Kotak Mahindra Bank (NS:): Kotak Mahindra Bank’s (KMB) 4QFY21 P&L performance was better than our expectations, largely on the back of high other income (31% YoY), partially offset by lower-than-expected NII growth (8% YoY). The bank builds on its uptick in credit growth in the last quarter with 4.5% sequential loan growth. Asset quality remains robust with FY21 slippages at 2.4%, along with a low restructured pool (0.19% of loans) and high provisioning buffer (PCR at 64%, other provisions at 2.1% of loans). However, current lofty valuations factor in the uptick in credit, cost of funds tailwinds, and normalising credit costs in FY22. Maintain REDUCE with revised SoTP of INR1747 (earlier 1707).
SBI (NS:) Life Insurance: VNBM (at ETR) at 23.2% (+250bps YoY vs. FY20) brought a colourful end to a bumpy year, largely led by a positive business mix (higher share of NPAR and protection). The company’s three growth levers continue to remain in place – (1) the mammoth distribution network of the parent SBI (24k+ branches); (2) the improving share of protection and NPAR; (3) the lowest OPEX ratio (FY21: 7.9%, -180bps YoY). We expect SBILIFE to deliver a healthy FY21-23E VNB CAGR of 15.8%. We retain our BUY rating on SBILIFE with an increased TP of INR 1,250 (Mar-22E EV + 22x Mar-23E VNB). The stock is currently trading at FY22/23E P/EV of 2.4/2.1x and P/VNB of 19.8/15.6x.
L&T Technology Services: We maintain REDUCE on L&T Technology Services (LTTS), following a modest 4Q and valuation more than adequately factoring in the recovery. The guidance of 13 to 15% growth (USD terms) for FY22E, following a 6.3% decline in FY21, implies a modest 2.1-2.8% CQGR despite the Phase-2 ramp-up of the USD 100mn+ O&G deal. 4Q performance was led by Transportation and Plant Engineering verticals (early deal ramp-up). Deal wins suggest a skewed performance in the future (Transportation-led growth with protracted recovery in Telecom and Medical devices while Plant Engineering would see a soft 1Q). We acknowledge LTTS’ prowess/diversity in digital ER&D and addressability, yet the business cyclicality feeds into the volatile profile (particularly large accounts) over the medium term. Our Target Price of INR 2,320 is based on 24x Mar-23E EPS.
Supreme Industries (NS:): Supreme Industries (SIL) reported a strong 4QFY21, led by strong realisations and inventory gains. Consolidated net sales/EBITDA/APAT grew 13/27/44% QoQ (46/86/284% YoY) to INR 20.8/5.1/4.5bn respectively and EBITDAM came in at an all-time high of 24.5%. We like SIL for its steady growth, market share gains, lean working capital, and sustained high return ratios. We retain our ADD rating with a revised target price of INR 2,245 (19x Mar’23E consolidated EBITDA and 30% holding in Supreme Petrochem (NS:) at 30% disc to current MCap).
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