Strong sector tailwinds and robust portfolio to propel revenue growth
Cummins India is set for strong growth, supported by its diverse portfolio of diesel and alternative fuel engines. The company is preparing for new emission norms and is focusing on future technologies like battery packs, electric power generation, and hydrogen fuel cells. Cummins is gearing up for the shift to CPCB IV+ compliant products after June 30, 2024. This transition, along with favourable market conditions, positions the company for significant growth. Management aims to achieve a growth rate twice that of the GDP, driven by strong domestic demand across various sectors. While exports have been low due to geopolitical tensions, a rebound is expected in FY25 as Cummins introduces CPCB 4+ products globally.
Margin profile anticipated to remain steady
During the Covid-19 pandemic, the company took steps to improve efficiency and control costs, protecting its profit margins during tough times. These actions are expected to boost margins as raw material costs decrease. In FY24, the adjusted EBITDA margin was 19%, which included a one-time benefit of Rs. 600 million. The gross margin was 35.5% and is expected to stay around 35%. Additionally, price adjustments due to new emission standards should help improve margins further.
GAIL (India)
Market leader in the natural gas transmission business
GAIL is the leading natural gas transmission company in India, operating about 15,413 km of pipelines, which is around 70% of the country’s network. It can handle 206 million metric standard cubic metres of natural gas per day. Over the next two to three years, GAIL expects to increase its gas transmission volume by 12 to 15 MMSCMD. Additionally, 6,000 km of new pipelines are currently being constructed. The company has stable cash flows from its natural gas transmission business and a diversified revenue stream from other sectors such as city gas distribution, petrochemicals, liquid hydrocarbons, exploration and production, and telecom.
Healthy capex pipeline to bear fruit in future
GAIL India had a strong performance in FY24, driven by solid results in all major segments, despite lower prices for petrochemicals and liquid hydrocarbons. The company has planned a capital expenditure of Rs. 17,000 crores for FY2024-25. This includes Rs. 3,000 crores for pipeline projects, Rs. 4,400 crores for petrochemicals, Rs. 3,000 crores for net zero initiatives, Rs. 750 crores for operational expenses, and Rs. 5,000 crores for joint ventures and subsidiaries. Additionally, GAIL’s board approved a Rs. 1,792 crores project to lay a C2/C3 liquid pipeline from Vijaipur to Auraiya, expected to be completed in 32 months. This project aims to boost polymer production at the Pata Petrochemical Complex and reduce energy consumption and carbon footprint.
Indian Railway Finance Corporation
Strategic role and competitive borrowing costs of IRFC to support Indian Railways
Indian Railway Finance Corporation (IRFC) is a key player in financing the development of Indian Railways. With low borrowing costs and strong financial backing, it consistently supports the railways’ capital expenditure on rolling stock and infrastructure projects. The railways’ budget for capital expenditure in FY25 is set at Rs. 2,52,000 crores, focusing on infrastructure, capacity expansion, decongesting busy networks, improving passenger experience, and safety. IRFC’s role goes beyond just funding; it also finances projects linked to the railway ecosystem and collaborates with other infrastructure lenders for relevant projects. The company enjoys the highest credit rating in India, which helps it secure low-cost funding.
Healthy capitalisation levels along with superior asset quality
As of March 31, 2024, IRFC reported a strong Capital to Risk-weighted Assets Ratio (CRAR) of 616% and a net worth of Rs. 49,179 crores. This strength is due to the zero percent risk weight given to its exposures to the Ministry of Railways and stable internal capital generation. With 99% of IRFC’s exposure linked to the government, the company maintains excellent asset quality, with no non-performing advances (NPAs) as of March 31, 2024.
Info Edge (India)
Strategic diversification to unlock robust multi-segment growth potential
Info Edge (India) Ltd. (IEL) is growing strongly, thanks to its diverse business portfolio, including Recruitment Solutions, 99acres, and Jeevansathi. These businesses are well-positioned to take advantage of emerging market trends. In real estate, 99acres is experiencing significant growth due to high demand in both resale and rental markets, and new opportunities in home sales. The positive economic environment and Info Edge’s leadership in real estate position it to gain more market share, especially as new satellite towns develop and existing home inventories reach record lows.
