Tata Power, IRB Infra, CESC, Bharat Forge, Persistent systems, HPCL, LTIMindtree: Managements share biz updates

At Antique’s Investor Conference: “Build India, New India”, a host of managements including that of Tata Power Ltd, CESC, Bharat Forge Ltd, Arvind Fashion Ltd, Persistent Systems Ltd, HPCL and LTIMindtree Ltd shared updates on their businesses. Antique Stock Broking jotted down the key takeaways from its interaction with the management.  

Arvind Fashions

In the case of Arvind Fashions, the company is optimistic about its growth based on expansion of exclusive brand outlets (EBOs) in Tier 2 and 3 cities, following an omni-channel strategy, expanding product offerings across brands through adjacencies like footwear, kids’ wear, women’s wear etc and driving like-to-like growth.

Arvind Fashions, Antique Stock Broking said, wants to open 200 stores every year. However, the expansion would be in a calibrated manner as they are focusing on profitable expansion. The aim is to become a zero-debt company in the next 2-3 years. A large part of the expansion would be through the franchise model (FOFO). The average store size is 1,500 square feet with a payback period of 3-4 years.

Arvind Fashions wants to increase contribution from the retail channel to 50 per cent in the near term from around 40 per cent right now. Gross margin is higher in the retail channel as the saliency from full-price sales is higher (lower discounting). While the percentage margin from the retail channel is lower but the absolute profitability is higher. Inventory of EBOs are on the company’s book which gives better control and helps in managing inventory. Arvind Fashion has worked on revamping its product portfolio and the quality of the Arrow brand. The company started premium offerings with 1851 and Arrow New York. The formal wear saliency is 40 per cent in Arrow.

Arvind Fashions aims at a double-digit pre-IndAS margin for Arrow in the next 2-3 years vs. low single digits currently, largely through operating leverage. The Ebitda margin MBO channel is the highest followed by departmental stores (LFS) and online and retail channels.

Bharat Forge

Bharat Forge indicated that the CV cycle is currently showing signs of slowdown in the export market while the PV business continues to standout and the company expects Rs 1,200 crore revenue in FY24 against Rs 950 crore the previous year. Bharat Forge entering new markets through multiple OEMs has helped it in gaining share in the export PV segment. It continues to prioritise the export business against the domestic one due to better revenue visibility. On the industrial side, Bharat Forge is currently facing challenges in the oil and gas business and it expects revenue to decline by 50% in FY24.

Bharat Forge sees defence as a big step. Nearly 95 per cent of its total defence business is in exports. And to support growth, KSSL’s new plant should be operational by 1QFY25/ 2QFY25. The company sees defence revenue to be at INR 10 bn in FY24 and targets Rs 2,500 crore in revenue in another 2-3 years.

Bharat Forge has guided the overseas subsidiary revenue to be at Rs 5,000 crore in FY24. In foreign entity, steel business margins are generally in the range of 6-7 per cent while aluminium business is at 16-17 per cent which provides a big opportunity for the company.

Bharat Forge reported Rs 170 crore revenue in aerospace in FY23 and expects Rs 22 crore revenue in FY24. It sees the revenue to grow at 20 per cent for the next two years conservatively with high margins. The company has guided for Rs 1,000 crore capex mainly towards press lines.

CESC

CESC is planning to add 3 GW of RE assets through solar and wind hybrid model. Power demand could grow at 1.2 times GDP, Antique Stock Broking said. CESC Projects is a successful bidder for setting up 10,500 MT/annum of Green Hydrogen production facility under the Strategic Interventions for Green Hydrogen Transition scheme,issued by the SECI.

From April 1, 2023, with a change in regulation, carrying regulatory assets can earn one-year SBI MCLR rates. This helps CESC's book carrying costs in addition to regulatory income. That said, company is conservative while using this option.

The liquidation of these assets depends on APTEL, where CESC claims to have filed an application and APTEL does not have adequate members to hear the case, as of now. Chandrapur-600 MW has two PPAs (long-term 300 MW, medium term: 230 MW with the Indian Railways) and open market capacity of 70 MW. Spot tariffs have increased significantly, which can help the company improve profitability, Antique Stock Broking said.

"With the addition of cheaper renewable energy, the company’s costs will go down thus reducing the dependence on regulatory income and improving cash flows," it said.

HPCL

HPCL said Vizag residue upgradation project will give $3-4 per barrel higher gross refining margin (GRM) on the entire Vizag refinery. Distillate yield will jump from 75 per cent to 85 per cent. Currently, the yield has already reached 80 per cent with Hydrocracker in place, Antique Stock Broking noted.

"The bottom residue upgradation unit has 3.5 mtpa of capacity which means that the company can also use the outside fuel oil to be upgraded to diesel, apart from its own fuel oil. Barmer is 77 per cent completed. A total of Rs 41,000 crore has been spent out of the total of Rs 73,000 crore. Debt: equity funding for the project is 2:1, implying a total equity contribution of Rs 24,000 crore is equity, of which HPCL is at Rs 18000 crore," Antique suggested.

