Table of Contents
| Company | Price (Rs) | Rec |
|---|---|---|
| ADANIPOWER | 604 | BUY |
| BPCL | 629 | BUY |
| INDIANBANK | 544 | BUY |
| IRCTC | 1052 | BUY |
| ITI | 300 | BUY |
| PBFINTECH | 1293 | BUY |
| ZOMATO | 197 | BUY |
Robust financial performance on the back of higher demand and capacity additions
For the last quarter ending March 31, 2024, the company reported better financial results, including revenue, earnings before interest, taxes, depreciation, and amortisation (EBITDA), and overall profits. This improvement was primarily due to a 55% increase in product dispatches year-over-year, driven by strong market demand and the addition of new production capacity, particularly with the startup of the Godda plant. Furthermore, operating performance benefited from lower costs of imported fuels. The company also saw more reliable production and higher power generation efficiency due to better utilisation of its power purchase agreements (PPAs) and a rise in the plant load factor (PLF), which measures the output efficiency. Moving forward, these developments are expected to further enhance the company’s business performance.
Strong asset portfolio augurs well for future growth
The company currently operates power generation assets totaling 15,250 megawatts (MW), with an additional 3,200 MW under construction or in the planning stages, and future projects amounting to about 5,820 MW. This brings its total assets to over 24,000 MW. These assets are strategically located across various locations, including near mining areas (pitheads), coastal regions, and inland areas, providing a logistical advantage. Additionally, the company has secured a stable supply of fuel through medium to long-term contracts, which make up 79% of its total domestic fuel arrangements. This fuel security supports consistent operation and reliability in power generation, positioning the company well in the energy sector.
BPCL Ltd.
Established market position in the OMC sector and receding crude prices a perfect recipe for growth
BPCL, India’s second-largest oil marketing company, holds about 14% of the nation’s refining capacity and claims a 22-23% share in the domestic market for petroleum products, supported by over 21,500 retail outlets. With recent declines in crude oil prices, BPCL is positioned to benefit significantly. The drop in crude oil prices means the company can buy oil at lower costs while continuing to sell its petroleum products at unchanged prices, likely leading to better profit margins on sales. This financial advantage arises because the company’s costs decrease but its revenue potential remains stable, boosting overall profitability.
Sectoral tailwinds should aid performance going ahead
The current situation where the demand for crude oil exceeds supply is expected to persist, supporting Gross Refining Margins (GRMs) in the medium term. BPCL is particularly well-placed as it can process Russian crude oil, which is cheaper due to discounts, for up to 30-40% of its total capacity. This ability should help maintain its profitable GRMs. Looking ahead, BPCL plans to invest about Rs. 1.5 lakh crores over the next five years, signalling its preparation for strong future performance. This significant investment is aimed at enhancing the company’s infrastructure and capabilities, ensuring it can meet increasing demand and maximise profits in the coming years.
Indian Bank Ltd.
Strong growth in advances along with a well-diversified loan book
The company experienced strong growth in its loan portfolio during the quarter that ended on December 31, 2023, with each sector showing robust increases. The loans are spread out across various sectors: retail loans make up 21%, agriculture loans 24%, loans to small and medium-sized enterprises (MSMEs) 18%, and corporate loans 27%. This diversification helps reduce risk as the company is not overly reliant on any single sector. Additionally, by focusing on cutting down provisioning costs—money set aside as a safeguard against potential loan losses—the company is strategically positioning itself to maintain stable and healthy loan quality in the future. This approach should help sustain its financial health and support ongoing growth.
High proportion of low-cost deposits to aid NIM profile in future
Indian Bank is in a strong position because it has a stable CASA ratio of 39.7% as of December 31, 2023. CASA, which stands for current and savings account deposits, are less expensive for the bank compared to term deposits. This low-cost deposit base, combined with robust growth in lending (credit growth), puts the bank in a good spot to potentially improve its net interest margin (NIM) going forward. NIM is a measure of the difference between the interest income generated by the bank and the amount of interest paid out to their depositors, relative to the amount of their interest-earning assets. So, with low-cost funds and increasing loans, Indian Bank is expected to enhance its profitability metrics in the future.
IRCTC Ltd.
One-stop solution for passengers across the country
IRCTC has become a comprehensive service provider for train travelers in India, holding the exclusive rights from the Indian government to sell train tickets online, offer catering services, and supply packaged drinking water, branded as Rail Neer, at train stations and on trains. To improve its food service, IRCTC has teamed up with popular food delivery apps Swiggy and Zomato. This partnership allows passengers to pre-order a variety of tasty meals directly to their train seats. Additionally, IRCTC has collaborated with various consumer-facing platforms like MMP, IXIGO, Paytm, Goibibo, and Railofy, enhancing the convenience of booking train tickets through smartphones. These partnerships help IRCTC offer a smoother and more diversified service experience to its customers.