Technological innovation and user engagement to drive long-term value creation
Info Edge (India) Ltd. (IEL) has boosted user experience, engagement, and efficiency by integrating AI, data science, machine learning, and generative AI across its platforms. The launch of Naukri 360 and the addition of upskilling services like Coding Ninja show Info Edge’s focus on offering comprehensive career solutions, strengthening its modern career brand image. The strong performance of new products like IIM Jobs, Naukri Fast Forward, and Naukri Gulf, along with a growing client base, highlights the high demand and potential for ongoing growth.
NMDC
Long-term growth strategy through increasing capex
NMDC reported a capital expenditure of around Rs. 21 billion for FY24 and plans to invest Rs. 15-20 billion for FY25. Over the next five years, the company aims to invest Rs. 500 billion in various projects to support its strategic growth. A key project is expanding its pellet and beneficiation plants to triple their capacity from 2 million tonnes to 6 million tonnes. Despite delays due to necessary layout redesigns, this project is now on track and expected to be completed by the third quarter of FY25. This expansion is crucial for NMDC’s long-term strategy to boost production and improve operational efficiency.
Strong business profile as the largest iron ore producer in the country
NMDC is India’s largest iron ore producer with an average annual production capacity of 45.1 million tonnes. The company has seven iron ore mining leases (five in Chhattisgarh and two in Karnataka) with a total reserve of 1,697 million tonnes, ensuring over three decades of mining. All mines have environmental clearances, and six out of seven have long-term licences valid until 2035-2038. The Kumaraswamy mine’s licence in Karnataka was renewed in FY23 and is valid until October 2042. NMDC has increased prices twice in Q1 FY25, which will boost its average selling price and earnings. With all necessary approvals, production is expected to increase in FY25 and FY26, ensuring strong growth prospects.
Olectra Greentech
Robust order pipeline and strategic partnerships provide an edge
Olectra, with a strong order book and partnership with BYD, is a leader in the electric bus market. The company has secured orders for 10,969 buses, making it the first manufacturer to achieve over 10,000 e-bus orders. This solid order pipeline ensures revenue for the next 12-15 months. The extended collaboration with BYD until December 30 enhances Olectra’s manufacturing capabilities, allowing efficient production using advanced technology. By focusing on electric buses, Olectra meets the growing demand for sustainable and cost-effective public transport, aligning with global trends towards cleaner transportation. The successful delivery of 541 buses in FY24 demonstrates Olectra’s ability to handle large orders, boosting investor confidence in its operational capabilities.
Expansion of manufacturing capacity to drive future growth
Olectra is dedicated to expanding its manufacturing capacity and improving its technology, which boosts its growth potential in the electric vehicle market. The company is building a new factory to increase production capacity to 5,000 buses, with plans to eventually produce 10,000 buses. This expansion is essential to meet the growing demand for electric mobility. Additionally, Olectra is actively participating in government tenders under the FAME-II and smart city schemes, ensuring a strong pipeline of future projects. This commitment highlights Olectra’s strategic focus on supporting the shift towards electric transportation.
Siemens
Robust profit outlook with value unlocking through demerger
In Q2CY24, Siemens experienced strong growth in revenue and profitability across its business verticals. The company achieved a 19% revenue increase quarter-on-quarter and an EBITDA margin of 15%. Siemens also saw a 34% increase in new orders from its energy business compared to the previous year. The board has approved a plan to demerge the energy business into Siemens Energy India Limited by CY25. This split will allow both companies to focus more sharply on their respective markets and maintain their own business structures, leading to a more targeted market approach and stronger business focus for each.
Healthy capex across all business verticals
Siemens is expanding its power transformer factory in Kalwa and its vacuum interrupter factory in Goa. Additionally, the company is investing in other areas. In its smart infrastructure vertical, Siemens is expanding its factory in Goa to meet the growing demand for industry, infrastructure, and power distribution components, investing around Rs. 333 crores. In its mobility business, Siemens is planning a brownfield expansion, investing around Rs. 186 crores to build a state-of-the-art Metro train manufacturing facility in Aurangabad. These investments highlight Siemens’ commitment to growing its capabilities and meeting increasing market demands.
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