Brokerage Reports: Avenue Supermart, L&T, Just Dial, Concor and Life Insurance Upgrades/Downgrades

Bernstein on Avenue Supermart revenue growth of 14.4% year-over-year in Q2 was disappointing, marking the slowest growth in four years. Like-for-like (LFL) growth was also low at 5.5%, down from 9.1% in Q1. Their standalone Q2 EBITDA margin was 7.9%, and PAT margin was 5%, both slightly lower compared to the previous year due to operating leverage.

JPM has downgraded Avenue Supermart to Neutral, reducing the target price from Rs 5400 to Rs 4700. Q2 results fell short of expectations, with revenue growth slowing to 14% year-over-year (compared to 18% in Q1) and LFL growth also dropping to 5.5%. They were surprised by the extent of the slowdown in same-store sales growth. EBITDA estimates for FY25 and FY26 have been cut by 8% and 10%, respectively.

CLSA on Dmart: maintains an Outperform rating, with a target price of Rs 5,360 per share. They noted that Q2 sales and profit after tax (PAT) were below expectations. Gross margins were 30 basis points lower than estimated, and PAT was notably below estimates due to higher employee costs. CLSA has reduced FY25 to FY27 earnings estimates by 13% to 15% due to slower sales and increased overhead costs. They highlighted that management acknowledged increased competition from e-commerce in Q2 but believes the shift to private labels will help the company compete better in the future.

JPMorgan on L&T:

Initiating an Overweight rating, JPM’s target price for L&T is Rs 4360. The company trades at 25 times its FY26 earnings per share (EPS) and is expected to see a 23% compound annual growth rate (CAGR) in EPS from FY24 to FY27, along with a core return on capital employed (RoCE) of over 20%. Growth in EPS is driven by a healthy core revenue growth of 16% and a 60 basis point expansion in core margins.

IIFL on Footwear Companies:

IIFL recommends buying shares in Bata India with a target price of Rs 1700 and in Metro Brands with a target price of Rs 1425. They suggest reducing exposure to Relaxo, with a target price of Rs 700. The organized footwear industry in India is expected to grow in the mid-teens over the medium term, particularly for companies focused on women’s footwear, premium footwear, sports and athleisure, and brand outlets. Metro Brands leads the market, followed by Bata India, Campus, and Relaxo.

HSBC on OMCs:

HSBC believes that the current fluctuations in oil prices are beneficial for oil marketing companies (OMCs) and may prevent government interference in fuel prices. They are not surprised by the weakness in auto fuel prices, which have remained flat over the last two months due to above-normal monsoons, and expect a recovery. They maintain a Buy rating on BPCL, HPCL, and IOC.

Morgan Stanley on CONCOR:

Morgan Stanley has a Underweight rating with a target price of Rs 774. In Q2, handling volume growth was 6%, with exports up 4% and domestic volumes up 14%. This was below the estimated growth of 7% for Q2. For the first half of FY25, growth was 6%, with exports at 4% and domestic volumes at 15%. CCRI had previously forecasted 15% growth in exports and 25% growth in domestic volumes for FY25.

Citi on Just Dial:

Citi has a Sell rating with a target price of Rs 1,075 per share. In Q2, revenue grew by 9% year-over-year, and EBITDA increased by 68% year-over-year but still missed estimates by 2% and 6%, respectively. PAT exceeded expectations due to higher other income. The company added 7,000 paid campaigns, a modest increase from the previous quarter and year. Revenue growth per realization was just 2%, the slowest pace since Q1FY23. However, user traffic has improved significantly, rising 15% year-over-year compared to 6% in Q1. Citi anticipates rising estimates as traffic growth could lead to better monetization in future quarters, but they will monitor the sustainability of this trend.

HSBC on Life Insurance:

HSBC reported strong growth in individual annualized premium equivalent (APE) in September 2024, largely driven by LIC. The number of policies sold also showed healthy growth. Due to changes in commission structures, there could be an uptick in LIC’s growth. New product launches and improved distribution indicate a positive outlook for the industry.

Morgan Stanley on Life Insurance:

Morgan Stanley noted that private sector individual APE growth was 28% year-over-year in September 2024, compared to 12% the previous year. ICICI Prudential Life and HDFC Life saw strong growth, while SBI Life’s growth was modest at 9%. In Q2, ICICI Prudential Life, HDFC Life, and SBI Life grew by 34%, 28%, and 11%, respectively.

Nomura on Life Insurance:

Nomura observed that public insurance players outpaced the overall industry in September 2024, achieving a growth rate of 48% year-over-year, compared to just 1% and 5% in August and September of the previous year. Private players also performed well with around 28% growth. However, their market share decreased to 65% in September 2024, down from 68.2% the previous year. Within private insurers, banca players outperformed while agency players saw lower growth at 17%.

CLSA on Life Insurance:

CLSA highlighted that private insurers experienced 19% and 18% growth in Q2 and overall APE, respectively, on the back of 13% and 11% growth previously. The number of policies sold increased by 13% year-over-year for private life insurers in both Q2 and H1. They noted strong momentum in ULIPs during Q2, similar to the previous two quarters. For Q2, Max Life had the strongest growth at 26% year-over-year on a high base, while ICICI Prudential Life and HDFC Life reported growth rates of 22% and 23% on weaker bases. SBI Life had only 1% growth in Q2 due to a high base of 33%. CLSA expects VNB margins to remain stable in H1 compared to Q1, except for Max Life, which should see a 2.5% increase in VNB margins due to weaker margins in Q1.

HSBC on OMCs: HSBC reiterates that the volatility in oil prices benefits OMCs and discourages government intervention in pricing. The recent dip in auto fuel prices aligns with expectations given the above-normal monsoon conditions. They maintain a Buy recommendation on OMCs, including BPCL, HPCL, and IOC, citing strong marketing margins that counterbalance weaknesses in gross refining margins (GRMs).

Emkay predicts that aluminum prices will reach $2,700 per ton by 2026 and expects a deficit of 500,000 tons in 2025.

Hindalco: Reduce with a target price of Rs. 650 per share

The stock has already priced in all the positive factors.

There is optimism ahead of the upcoming Novelis IPO.

Concerns about the Bay Minette capex cycle make it a less attractive investment.

Lower treatment and refining charges (TC/RCs) are expected in 2025.

Vedanta: Buy with a target price of Rs. 600 per share

The company is undergoing a demerger, which typically leads to higher valuations for specialized companies compared to diversified ones.

It is on track to complete projects and bring them online within the next 12-18 months.

It has consistently provided a total shareholder return of 18.5% per year over the last decade.

The company is expected to ease balance sheet concerns at both the company and parent levels.

Nalco: Buy with a target price of Rs. 275 per share

Nalco is considered the top pick in the Metals & Mining sector.

The market is not fully recognizing its potential for earnings growth and project execution.

Expansion of its alumina refinery capacity will strengthen its fundamentals.

Expected EBITDA will double to Rs. 6,100 crore by FY27.

Current valuations seem reasonable at 7.7 times FY26 EV/EBITDA.