Mirae Asset Capital Markets (India) Private Limited (“MACM”) is primarily engaged in Investment Banking, Investments, Proprietary Trading, Broking as well as the Research activities. The second-quarter report for midcap companies shows strong growth, with many reporting improved revenues and profits. However, some face challenges due to rising costs and market volatility, impacting their overall performance.
Power Sector – Remains the most desirable place to be after decade long capex revival in Indian Power Infrastructure. India’s peak power demand has reached 249 GW and is expected to reach 296 GW by FY27 and 388 GW by FY32. This has prompted the government to raise the thermal power capacity addition target to 80 GW by FY32 alongside the significant RE push. The sector is shifting towards clean energy while maintaining/upgrading thermal assets for grid stability and base load. The increasing share or RE has led to strong investment in Transmission Infrastructure and Energy Storage Solutions. Power Grid won 8 out of 13 TBCB projects in Q2.
Real Estate Sector – Continues to build on strong positive momentum in Q2FY25 with strong fundamentals. Companies reported strong residential sales, indicating continued robust demand in the housing sector. Macrotech Developers and Prestige Estates highlighted record sales figures despite seasonal challenges like the monsoon and the inauspicious Shradh period. Oberoi Realty noted healthy residential sales momentum, particularly with successful project launches like Oberoi Garden City Thane. Companies continue to focus on geographic expansion for diversification. Lodha is expanding into Bangalore with 2 new projects (GDV of ₹38 billion). Prestige has a diversified sales mix: Bangalore (51%), Mumbai (25%), Hyderabad (26%). Oberoi is expanding to NCR with the Gurgaon project planned for launch in FY26. Companies are strategically expanding beyond their traditional strongholds. Most companies maintained a disciplined pricing strategy with moderate price growth, aiming to keep real estate purchases sustainable and affordable. Companies maintain a positive outlook based on strong demand & good pipeline across markets. Also to mention some markets like Hyderabad experienced temporary softness where companies are adopting pricing strategies to maintain sales momentum.
Chemicals Sector – Continues to face challenges in near-term as continued pressure from Chinese overcapacity has led to a weak pricing environment in specialty chemicals. The volatile demand environment globally has pushed the expected gradual recovery beyond FY25. Companies are expected to focus on ramping-up exports trying to gain higher volume share in the wake of an expected recovery to past margin levels. Meanwhile focusing on cost optimization and efficiency improvements. Agrochemicals companies are expecting buoyant recovery in H2FY2 as domestic reservoir levels are at good levels and good inventory runs down post the kharif season.
White Goods Sector – The sector witnessed strong consumer demand owing to the festive season and improved consumer spending on white goods. The majority of the management highlighted the out-of-stock situation during the quarter (usually considered a lean period for white goods industry) indicating a robust acceptance of different brands by the consumers. The companies continue to expand their production capacities under the PLI scheme, boosting the overall domestic supply. High ticket products like RAC continue to register healthy volume growth, while the companies are facing some challenges in high margin commercial refrigeration products like water coolers. Leading companies continue to gain market share on the back of strong brand-building campaigns while the OEMs are onboarding newer customers with rising end user demand.
1. Onboarding of new topmost major clients in IT hardware segment has set the floor for Dixon exponential performance over coming years. The industry is expected to post a strong growth of 35% CAGR over FY24-30 backed by various macro tailwinds and government support. Dixon Technologies reported a healthy outperformance for Q2FY25 led by sustained high growth momentum in the mobile & EMS division aided by improving operating margins. The segment is expected to remain the forerunner of growth as other verticals scale up.
2. Dixon expects to ramp up IT and laptop segments, further looking into deepening the level of manufacturing and looking to get into precision components, mechanical, and camera modules, and the same is under deep study, and are working on possible partnerships.
3. The company’s Revenue/EBITDA/PAT is expected to grow at 52%/51%/58% CAGR over FY24-FY27E. The company is expected to generate a PAT of ~INR 11.1/14.6 Bn in FY26/27 valuing it at 80x/60x its expected earnings.