Special trains and expansion of Indian railways’ capacity to promote tourism
Under the Bharat Gaurav policy, IRCTC is set to run ten trains, two of which it already owns, aimed at promoting tourism to various religious and historical sites across India. This includes the Maharajas’ Express, a luxury train offering an opulent travel experience reminiscent of India’s royal past. It travels through four different routes, covering over twelve unique destinations. Additionally, Indian Railways plans to introduce 3,000 new trains over the next five years to increase its capacity from 800 crore to 1,000 crore passengers. This expansion is in addition to the 400 to 450 Vande Bharat trains also planned for the near future. This significant investment in expanding railway services is expected to benefit IRCTC in the long term by enhancing its operations and passenger capacity.
ITI Ltd.
Enhanced testing capabilities and technological collaborations to drive market confidence and expansion
ITI Ltd.’s Electromagnetic Compatibility (EMC) Lab has received official recognition from the National Accreditation Board for Testing and Calibration Laboratories (NABL), enhancing the company’s reputation in the market. This accreditation proves that ITI’s lab can accurately identify any minor issues in the electromagnetic and electrical functions of various products. With this new certification, ITI can now serve a broader range of industries, including industrial sectors, commercial businesses, IT, telecommunications, and healthcare. Additionally, ITI has partnered with Lekha Wireless, Niral Networks, and InstaICT Solution to develop and manage a complete private 5G network system for businesses. This move positions ITI to play a significant role in the expanding 5G technology sector, benefiting a wide range of industries with advanced and reliable communication solutions.
Diversified product portfolio and government support fuel growth opportunities
ITI Ltd. is branching out into making laptops and micro PCs, highlighting their dedication to innovation and environmental responsibility. These new products are designed to have a smaller environmental impact, using less power and reducing carbon emissions. This strategy not only taps into growing markets but also addresses increasing environmental concerns. ITI Ltd. has historically grown with the help of government contracts, like a recent massive Rs. 24.2 billion order from BSNL, which has fueled advancements in 5G technology. The company is also diversifying its operations, developing everything from electronic voting machines and data centres to water pipes and solar panels in-house. This broad range of projects demonstrates ITI Ltd.’s versatility and positions it for sustained growth in the future, continuing to innovate while supporting essential infrastructure and technological advancements.
PB Fintech Ltd.
Largest insurance marketplace in India along with a platform to address credit needs
The company stands out as a major player in the online insurance market with its Policybazaar platform, which controls about 93% of the market and collaborates with 52 insurance providers. Policybazaar offers customers a wide selection of over 450 insurance plans including health, term, motor, travel, and home insurance, ensuring it meets a variety of customer needs. Alongside its strong presence in insurance, the company also excels in the credit product comparison sector through its Paisabazaar platform. Paisabazaar is the largest platform of its kind in the market and handles approximately 21 lakh inquiries every month. This combination of insurance and credit services makes the company a go-to resource for customers looking for financial products, positioning it well for continued success in these sectors.
Strong operating metrics position the company for robust business performance ahead
The company reported impressive growth for the third quarter ending December 31, 2023, with a significant increase in both insurance premiums and credit disbursals. Specifically, the annual recurring revenue (ARR) from insurance premiums exceeded Rs. 17,000 crores, and from credit disbursals, it surpassed Rs. 14,300 crores. Historically, the company has consistently earned an adjusted EBITDA of Rs. 50 crores per quarter. This consistent financial performance, combined with the company’s growth in revenues, suggests that its online business model is highly effective. Looking ahead, this operational efficiency is expected to drive even stronger results, benefiting from the company’s ability to scale operations while controlling costs effectively.
Zomato Ltd.
Diversification and market penetration through 'veg only' and 'large order' initiatives
Zomato has introduced two new services to better serve its customers in India. The first, a ‘veg only’ mode, targets the large number of Indian customers who prefer vegetarian food due to religious reasons, filling a gap in the market. The second service involves a dedicated delivery team for large orders, designed to handle group meals for up to 50 people. This makes Zomato a convenient option for supplying food to large events and social gatherings. Both changes show Zomato’s commitment to diversifying its offerings and enhancing its appeal across different customer segments, making it easier for everyone to get the food they want, whether for individual meals or large group events.
Revenue optimization and quick commerce penetration to boost performance
Zomato is testing a new ‘delivery on priority’ feature that lets customers pay more for faster delivery, especially useful during busy times. This option aims to meet the growing customer demand for quicker service and helps Zomato increase its revenue by adding a premium service. This move is part of Zomato’s strategy to improve profits from its investments. Additionally, Zomato’s Blinkit business, which offers quick 10-minute grocery deliveries, is showing promising improvements. It’s expected to significantly boost Zomato’s performance due to opening new stores, better efficiency at existing ones, increasing customer use of fast delivery, larger order sizes, and a broader range of products. These developments are helping Zomato strengthen its position in the fast delivery market.
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