Apollo Hospitals Enterprise Ltd | Q1FY23 Result Update | Hospital business in the limelight… CMP: Rs 4,310 | Target Price: Rs 4,913 | Upside: 14.0% | Rating: Accumulate Q1FY23 saw increase in ARPOBs for the mature and new hospitals of Apollo. The proportion of local patients being treated in Apollo Hospitals continued to improve. There has been an improvement in EBITDA margins of new and existing hospitals both on a YoY and QoQ basis. EBITDA margin of 23% on a blended basis for the hospitals is sustainable. The management is guiding for robust mid-teens growth and ~20% yoy growth in hospitals and pharmacies respectively, in FY23. For hospitals, the management is also guiding for margin expansion of 150-200 bps yoy in FY23, led by improved mix and cost optimization. IP Volumes across the group grew by 9% QoQ. Mature hospital volumes grew 13% QoQ, while new hospitals volumes grew by 1% QoQ in Q1FY23. Diagnostics and Primary care are being ramped up in AHLL (Apollo Health and Lifestyle Limited). The Diagnostics sub segment registered a degrowth of 23%YoY during the quarter due to high base of Covid. Gross margins at a consolidated level have improved because of less Covid contribution. The healthcare vertical is poised to deliver superior growth in the next 1-2 years through better asset utilisation and increase in ARPOBs. International revenues should also pick up in the next 1-2 years. Besides, there would be a focus on centres of excellence as well as on higher realisation procedures within the oncology, cardiac, neurology and orthopaedics vertical. There would also be some cost rationalisation measures. The backend pharmacy division along with 24x7 is also poised for superior growth in the near future. AHLL should also continue with its superior growth trajectory, particularly in the diagnostics business, which should achieve a revenue of Rs 500 crore in FY23 and Rs 1000 cr in the next 3-4 years’. On an overall basis, we are positive about the prospects of Apollo and we assign “Accumulate" rating on the stock. Strong revenue growth in hospitals business Apollo reported subdued set of numbers for Q1FY23. While on a YoY basis the growth was flat, however on QoQ basis there was growth of 7%. EBITDA margin for Q1FY23 decreased by 90 bps YoY respectively. EBITDA margin stood at 12.9%. Occupancy across the group was 60% in Q1FY23. ARPOB (excluding vaccination) was Rs 51,999 in Q1FY23 as compared to Rs 41,102 in Q1FY22 registering growth of 27%. ALOS for Q1FY23 was 3.38 days. During the quarter, Healthcare services posted an EBITDA margin of 23.9%, Pharmacy has margin of -1.6% (after adjusting for 24x7 operating costs) and AHLL—10%. Inpatient Volumes across the group increased by 9% from 115,902 in Q4FY22 to 126,511. Outlook and Valuation: We are positive about the prospects connected with Apollo. Both the healthcare services and pharmacy including 24x7 should perform robustly in the future. AHLL should also report superior performance. We value the stock at 22x FY24e EBITDA to arrive at a Target Price of Rs 4913.