1. Q2FY25 exit cell-phone run rate was 2.8-2.9m. Management said Diwali was a bit slow (the run rate has reduced to 2.3m-2.4m); expects it to bounce back by Q4.
2. Cell-phone realisations are rising due to the mounting share of 5G mobiles.
3. Management expects to start manufacturing cell-phone screens from Q1FY26 and Q2FY26. Will manufacture 25 mn units in phase 1, which will be ramped up to 45 mn in phase 2.
4. Targeting Ismartu revenue of ~INR 70 bn in FY25.
5. Overall, aiming to address 27-28% BoM for cellphones via backward integration. Also, planning on manufacturing other cell-phone components such as camera modules (7-8% of BoM) and mechanicals (7-8%).
6. 7x-8x asset turns for components are expected but margins will be significantly better. Blended RoCE will be 30%+.
7. LED TVs: volumes 9.7m (down 10% y/y). Exploring tie-ups with a global partner for open-cell manufacturing.
8. Refrigerators clocked 90%+ utilisation. Dixon is expanding its refrigerator capacity to 1.6 mn units vs 1.2 mn currently.
9. Onboarded the top-4 of the five brands. Production of Acer is already on; expect Lenovo production to start this month. Setting up 1m-1.25m laptop manufacturing plant in Chennai.
10. For Laptop and IT Hardware, management expects annual revenues of INR 45 bn- 50 bn from FY27.
11. Planning to lever the HKC partnership and manufacture screens for notebooks from year 2. Will set up a 12 mn plant for this.
1. We believe Voltas' earnings should substantially improve going ahead as industry tailwinds for RAC business remain strong; also, with robust demand for commercial cooling, the UCP segment is expected to perform well. To factor in better than estimated margins in the EMPS business, we have raised our EBITDA estimates for FY25/26 keeping the revenue estimates unchanged. We like the RAC under penetration theme from a long-term view and believe that Voltas would be one of the key beneficiaries of the same. We maintain our ADD rating on the stock with a revised SOTP based target price of INR 1,933 (earlier INR 1,707).
2. The company’s Revenue/EBITDA/PAT is expected to grow at 19%/58%/81% CAGR over FY24-FY27E. The company is expected to generate a PAT of ~INR 12.0/15.1 Bn in FY26/27 valuing it at 48x/38x its expected earnings.
1. Although Q2FY25 is usually a lean period for cooling products; the early heatwave in the northern regions helped sustain the growth momentum in the company’s air conditioning business.
2. The premium segment, particularly 5-star rated air conditioners, continued to thrive, leading to an improved overall sales mix for Voltas.
3. Exit market share for RAC stood at 21.0% in Sept’24 vs 18.7% in Mar’24.
4. Higher volume of margin-accretive product sales, value engineering initiatives, and the current mix of AMC jobs have positively impacted the bottom line of CAC business.
5. Commercial refrigeration industry currently faces headwinds due to a reversal in the capex cycle after 2-3 years of consistent growth. Products like chest freezers and chest coolers are witnessing moderation in growth.
6. The market share in air coolers has improved to 11.1% vs 10.5% in Q1FY25.
7. Heavy rainfall and delays in job progress and collections from government-tendered jobs impacted profitability of dometic projects business for the quarter.
8. The textile industry experienced headwinds owing to fluctuations in cotton and yarn exports. Mounting tension in Bangladesh coupled with elevated yarn prices resulted in deterioration of margins.
9. Voltbek delivered a volume growth of over 54% YoY for H1FY25 which was further augmented by gain in market share in refrigerator (5%) and washing machine (7.5%).
10. Management indicated that the company could face a shortage of capacity (current capacity 2.5mn units) for RAC given the robust demand. To tackle this, the company is further augmenting its capacity.
11. Sales of non-RAC appliances have been robust during the month of October and management expects this trend to continue during the on-going festive season.
1. Management has pointed at a continued challenging outlook for agrochemical exports, particularly Acephate, amid continued pricing pressure. Export volumes were still flattish due to pricing pressure. Signs of recovery are mixed with demand being greater in the US market but still weak in EU. According to the management, destocking seems by and large over with a better outlook in LATAM markets. The outlook for the domestic Crop Care is seen as positive, amid healthy reservoir levels, but this business can be climate sensitive. The anticipated recovery in the agrochemical industry, new product launch pipeline, and expected steady scale-up of the CSM business will result in long-term growth for the company.