The Barmer CDU (crude oil distillation unit) is 90 per cent complete. Another 3-4 units have been mechanically completed. Refinery mechanical completion is expected by mid of FY25 and full operations are expected by January 2025. There is Rs 50,000 crore in debt currently on the HPCL books. The company doesn’t intend to take any further debt for capex.

In the case of Lubricants business, demerging the business will unlock a lot of flexibility and other cost

benefits if the stake falls below 50 per cent. A separate subsidiary has not yet been formed, Antique noted. HPCL has onboarded a consultant to guide through the whole process. Meanwhile, Chhara pipeline connectivity is expected in the next 15 days.

IRB Infrastructure Developers

IRB Infra's total order book now stands at Rs 36,000 crore. Within this, the EPC order book is at Rs 7,000 crore. The next two years’ executable order book, including EPC and O&M, is close to Rs 10,000 crore and is providing good construction revenue visibility for the next two years. IRB noted that 1,00,000 km of national highways are expected to be constructed by 2030, with Rs 50 lakh crore capex.

"Roads-through BOT (toll) are making a comeback with eight tenders worth more than Rs 20,000 crore being floated in December 2023. IRB will execute these BOT projects through Private Invit; equity requirement will be reduced to 51 per cent i.e. close to 15 per cent of the project cost. The aggregate toll collection reported for January 2024 is Rs 466.80 crore, as against Rs 374.80 crore in January 2023," Antique noted.

IRB Infrastructure Trust has bagged two projects i.e. 1) TOT 12 – Tolling, operation, maintenance, and transfer of four lane Lalitpur-Sagar-Lakhnadon for an upfront consideration of Rs  4,400 crore to NHAI for revenue- linked concession period of 20 years. The second TOT 13 comprised of Gwalior-Jhansi section on NH-44 and Kota Bypass on NH 76 for an upfront consideration of Rs 1,900 crore to NHAI for revenue-linked concession period of 20 years. The company plans to transfer the ongoing HAM assets to the public Invit, once they are completed.

Persistent Systems

Persistent Systems' BFSI segment was impacted by furloughs in the recent quarters and the segment should see some improvement going forward, Antique Stock Broking note.

"Growth in the Healthcare & Life Sciences should be decent and sustained in the coming one-two quarters followed by Software and Hi-tech, which continues to be robust. Management booking deals in three areas: 1) Security-focused service companies, 2) The convergence of data and healthcare sectors, and 3) Geographical segments offering added value. Deal tenures continue to be longer and PSYS is now competing with top Indian and global peers in many deals," Antique said.

Persistent Systems is optimistic about the potential for the private-equity channel to generate revenue and enhance its performance in the forthcoming years. It is witnessing positive momentum across all cloud platforms, with AWS showing slightly stronger performance compared to Microsoft and Google.

Persistent Systems aspires to achieve margin expansion of 200-300 basis points in the next 2-3 years, driven by gross margin (100 bps), SG&A, and utilisation.

"Expectations are that Persistent’s revenue growth will be industry-leading in FY24/ 25E, driven by market share gains and a strong deal pipeline. In the GenAI space, the management is seeing green shoots of large opportunities, which can reach $100 billion over the next two to three years," Antique said.

RITES

RITES offers consultancy services across 13 different verticals. It won an export order from Mozambique. There is potential for new inflows—Zimbabwe and Bangladesh, where negotiations or L1 is yet to translate into LoA, Antique Stock Broking said.

Besides these two countries, RITES is exploring options to win new order inflows across 4–5 countries given the lag between winning and executing an order is 12–18 months, the key lies in squeezing the timeline.

The company is focusing on exports to African countries, as these companies need evacuation in their mineral rich sites. RITES follows the strategy of winning an order-a-day. The order backlog of Rs 5,500 crore is spread across: Rs 2,600 crore in consultancy (48 per cent of order book); Rs 2,300 crore in construction (42 per cent of order book); Rs 300 crore in exports; Rs 180 crore in lease; and Rs 120 crore in REMC. On an average construction projects will contribute 25 per cent of the total revenue. There is 50-50 split between nomination and competitive orders, Antique Stock Broking said.

"Margins vary from project to project depending on the complexity, with a range from 8 per cent to 35 per cent, on average they will be 20 per cent. The company is looking to grow Ebitda on FY23 base in FY25E as exports start contributing to overall business," Antique said.

Tata Power Company

Tata Power has 5.5 GW of clean and green in its portfolio, with further 3.7 GW under construction. Tata Power aims for 15 GW-plus by FY27E, and 20 GW-plus by FY30E. It has thermal generation operations of 9 GW. Two-thirds of the 3.7 GW under construction is from a large utility segment, and the remaining is from the group captive segment.

Tata Power has 5,300 public charging stations and its target is of 10,000 charging stations. Module prices are reducing as polysilicon prices are reducing, Antique Stock Broking noted.

Tata Power will incur a capex of Rs 13,000 crore for pumped hydro storage projects. When RTC green energy is offered to C&I clients, the company can make 18 per cent equity IRR. Tata Power is aiming for 30 GW RTC power through PSP projects. There is a rising trend of RE hybrid with storage tenders. PSPs are established or proven models, costing less than Li-ion batteries. Tata Power is currently developing 2.8 GW PSP projects and has the potential for a further 11 GW.

 

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