Rupa & Company Ltd | Q1FY23 Result Update | Muted quarterly performance, revenue guidance maintained CMP: Rs 329 | Target Price: Rs 432 | Upside: 31.0% | Rating: Buy Rupa & Company Ltd. (RUPA), reported a muted performance in Q1FY23 with revenue decline of ~1.5% YoY in Q1FY23. Volumes declined by ~15% YoY. Management took a strategic decision to control credit period in some of the key states of Bihar, Rajasthan & Uttar Pradesh to improve and control credit policies in these states which has impacted primary sales volumes in these states. Going ahead, company’s focus is to improve its product mix, increase share of premium and super premium category, increase focus on women wear, athleisure wear, thermal wear & exports. Company plans to foray in newer markets with increased penetration in the existing markets. Management has maintained its revenue growth guidance of ~15%-17% for FY23e. EBIDTA margins may be lower compared to last year as company plans to be more aggressive, in-order to improve its market share going forward. Despite a weak performance in Q1FY23 we continue to remain positive on company’s mid to long-term growth prospects for its strong brand equity, new products launch pipeline and long-standing operations in innerwear industry and maintain our ‘Buy’ rating on the stock with a price target of Rs 432 (15xFY24e EPS). Q4FY22 earnings key highlights In Q1FY23, company reported a revenue decline of ~1.5% YoY to Rs 2147 mn. Volumes declined by ~15% YoY. Gross margin for Q1FY23 declined by 135 bps YoY to 37.4% due to increased raw material cost. Company has taken overall price increase of ~17%-18% in FY22 and has taken another price increase in April 2022 to pass on increased cost of raw materials. EBITDA margin for Q1FY23 declined to ~8.6% vs ~19.3% YoY on account of lower gross margins, higher advertisement expenditure & lower absorbtion of fixed overhead. PAT declined by 57.3% YoY to Rs 124 mn. Interest cost increased by ~79% YoY to Rs 58 mn due to increase in working capital. Outlook and Valuation: Currently, the innerwear industry is witnessing a structural shift from unorganised to the organised sector. Large organised players like Rupa are expected to get benefitted from this trend. Furthermore, RUPA has been gradually inching its presence in segment of mid-premium and premium segment with a focus on high growth categories like women’s leggings, thermal wear, premium inner-wear and athleisure wear. At the current market price, the stock is trading at 11.4x FY24e EPS. We have valued the stock at 15xFY24e EPS of Rs 28.8, to arrive at a target price of Rs 432, which provides an upside of ~31%.

Hero MotoCorp Ltd | Q1FY23 Result Update | Demand/Margin to start trending northwards, it’s clearly a worth taking bet! CMP: Rs 2,761 | Target Price: Rs 3,198 | Upside: 15.8% | Rating: Buy Q1FY23 numbers are below estimates largely due to input cost pressures, which expect to cool-off in the subsequent quarters owing to softening of commodity prices. This, along with operating leverage benefits will keep improving margins every quarter. The festive momentum is building up, the pricing power of consumers is strengthening, and they are ready & willing to spend higher for a better value product. Hero gained share in domestic (strong outlook), 360-degree efforts on EVs should provide an edge. Short-term outlook for exports is dull, impacted owing to geopolitical situation. We appreciate 360-degree efforts of Hero MotoCorp on EVs, realistically projected, & still found the company is trading at an inexpensive valuation of 14x FY24e EPS. Recommend BUY! Domestic market share improved, rural & students demand to support further QoQ domestic motorcycle market share improved by 425bps to 51.8% & scooters share improved by 60bps to 6.7%. This is driven by premium xTec series, healthy marriage season & rural uptick. Analyzed past few years and found that Hero MotoCorp has a high positive correlation of ~0.64x with tractor sales. It means rural sentiments & Hero’s sales go hand-in-hand. Students demand (~10% of volumes) to pickup, all sectors in the economy are back to normal, plans to launch new models & recovery in rural to increase volumes. Domestic volumes to grow by 14%. Export demand is facing headwinds due to currency depreciation & geopolitical conditions. Sales to pick up from the 2nd half. Exports growth projected is negative 5% in FY23e. Commodities benefit, operating leverage, better mix to push-up margins We are optimistic on improving margin trend from Q2FY23 onwards driven by 1) benefits of soft commodity prices, 2) higher operating leverage as Hero to build stocks ahead of festivals, 3) price increase taken on 1st July of Rs 1,200, 4) normalization in the employee cost & 5) selling more xTec & premium motorcycles. All this augurs well for the margin improvement. Special emphasis on EVs & 360-degree efforts continue, eScooter launch in the festival EVs remain the core focus with in-house development, investment in Ather, Gogoro JV, collaboration for design, battery pack plans, etc. to provide an edge over competitors. Hero to use its existing unmatched distribution channels for EV sales is extremely positive. eScooter launch expected in the upcoming festivals. Valuation & recommendations, worth taking a bet! We believe Hero MotoCorp is trading at a justifiable valuation of 14x FY24e EPS, and suggest its worth taking stake looking at the efforts to fast fill its white spaces viz. exports, premiumization & scooters, along with not leaving any stone unturned for EVs. Realistically projected looking at the current demand situation. Assigned 16x FY24e EPS of Rs 197 (valued Hero FinCorp separately), to arrive at a target price of Rs 3,198 per share.