2. The company’s Revenue/EBITDA/PAT is expected to grow at 13%/18%/24% CAGR over FY24-FY27E. The company is expected to generate a PAT of ~INR 2.3/2.8 Bn in FY26/27 valuing it at 26x/22x its expected earnings.
1. Demand in the domestic market will continue to be buoyant Khariff inventory winding and good reservoir levels across the country will support for good Rabi season. The management highlighted that its channel inventory is at the required level and does not expect any significant sales returns. Focused on keeping sales returns for seeds business under check. Currently, the company is sitting on the lowest inventory for seeds.
2. Production from China continues to remain at higher levels, resulting in realizations being under pressure.
3. The company did its best-ever volume in Metribuzin, surpassing FY24 volume in 1HFY25 itself.
4. Acephate continues to see demand bottlenecks as well as pricing pressure due to high competition. The product is largely used on Brazil and the US. Major competitors are Adama and UPL.
5. Total market size for seeds: Cotton – INR 50 bn, millet - INR 7 bn, mustard INR 5 bn, maize – INR 6 bn. Currently, Rallis’ market share is 4% and the focus is on growing it to high single-low double digit.
6. The capex guidance of FY25 is INR 1 bn. Work on R&D center will commence soon.
7. The company has been facing challenges to improve capacity utilization of MPP.
1. Gaining market share both in the Crop Protection and Seeds business
2. Build more relations with innovators to launch new products in the B2C market and to scale up the CSM business
3. Grow the herbicides and crop nutrition portfolio, introduce biologicals & stronger brands in seeds.
1. Lodha has been delivering a steady performance across its key parameters of pre-sales, cash flows, business development, and profitability over the last two years. As it prepares to capitalize on the strong growth and consolidation opportunities, we expect this consistency in operational performance to continue. Management highlighted that the company is now entering a growth phase in Bengaluru and will target to gain 1.5-2% market share each year from FY26. On the residential side of Palava, the township’s transformation from lower income housing to preferred destination for premium housing continues with multiple upper mid-income/premium projects slated for launch over next two quarters.
2. The company’s Revenue/EBITDA/PAT is expected to grow at 24%/28%/33% CAGR over FY24-FY27E. The company is expected to generate a PAT of ~INR 28/38.7 Bn in FY26/27 valuing it at 44x/32x its expected earnings.
1. Despite of fact that 38% of pre-sales were from JDA projects, company reported embedded margin of 34% implying higher profitability due to operating leverage as company scales up its business.
2. Completed pilot phase in Bengaluru successfully post its entry in 2021. Currently, the region has 125 people team. Added two projects having INR 38 bn GDV in North and East Bengaluru. Currently, it has INR 60 bn inventory in Bengaluru.
3. Lodha’s market share was 2-3% last year in Bengaluru which it expects to rise to 15% by the end of the decade. Management expects to close FY25 with INR 18-20 bn sales.
4. Currently, the company has an aggregate of 4,500 acres in Palava & Upper Thane. It has closed deals with one of the global hyper-scale data centre players for 40 acres at INR 120 mn per acre (INR 25 mn per acre in 2021) at Palava. z~50 acres per annum can be used for Data centers.
5. The discussions are ongoing at INR 200 mn per acre with another prospective customer which is expected to materialise over the next 2-3 quarters.
6. Management has indicated a valuation of INR 900 bn for this 4,500-acre land parcel.
7. The company aims to generate INR 15 bn in annual rental income, with clear visibility of INR 12 bn from the operational/under construction by FY31 and INR 5 bn by the end of FY26. INR 5 bn covers interest costs so Lodha would be net debt free. Yield on cost is almost on rental asset and is in high-teen or better.
8. Management retained pre-sales growth guidance of 20% YoY for FY25 at INR 175 bn. Operating cash flow and BD guidance retained at INR 65 bn and INR 210 bn, respectively for FY25.
