L&T, Axis Bank, SBI Life, Petronet LNG, DCB Bank, Federal Bank, Greenlam, SRF, IGL Q1 Review: HDFC Securities

HDFC Securities Institutional Equities

Larsen & Toubro - Robust execution and order booking

Larsen and Toubro Ltd. reported revenue/Ebitda/adjusted profit after tax at Rs 551.2/56.2/27.8 billion, a beat/(miss) of 7.6/0.7/(6.6)%. P&M margins came in at 7.6% (+20 bps YoY) and L&T expects to maintain a positive YoY margin expansion trend in ensuing quarters and retained 8.2-8.25% guidance for FY25.

Despite Q1 FY25 being an election quarter/lower labour availability, L&T reported strong 15% revenue growth and maintained 15/10% revenue/order inflow guidance for FY25.

The stick projects in Andhra may see revival and L&T is engaging with the state government, which may aid claims recovery and support the P&M margin. L&T expects FY25 to execute a higher share of lower-margin fixed-price export orders; it guided margin rerating to be driven by infra-segment margin improvement, largely led by internal efficiency and commodity prices remaining at the current level in fixed-price international order book.

We maintain our Buy stance with a SOTP-based target price of Rs 4,030/share, given-

1. the record high order book of Rs 4.9 trillion;

2. likely bottoming out of infra margins;

3. improvement in subsidiary performance; and

4. higher public capex towards a green economy.

Axis Bank - Signs of early stress; deposit handicap prevails

Axis Bank Ltd. missed estimates, largely on account of higher credit costs stemming from lower recoveries and upgrades in the corporate book and signs of early stress in the retail unsecured segments.

This was partly offset by stable margins, given lower growth on both sides of the balance sheet. Deposit growth (0.6% QoQ) was muted with the CASA ratio declining 116 bps QoQ to 41.8%.

Axis Bank has been incrementally leaning towards improving the quality of its deposits, reflecting in slower rise in incremental cost of deposits. The C/D ratio stayed elevated at 92.2% (Q4 FY24: 90.3%) despite modest sequential loan growth (1.6% QoQ).

We argue that Axis Bank faces a steep balancing act in terms of overcoming its deposit handicap and simultaneously managing growth in unsecured retail segments (showing signs of early stress).

We cut our FY25E/FY26E forecasts by ~4%, driven by higher credit costs, stemming from lower recoveries; maintain Add with a revised target price of Rs 1,260 (standalone bank at 1.8 times March-26 adjusted book value per share).

SBI Life - Mixed quarter; multiple product interventions ahead

SBI Life Insurance Company Ltd.’s Q1 FY25 value of new business printed at Rs 9.7 billion (+11.5% YoY), as the VNB margin softened to 26.8% (-200 bps YoY) on the back of a higher share of ULIP in the overall APE mix at 61% (Q1 FY24: 53%), partly offset by higher efficiency in total cost ratios.

The management reaffirmed its APE growth guidance of ~20% and a new business margin guidance of 28%. Based on the management commentary around a possible rebound in growth of SBI distribution and likely product interventions for the rest of the year, we raise our FY25 APE growth estimates to 18% (below guidance), on account of a lumpy base of group business during H2 FY24.

Our high conviction Buy is anchored on the three powerful and sustainable moats:

1. exclusive access to SBI’s massive distribution network (penetration at ~2%);

2. scope for improvement in margin accretive traditional mix; and

3. the lowest cost (exclusive renewal comm)/APE ratio among peers (Q1 FY25: 40.5%, FY24: 41.4%).

We expect SBI Life to deliver an FY24-26E APE/VNB CAGR of 18%/17%; we maintain Buy with a target price of Rs 1,860 (2.3 times Mar-26E EV).

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