Suprajit Engineering Ltd | Q1FY23 Result Update | Challenging quarter, the intensity of speed bumps to reduce from Q2 onwards CMP: Rs 328 | Target Price: Rs 400 | Upside: 21.9% | Rating: Buy Q1FY23 was a challenging quarter, mainly due to initial sharp hiccups witnessed post the acquisition of LDC and poor operational performance of Phoenix Lamps division. We trust that Suprajit Engineering will be able to turnaround LDC acquisition by the start of FY24e and is a perfect fit, which is providing strategic positioning in developed nations, global EV client base with strong footprints in low cost countries. Phoenix is facing input cost pressure due to higher gas prices. Negotiations are ongoing with customers. Its traditional businesses (Auto/Non-auto cables) will continue its good performance as cost pass on is happening, winning new businesses & have a strong order book. Incorporated challenges in FY23e, maintain BUY rating with a fair value of Rs 400 apiece (21x FY24e EPS). Auto and non-auto cable business – to maintain the momentum Auto cables focus has been gaining share from non-Maruti clients in PVs, where the number of cables as well as realization is 2x as compared to 2Ws. The optimism for festival can increase 2W volumes. International piece is slightly volatile owing to geopolitical situation. On the positive side, Suprajit received new businesses from diverse customers across geographies, received price increases from most of the clients & container costs have come down. Non-auto cables has good backlog & we are confident about the business growth prospects due to product & geographic expansion. Q1 margin impact is temporary due to timing issues and some one-offs. By FY24e, we expect the margins will be back in the mid-teens. Margins – incorporated challenges in FY23e, expect QoQ margins to improve Every quarter’s margin expects to be better than the previous one from Q2 onwards driven by improvement in the LDC and Phoenix Lamps business. We have incorporated a sharp dip in FY23e. Light duty cable (LDC) and STC – new growth drivers for mid-to-long term LDC business impacted due to 1) China lockdown, 2) utilization dropped to below 50%, 3) Hungarian plant head left immediately post the acquisition, 4) Hungarian ‘Forint’ depreciated by 30% and 5) most important earlier management has not taken a price increase from customers after giving price increase to its suppliers. Its best team is working in full swing for the integration. LDC has been reaching out aggressively to all its clients for the price increase. We trust that every quarter will be better than the previous one from Q2FY23 onwards. By FY24, LDC should be back to normal. STC developed high margin products, which has better margins. Setting up a separate plant for the digital instrument cluster, already has reasonably good order book for new set of products. The strategy is to grow beyond cables & a good progress is made to ensure higher content per 2Ws. Reasonably attractive valuations Suprajit’s historic year-on-year outperformance is noticeable. We believe apart from strong growth visibility in its traditional business, LDC’s global reach and new high margin products from STC will be the new growth drivers for mid-to-long term. Its trading at ~17x FY24e EPS of Rs 19. Assigned multiple of 21x FY24e to arrive at a fair value of Rs 400 per share. Recommend Buy!