1. Godrej Properties completed H1FY25 with a strong performance across key operational parameters of pre-sales and cash flows. With a strong launch pipeline, it remains on track to achieve/surpass its full-year pre-sales guidance. While gross margin has sustained at a healthy 35-40% for recognized projects in P&L, the higher scale of operations has led to a proportionately high overhead increase, leading to subdued operating profits. We believe the company will continue to surprise on growth, cash flows, and margins, given its strong pipeline and healthy realizations, which have been the key investor concerns.
2. The company’s Revenue/PAT is expected to grow at 45%/43% CAGR over FY24-FY27E. The company is expected to generate a PAT of ~INR 16.2/21.1 Bn in FY26/27 valuing it at 45x/34x its expected earnings.
1. Currently holding about INR 30 bn in RERA accounts, to be used for construction and released as projects progress.
2. Expected acceleration in construction cash outflow, especially toward the year-end and mid-next year, as projects reach advanced stages.
3. Significant price growth noted in NCR and Bangalore. Observing premiumization in the MMR portfolio with several high-end projects.
4. Highlighted that land values are matching end property prices. Emphasized disciplined land acquisition strategies, targeting a 20-25% IRR on projects
5. Emphasized the importance of land bank replenishment for sustaining growth, given the faster-than-anticipated growth rates.
6. Targeting to sustain growth on top of the current year's exceptional sales.
7. Management expects a record year in terms of cash flow.
8. Focus on five markets and there are a lot of opportunities for growth in these markets. Opportunities in other markets predominantly plotted.
9. The company has kept a target of IRR 22%-25% and EBITDA margin >25% for the acquisitions.
10. The management doesn't anticipate the need for further fund raises in future as the company anticipate 20% revenue growth rate over FY25 base.
11. Bengaluru may not see price growth as seen in the previous year but should see price growth of high single-digit in the next 6-12 months.
12.Noida should see strong price growth due to lack of supply, whereas Gurugram should see price growth near the Golf Course but less on the periphery
1. The Chemicals business (Fluorochemicals and specialty chemicals) is expected to witness some recovery in 2HFY25, led by a strong order book in the specialty business and ramp- up of export volumes coupled with gradual growth in PTFE within the Fluorochemicals business. The packaging business is likely to remain under pressure in the medium term, while the Technical Textiles business is likely to continue the current growth momentum. SRF has incurred a cash capex of ~ INR 6.5 bn in 1HFY25.
2. Company plans to incur a total capex of ~INR16-18b in FY25. This is much lower than the initial expectation, but the company will announce capex as and when the situation improves. With strong headwinds and weak near-term outlook in the chemicals business,
3. The company’s Revenue/PAT is expected to grow at 13%/19%/19% CAGR over FY24- FY27E. The company is expected to generate a PAT of ~INR 18.4/22.7 Bn in FY26/27 valuing it at 36x/28x its expected earnings.
Key Concall Highlights
1. The company has withdrawn FY25 growth guidance for Specialty Chemicals business, citing the volatile environment, lasting Chinese overcapacity and inventory destocking in certain essential legacy products. However, management offered a positive outlook for H2FY25, leading to a gradual recovery starting Q2FY25.
2. The company expects at least 2-3 of the seven new active ingredients in the pipeline to contribute to FY25 revenue. Customers have delayed the registration of these active ingredients in their target markets. Overall, the company focuses on ramping up the projects, cost optimization, and efficiency improvements.
3. The company's recent capex announcement toward BOPP-BOPET films is in line with its strategy of moving into value-added and sustainable products. Management expects the cycle to turn favorable when the project starts commercial production.
4. The US market is experiencing a decline in HFC consumption due to regulatory constraints. The company believes that this will be more than offset by an increase in demand from India, the Middle East, and Southeast Asia. SRF has also announced a capex of INR 11 bn to manufacture two HFO refrigerants.
5. Belting fabrics witnessed healthy sales volumes, but margins were impacted due to pricing pressures. Management provided a positive demand outlook for NTCF and polyester industrial yarn.
6. The capex guidance for FY25 is INR 16–18 bn, with most capex expected to be geared towards the chemicals business segment.
