions to build capabilities in areas of engineering services and vertical-specific products and platforms. TCV stood at USD 625mn (+11.6% YoY) for FY21 but declined 50% QoQ in 4Q (TCV of USD 100mn) due to deal deferrals. Margin expansion will be limited as the company will have to invest in S&M to fuel growth. We expect the growth to resume in FY22E but expect it to be lower than the industry’s growth and depend on the execution of the new strategy. We decrease our EPS estimate by 1.6/2.1% for FY22/23E. Our TP of INR 305 is based on 16x FY23E EPS. The stock is trading at a P/E of 15.4/13.8x FY22/23E EPS, a significant discount to peers.
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