Page industries Ltd | Q1FY23 Result Update | Strong topline growth & margin performance CMP: Rs 48,387 | Target Price: Rs 51,248 | Upside: 6% | Rating: Accumulate Page Industries Ltd. (PAGE), reported strong topline growth in Q1FY23, with revenue up by ~167% YoY on a low base of last year backed by volume growth of ~150% YoY & ~26% QoQ. Volume growth was led by growth across all its product categories which is backed by an increase in distribution network, good demand traction in EBO’s & e-commerce channel. Growth was same across both primary & secondary sales channel. In Q1FY23 company has added 13 EBO’s & now has 1,144 EBO’s stores. Also it has added 3,167 MBO’s and is now present across 1,13,715 stores across India. Company has planned a capex of ~Rs 4500 mn in FY23 for capacity expansion and investment in increasing digital capabilities. We believe PAGE is on track to deliver robust growth going forward led by increased distribution reach in both metros as well as smaller towns, increased contribution from kids, womens wear, athleisure wear segment. Growth is also expected to happen from increased penetration levels in all the three segments of mens, womens & kids where the current penetration levels are still quite low for the premium segment. Company’s future plans include: (1) expansion of new categories such as Jockey Junior (kids wear)/ women wear, (2) geographical expansion into Tier 3/4 and rural areas, and (3) launch category specific EBOs. Ongoing capex towards doubling the capacity in the next ~5‐6 years provides increased confidence towards strong long‐term growth. Given the strong earnings visibility, steady return ratios and lack of credible competitor in the premium segment, we expect the premium valuations to sustain. We are positive on the medium to long term growth prospects of the company & maintain our “Accumulate” rating on the stock with a target price of Rs 51,248 (55xFY24e EPS). Q1FY23 Earnings Key Highlights In Q1FY23, company reported a ~167% YoY & ~20.7% QoQ increase in sales to Rs 13,413 mn. Strong topline growth was backed by a volume growth of ~150% YoY & ~26% QoQ at 63 mn pieces. Company has taken a price increase of ~3.5%-4.5% in Q1FY23. EBITDA increased by ~771% YoY & 11.5% QoQ at Rs 2,978 mn. Company has been able to contain the impact of steep increases in raw material prices with a combination of price increase, better inventory management & cost control. PAT stood at Rs 2,070 mn up ~1791% YoY & 8.7% QoQ. Board of Directors of the company has declared an interim dividend of Rs 60 per equity share. Outlook and Valuation: PAGE has significant pricing power and consequently stability in margins, along with best in class working capital cycle in the industry. Considering the strong financials and robust revenue growth trajectory, PAGE has always traded at rich multiples. Apart from the robust and consistent top-line growth, the company has also consistently rewarded its shareholders. We believe widening product portfolio, coupled with distribution expansion in both EBO’s & MBO’s would help the company to report robust growth going forward. At the current price, the stock is trading at 51.9x FY24e EPS. We have valued the stock at 55x FY24e EPS of Rs 931.8 to arrive at a target price of Rs 51,248.

Narayana Hrudayalaya Ltd | Q1FY23 Result Update | Rise in specialty surgeries to drive growth CMP: Rs 690 | Target Price: Rs 734 | Upside: 6.0% | Rating: Accumulate With the recovery in high-end cardiac elective work led by Narayana’s flagship hospitals, Narayana reported record profitability for its Indian operations during 1QFY23. The international patient mix improved to 6% in Q1FY23 from 4% in Q4FY22 which led to improvement in revenues. ARPOB for India business was Rs. 33424 in Q1FY23 vs 30,684 in Q1FY22, an increase of 8.9% in the quarter. The Cayman business got impacted due to covid, but now due to upliftments of covid restriction the business is recovering. The company remained well focused to garner higher revenue from its India business. The India story is strong and there would be a continual need of healthcare given the demographic situation. A mix of brownfield, greenfield, and acquisition opportunities would be undertaken by Narayana to grow in India. The priority would be brownfield opportunities to ensure synergies in the existing set up. This would be followed by greenfield opportunities which must be close to the area of the existing set up. Having said these, Narayana can easily manage growth for the next 2-3 years in India without adding any fresh capacity/beds. On an overall basis, we are positive about the growth prospects of Narayana. Accumulate. Satisfactory performance across topline and bottom-line Narayana reported satisfactory set of numbers for Q1FY23. While on a YoY basis there was a high growth of 20.2% because of the low base effect, on a sequential basis the company reported degrowth of 9.9%. On sequential basis, EBITDA grew 9.7% QoQ to Rs 1920 mn. However, it increased by 43.3% YoY due to lower consumables costs in the quarter. EBITDA Margin increased slightly to 18.6% in Q1FY23 from 15.6% in Q1FY22. The new hospitals registered EBITDA margin of 6.5% in the quarter. ARPOB for India business was Rs. 33424 in Q1FY23 vs 30,684 in Q1FY22, an increase of 8.9% in the quarter. The average revenue per person (ARPP) for India inpatients (IP) was Rs 1,12,500. ARPP for India outpatients (OP) was Rs 4000. ARPP for IP in Cayman was USD 29,600. ARPP for OP in Cayman was USD 900. IP footfalls were 55,000 for the quarter while OP footfalls were 5,72,000 for the India business. For Cayman, IP footfalls were 533 while OP footfalls were 7,950. Outlook and Valuation: We are positive about the growth prospects connected with Narayana. Both Cayman and India operations should continue to do well in the future. We expect patients mix and case mix to improve which would result in increased EBITDA margins going ahead. We value the stock at 18x EV/EBITDA with respect to FY24e EBITDA to arrive at a target price of Rs 734. Accumulate.

