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Robust order pipeline positions to boost strong revenue growth
Bharat Electronics Ltd. (BEL) presents a robust investment case for the next two quarters, driven by significant project executions across key defense sectors. The company is set to deliver orders worth over Rs. 1,600 crores for the LRSAM project. In addition, BEL will execute EW projects like Himshakti totaling around Rs. 800 crores to Rs. 900 crores and the Instrumented EW Range. A consistent supply of the D-29 EW system and weapon-locating radar planes will add Rs. 950 crores in revenue. These commitments reflect BEL’s strategic positioning and steady revenue generation in India’s defense sector.
New SBUs set to drive significant growth and diversification
BEL is strategically expanding through the establishment of five new Strategic Business Units (SBUs), which are projected to drive substantial growth across various defense and technology sectors. The largest, the EW Land Systems SBU, is set to achieve over Rs. 1500 crores in turnover in its first year. Additionally, SBUs focused on RF and IR seekers, arms and ammunition, network and cybersecurity, and unmanned systems target initial revenues between Rs. 200-400 crores. Notably, the Cyber Security SBU has begun generating third-party revenues, with significant orders from the Ministry of Defense, AIIMS, and other government bodies expected imminently. This move into direct sales alongside strong internal support illustrates BEL’s diversification and potential for high-impact growth.
Coforge Ltd.
Robust order book and improving headcount indicate a favourable demand environment
The company reported healthy financials for Q2FY25, with its 12-month executable order book at $1.31 billion (up 40% YoY) and an order intake of $516 million during the quarter. This robust order book growth rate improves revenue visibility and highlights robust growth potential. Moreover, the management maintains a positive outlook for the future, which is well reflected in the decreasing attrition rate and increasing headcount during the quarter. Given its multiple long-term contracts and strong deal pipeline, we thus believe that the company is well-positioned for growth.
Strategic AI positioning and vertical expansion signalling promising growth prospects
The company is positioning itself for robust growth through its dual focus on Gen AI and strategic vertical expansion via the Cigniti acquisition. The company is actively partnering with clients to implement real-life AI programs. Simultaneously, the Cigniti acquisition goes beyond expanding testing capabilities and establishes footholds in healthcare, retail, and hi-tech verticals. Improved vertical outlook and enhanced client engagement bolster the company’s growth prospects.
Divis Laboratories Ltd.
Major projects from large pharmaceutical companies are driving the growth in the custom synthesis business
The Custom Synthesis segment is advancing with several new projects across all clinical phases, including phase 2 and phase 3 molecules. Existing major commercial projects with big pharma continue to yield positive results. The company is also experiencing a lot of inquiries from US and European clients for CDMO. Additionally, the company has several products in the pipeline that are coming off patent, for which it has filed DMFs. The company also is actively producing peptide building blocks, demonstrating a strategic focus on creating this specialist portfolio. This is especially relevant for emerging anti-diabetic and anti-obesity drugs, showcasing a strategic focus on developing this specialized portfolio.
Generic business off-patent drug opportunities to boost financial performance
The company is experiencing stable demand for most of its established generics, which balances the pricing pressure on the product mix. Emerging generic products continue to gain market share, and future generics with filings planned for completion in the next few months will be commercialized in FY26. For all the future generics being filed right now, which will come off patents in 2025, 2026, and 2027, all are completely backward integrated. This integration helps the company control impurity profiles, thereby avoiding regulatory issues in the future. Capacity expansions in different compounds are anticipated to propel this growth.
ICICI Bank Ltd.
NIMs Expected to Stabilize Amid Margin Compression
In Q2FY25, ICICI Bank experienced a slight margin compression of 9bps, slightly higher than expected. Management attributed this dip to the increased number of operational days in Q2, describing it as a temporary factor anticipated to normalize by Q4FY25. However, they emphasized that NIMs should remain broadly stable in the second half of FY25, compared to the first half’s level of 4.31%. Looking ahead, NIMs are expected to stay steady unless a rate-cut cycle begins. Currently, 51% of ICICI’s loan portfolio is tied to the repo rate, 16% to the marginal cost of funds-based lending rate (MCLR), and 32% to fixed-rate loans. If a rate cut occurs, stability in NIMs is projected to be around 4.2% to 4.3% throughout FY25, although there may be some initial impact due to the rate sensitivity of the portfolio. Overall, the outlook for the coming quarters remains positive.