HealthCare Global Enterprises Ltd | Q1FY23 Result Update | The tide is turning, higher growth from existing centers CMP: Rs 286 | Target Price: Rs 351 | Upside: 23.2% | Rating: Buy HCGEL continued to register the highest ever quarterly revenues and EBITDA in Q1FY23 with some regions delivering very high double digit revenue growth on a YoY basis. The new centres continued their scale-up trajectory with strong revenue growth of 34.1% YoY while existing HCG centres registered a growth of 23.2% YoY. New centres registered an operating EBITDA of Rs 100 Mn against EBITDA of Rs 8 Mn in Q1FY22. ARPOBs have been steadily increasing because of higher share of high-end surgeries, which is a sustainable trend. The new centres generated an ARPOB of Rs 32,968 compared to Rs 32,968 in Q1FY22 while the existing centres generated ARPOB of Rs 40,606 registering growth of 12.9% YoY. International revenues would further boost the ARPOB of CoE going forward. The occupancy rate in the quarter was 64.6% which was highest in 12 quarters. With respect to the existing oncology centres, HCGEL expects a revenue growth of high teens. There is a scope for EBITDA margin improvement of the existing centres from the current level of 20-21% to 23-24% over the medium to long term, according to the Management. The improved EBITDA margins will be driven by 3-4% price hike, volume increase, Payor and mortality mix. HCG is well poised to capture the growing potential with focus on cancer therapy. On an overall basis, we are positive about the prospects of HCGEL and we recommend a “Buy" rating on the stock. Robust performance on the back on higher occupancy and increase in ARPOB HCGEL reported strong set of numbers for Q1FY23. While on a YoY basis there was huge growth of 26.3% due to improvement in ARPOB (5.9% YoY) and occupancy rate. Aggregate ARPOB was Rs 38454 for Q1FY23 compared to Rs 36316 for Q1FY22. Occupancy for Q1FY23 was 64.6% as compared to 57.8% in Q1FY22. Operating leverage and higher contribution from existing hospitals led to expansion of EBITDA margin by 184 bps yoy and 37 bps qoq to 17.7% in the quarter. The existing hospitals has an EBITDA margin of 25.17 while the new centers have EBITDA margin of 10.7%. The number of IVF cycles for Milann in Q1FY23 was 538 compared to 311 in Q1FY22. Milann recorded revenues of Rs 173 Mn in Q1FY23 compared to Rs 121 Mn in Q1FY22. New registrations were 1612 in Q1FY23 compared to 676 in Q1FY22. Outlook and Valuation: We are positive about the prospects connected with HCGEL. Both the existing and new centres should perform robustly in the future. Further, HCGEL’s focus on consolidation of existing operations would ensure the strength of the balance sheet. We value the stock at 16x EV/EBITDA with respect to FY24e EBITDA to arrive at a Target Price of Rs 352 and recommend a “Buy” rating on the stock.

Dollar Industries Ltd | Q1FY23 Result Update | Growth pillars in place driven by project Lakshya CMP: Rs 444 | Target Price: Rs 713 | Upside: 61% | Rating: Buy Dollar Industries Ltd (DIL), reported revenue in Q1FY23 grew by ~76.7% YoY which was led by a volume growth of ~54% YoY & rest of the growth was on account of increase in average selling price due to price hikes taken by the company in order to pass on increase in cost of raw materials. Management has guided for a topline growth of ~15%-17% YoY for FY23e. DIL is working with Vector Consultants to implement Theory of constraints (TOC), in an attempt to keep a tab on its working capital mainly by reducing receivables and inventories. Company has enrolled ~174 distributors upto Q1FY23 under the project Lakshya and target to bring ~70% of its distributor under project Lakshya by FY25. Company has also on-boarded ~160 distributors under channel financing. Going forward, management has maintained its goal to reach sales of ~Rs 20 billion by FY25. On its profitable growth trajectory, we are upbeat on DIL’s long-term growth prospects on the back of its strong brand equity, initiatives to reduce working capital days and long-standing operations in innerwear industry. We remain positive on the company’s mid-to long term potential and thus maintain our ‘Buy’ rating on the stock with a target price to Rs 713 (20xFY24e EPS). Q1FY23 Earnings Highlights In Q1FY23, the company reported a ~76.7% YoY increase in sales to Rs 3,614 mn, which was led by a healthy volume increase of ~54% YoY. Growth in volumes was mainly led by compay’s flagship brands Dollar Man and Dollar Always. Gross margin for Q1FY23 declined by ~573 bps YoY at 33.9%. Decline in gross margin was due to increase in raw material cost, which company was not able to fully pass on to the customers. However gross margin improved by ~173 bps QoQ. EBITDA margin for Q1FY23 declined by ~697 bps YoY at 10.3%. Decline in EBIDTA margins was mainly led by decline in gross margin. Advertisement expenditure for Q1FY23 was at 9.7% vs 7.2% YoY of sales. Company reported PAT of Rs 270 mn up ~19.6% YoY helped by a lower tax rate of 14.3% vs 25.6% YoY. PAT Margin was at 7.5% vs 11% YoY. Outlook and Valuation: DIL’s strong brand recall coupled with deeper penetration and consumers shifting towards affordable branded quality products are strong macro tailwinds for the company. Currently the innerwear industry is witnessing a structural shift from unorganised to the organised sector. We expect DIL to benefit from this trend. At the current price the stock is trading at 12.4x FY24e EPS. We have valued the stock at 20x FY24e EPS of Rs 35.7, to arrive at a target price of Rs 713, which provides an upside of ~61% based on the current market price.

Aarti Industries Ltd | Q1FY23 Result Update| Robust Q1, Long term growth story intact CMP: Rs 815 | Target Price: Rs 982 | Upside: 20.5% | Rating: BUY Q1FY23 revenue of Aarti Industries grew by 9.8% YoY & by 12.3% QoQ to Rs19.7bn. Robust revenue momentum was supported by higher volumes & better realisations. Healthy volumes was majorly because of commercialization of 1st & 2nd long term contract which benefitted the company. The speciality chemicals segment increased by 44% YoY and by 8% QoQ to Rs17.65bn and the pharmaceuticals segment increased by 48% YoY and by 5% QoQ to Rs4.07bn in Q1FY23. Higher raw material prices has led to contraction of gross margins by 935bps YoY and 318bps QoQ to 44.3% in Q1FY23. EBITDA grew by 17.7% YoY & by 8.9% QoQ to Rs3.7bn in Q1FY23. EBITDA margins declined by 510bps YoY and by 59bps QoQ to 18.7% in Q1FY23. Consol PAT grew by 15% YoY & declined marginally by 2% QoQ to Rs1.89bn in Q1FY23. Considering the strong growth outlook & reasonable valuation post correction in the stock price provides comfort for investors to ride on the growth story, therefore, we maintain BUY rating on the stock. Pharma margins increased sequentially, revenue to witness 15-25% growth in next 2-3 years EBIT margins in pharma segment stood at 18.7% in Q1FY23 vs 17.2% in Q4FY22 vs 19% in Q1FY22. The company has been able to pass on the cost inflation to its ends user industries, which led to improvement in margins during the quarter. The company has started commercialization of its capacities in API’s & intermediates business at Tarapur facility which will lead to contribute to revenue in the coming quarters. Improving product mix towards higher value-added segments will increase