Asset Quality Remains Strong Amidst Unsecured Lending Challenges
ICICI Bank has taken proactive steps to manage potential challenges in the unsecured lending sector by strategically moderating its growth in this area, which represents about 14% of its overall portfolio. The bank has enhanced its underwriting standards by implementing stricter credit filters for different customer categories and adjusting pricing to reflect risk better. As a result, slippages in the personal loans portfolio have stabilized and remained constant. Management is confident that credit costs will stay within a range of 40 to 50 basis points on a normalized basis, highlighting the bank’s careful approach to risk management in the unsecured lending segment. Consequently, these factors are expected to contribute positively in the upcoming quarters.
Larsen & Toubro Ltd.
Strong financial performance driven by robust order book
L&T’s Q2FY25 results demonstrated strong performance, with core E&C revenues up 28% YoY, exceeding estimates, and core E&C margins improving by 20bps. Consolidated PAT grew 25% YoY (adjusted for TOD sales), and order inflows rose 13%. International revenue surged 46%, offsetting domestic weaknesses. The order backlog exceeded Rs. 5 trillion, up 13% YoY, with a notable improvement in working capital. The results reflect L&T’s ability to secure orders across diverse geographies, including Central Asia and Africa, beyond its core markets in India and Saudi Arabia. The company’s well-diversified order backlog enables effective management of execution pace and collections. L&T’s strong international execution and robust pipeline position it well for sustained growth, making it an attractive investment with solid revenue and margin growth prospects.
Strong market position and healthy capex plans ensure sustainable growth and profitability
L&T has maintained its guidance for FY25, targeting 15% revenue growth and a 10% increase in order inflows despite a higher base from FY24. The company expects a significant pick-up in execution and order inflows in 2HFY25, following the completion of elections and the monsoon season. Core E&C business margins are forecasted at 8.25%, driven by a higher contribution from international projects. Additionally, L&T’s real estate segment, targeting Rs. 50 billion in revenue by FY26, presents strong margin expansion potential, given its high-margin profile (35%+). With a strong orderbook, healthy pipeline, and robust growth outlook, L&T is well-positioned to meet its targets and deliver strong performance.
One 97 Communications Ltd.
Large and engaged customer base to generate stable business performance
Paytm’s business model is built on a large and active customer base of 7.8 million monthly transacting users as of June 2024. These users primarily use the app for UPI-based payments, bill payments, etc. It also supports Paytm’s commerce business, which includes tickets for movies, air travel, sports events, and other services. This diverse customer base is instrumental in establishing Paytm’s consumer loan origination portfolio. Unlike many of its competitors who are primarily focused on point-of-sale and payment gateway services with little direct interaction with customers, Paytm has a significant presence among both consumers and merchants. This wide reach enables it to generate revenue from both merchants and consumers, and allows for cross-selling opportunities, providing a stable business model that can better withstand regulatory and technological changes.
Revenue and profitability to improve going forward
Paytm’s performance during the quarter aligned with expectations and it focused on increasing the merchant and consumer base for cross-selling financial services. The company is also confident of meaningful improvement from Q2FY25, as the company restarted certain paused products and achieved steady growth in operating metrics. We believe constant improvement in operating leverage will continue to drive its profitability. As we advance, we expect revenue and profitability to improve, driven by growth in operating parameters such as GMV, an expanding merchant base, recovery in loan distribution business and continued focus on cost optimization.
Syngene International Ltd.
Changing CDMO landscape with opportunities galore
The BioSecure Act has made a substantial impact on the entire pharma and biotech sector, which restricts US pharmaceutical and biotech companies from outsourcing their services to China-origin CDMO/CRO led by national security concerns, and the Indian CDMOs appear to be the most significant immediate beneficiaries, also fueled by early signs of recovery in biotech funding environment. Syngene International remains well placed to tap the growth opportunities in the CRAMS space, given its well-established position as a leading CRO, strong client relationships, service offerings across the R&D value chain, focus on regulatory compliance and data security/integrity, and cost-efficient operations that will aid the financial performance of the company.
Strengthen capacity to bear fruit in future
Development and Manufacturing Services revenue growth was impacted due to more project completion milestones in the third quarter this year compared to the previous year. However, there are plans to strengthen the capacity of Discovery Services with investments in antibody-drug conjugates, peptides, and oligonucleotides. Additionally, Syngene continues to see good traction in the biologics business and early-stage process development projects in the small molecule business. The new biologics manufacturing facility will come online in H2FY25, offering customizable plug-and-play manufacturing platforms. Thus, we believe Syngene’s delivery of both the early-stage and pilot projects has been strong, creating a robust growth visibility.
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