its presence in key regulated markets and improve the growth trajectory going ahead. The off-patented approach is paying off well to drive growth. The new API capacity commercialization has started and would contribute to revenues from the next quarter once capacity ramps up faster. Management seems confident of regaining its 20%+ margins over the coming quarters. Management guidance of 15-25% growth for the next 2-3 years is on track on the back of stronger volumes from API & intermediates segment. De-bottlenecking in caffeine business will increase its presence further into key markets. Operating margins majorly in with estimates, Cost pass through will improve the margins going ahead The company reported slight decline in EBITDA margin on sequential basis by 59bps to 18.7% in Q1FY23 vs 19.3% in Q4FY22 majorly because of rising raw material prices of benzene, Aniline, PAN etc. Although, the recent correction in majority of the commodities might benefit the company in the coming quarters, slowdown in demand from textiles, FMCG could be a negative surprise and might impact the volumes going ahead. We feel that Aarti has been successfully able to pass on its raw material cost and has proven its mettle in an environment wherein other players are struggling. Hence, we expect that the company would be maintaining its gross margins from hereon & even improve to around 50% in the coming year’s on the back of increased focus on high margin segments & better product mix. Valuation Currently, the stock is trading at FY24 P/E of 25x. We value the stock on forward P/E multiple of 30x and, thereby, arrive at target price of Rs 982 per share which offers upside of 20.5% from current valuations. Therefore, we maintain BUY rating on the stock.

Nitin Spinners Ltd | Q1FY23 Result Update | Capacity expansion to propel future growth, Strong fundamentals intact CMP: Rs 205 | Target Price: Rs 402 | Upside: 96% | Rating: Buy Nitin Spinners Ltd (NSPL) came out with a decent set of numbers in-line with estimates for Q1FY23 in a challenging business environment and rising input costs. Supported by a well-diversified geographical reach and realization growth (passing on of higher cotton prices), the company registered a sales growth of 28.0% YoY to Rs7.1 Bn. Gross margins contracted by 1229bps to 27.0% due to steep rise in cotton price. EBITDA margin contracted by 786bps YoY to 15.4% (vs our estimate of 15.0%) as rise in cotton prices was difficult to pass on entirely. We have already factored in moderation in margin profile in our future projections. The company has already announced a capex of Rs9.5bn which will support strong growth during FY24 & FY25. We continue to maintain our BUY rating on the stock of the company with a target price of Rs402 per share, 8xFY24e EPS. A decent performance in a challenging environment During the quarter, the company posted a de-growth of 12.3% YoY at Yarn sales volume front. Knitted fabric sales volume was lower by 20.2% YoY. However, Woven fabric sales volume grew by 58.4% YoY. Considering margin pressure in business, the company focus was on value added products rather than yarn volume growth. Realization was higher 34.2% YoY/1.2% QoQ in yarn business whereas it was up by 20.9% YoY/8.8% QoQ in knitted fabric as the company continues to pass on higher cotton prices. Realization in woven fabric segment was also up by 34.9% YoY/12.0% QoQ. Textile demand should be on track, capacity addition to propel medium term growth The industry is facing tough time due to slowdown in demand in the international market and huge price difference between domestic and international cotton prices. The strong demand should come back as situation normalizes. Not much capacity is getting added in spinning industry and hence pricing comfort should be there in the future. The company has announced a capex of Rs9.5bn. With this capex, the company would be adding 1.5 lakhs spindles, 2500 MT/PA knitted fabrics and 10 mn Metres woven fabric over the next 15 months time. This is around 35-40% addition in the company's existing capacities. Outlook and Valuation: With announcement of new capex, Nitin Spinners growth path is clear from here till FY25. Increasing share of processed woven fabric will further support the company’s overall sales growth and margin profile. We assign 8x PE multiple to FY24E earnings and arrive at a target price Rs402 per share, offering 96% upside from current levels. Hence, we maintain our Buy rating.