Another Stable Quarter Amidst a Sluggish Environment HDFC Bank reported a healthy set of numbers in 2QFY20 with NII and net profit growing by 15% and 27% YoY respectively. Gross NPAs was stable sequentially at 1.38%, with slippages contained at 1.8% (annualized) for the quarter. CASA grew by a healthy 15% YoY, with 13% YoY growth in SA deposits. High growth in employee expenses at 23% YoY was mainly owing to rise in emp base and higher gratuity related provisions. Fee-based income grew by a healthy 23% YoY, with 26% growth excluding MF distribution fee. Loan growth during the quarter was driven by home, agri and corporate loans. The lending subsidiary, HDB Financial Services, continued...

Completely defying the realisation challenges witnessed in 2QFY20, Shree Cement (SRCM) has reported a super performance in 2QFY20. While EBITDA zoomed by a stellar 62% YoY (-6% QoQ) to Rs8.4bn (vs. our estimate of Rs6.7bn), cement EBITDA/tonne stood at strong Rs1,451 (Rs314 higher than our estimate) as against Rs946 in 2QFY19 and Rs1,443 in 1QFY20. Higher than expected EBITDA/tonne is attributable to: (a) Rs100 lower opex/tonne than estimated; and (b) Rs213/tonne higher realisation than estimated. Sales volume remained soft as per expectations at 5.72mnT (+1.5% QoQ and -5.5% QoQ), while average cement realisation improved by 9% YoY (-1.1% QoQ) to Rs4,356/tonne despite having significant presence in Eastern region. Cement...

RR's near term growth visibility remains high esp. in grocery and F&L as 1. it seems past its rummaging through formats phase and 2. the addressable market is massive. However, CDIT growth (biggest segment) should cool off as JIO phone sales moderate. We build in revenue/EBITDA/PAT CAGR of 21/26/30% over FY19-22E and assign an SOTP-based fair value of Rs. 2tn (EV), implying 18x Sept-21 EV/EBITDA (Rs. 300/sh) on RIL share count. Reliance Retail continues to outpace peers, albeit pace of growth has come off. Gross revenue grew 27% YoY; Core retail (Grocery/F&L;/CDIT) grew ~35% YoY in 2Q as all key segments performed well. While the network blitz-scaling continues, more impressive is that SSSG remains healthy across its core (5-14%). Leverage manageable, but inching up (1x in FY19 from Zero-debt in FY17). Historically, capital intensity has remained high (Internal accruals funded only 50% of capital needs over FY14-19; That said, post two years of near-exponential growth, the scale achieved might just be enough to cover capital needs through internal accruals going forward. Expect RR to be FCFE positive by FY21E.

LTTS continues to outperform ER&D peers, even as near term growth has slowed. We believe this has more to do with macros, and reckon that LTTS is reasonably resilient with its relatively stronger technical capabilities, diversified vertical mix and niche position in Process Industry and Industrial products. We build USD rev/EPS to post 11.5/14.5% CAGR over FY19-22E. That macros can play a bigger spoilsport than now is the only risk. We maintain BUY on LTTS despite the EPS downgrade (~5%) on weak near-term outlook (2Q nos were in-line). While relative outperformance continues, deceleration in growth trajectory limits our optimism. Our TP is Rs 1,705, based on 18x Sep-21E (20x earlier).

We recommend BUY with a SOTP based TP of Rs240. We value ACEM's standalone cement biz 11x its Jun-21E EBITDA and its 50% stake in ACC at a 20% holding disc. While ACEM's upcoming expansions would not arrest market share, robust profitability has made its valuations attractive. The stock currently trades at 10.5/9.2x its CY20/21E EBITDA and at an EV of USD 120/MT. We recommend a BUY on Ambuja Cements with a TP of Rs 240 (SOTP based). In 3QCY19, strong pricing more than offsets weak demand. Thus, standalone net sales/EBITDA/PAT rose 1/23/31% YoY to Rs 26.26/4.40/2.35bn respectively.

LTI's strong pedigree is reflected in its (1) Broad-based vertical presence (and sub-vertical strategy) with marquee accounts, (2) Strong client mining programs and large deal portfolio, and (3) Leading margin/return metrics vs. peers. Client specific challenges (in BFS and Hi-tech) have probably troughed and large deal trajectory is expected to improve growth momentum hereon. Our revenue/EPS CAGR over FY19-22E is ~10/8%. The stock is not inexpensive at 16.9x FY21E, but we believe LTI has the pedigree to command higher valuations as earnings growth becomes more visible. We maintain BUY on L&T; Infotech (LTI) following an in-line rev/margin performance and unchanged est. Large deal wins, deal ramps and reduction in client-specific challenges provide growth visibility (2H acceleration). Our TP of Rs 1,845 is based on 18x Sep-21E EPS.

Cyient is struggling with issues such as (1) Stress in services business, (2) Challenges in top accounts (3) Issues in core vertical (Aerospace and Communication), (4) Focus on lower margin DLM business, (5) Margin stress due to higher investments, and (6) Higher other income (~30% of PAT). There could be some recovery in performance (both revenue and margins) but concerns related to slowdown in decision making, accelerated trade war risks and higher mix of legacy services remain. Cash generation and collections have improved. We expect USD revenue growth of -0.4/6.9% and EBIT% of 10.4/10.7% for FY20/21E. The stock trades at reasonable valuation of 10.6x FY21E which is ~38% discount to LTTS. Risk to our thesis includes better US/Europe macro and INR depreciation. We maintain NEU on Cyient post in-line revenue and margin miss in 2QFY20. Growth challenges remain in core verticals and margin recovery is slow. We have lowered EPS est. by 1.2/1.4% for FY20/21E and our TP of Rs 485 is based on 11x Sep-21E EPS.

Mastek has been strengthening its executive team, three new additions in past eight months. We believe these are strategic initiatives for driving growth. We like Mastek's initial success in recovering US business and managing the Brexit uncertainty. Mastek will benefit (margin lever) from the off-shoring opportunity (~USD 20mn) arising with UK public sector given its long term relationship with UK government and limited competition from Indian IT. Brexit deal is positive but we would wait for further clarity to bake in our estimates. We expect GBP growth for FY20/21/22E at 0.1/9.6/11.0% and 5.4% EPS CAGR for FY19-22E. Mastek's stake in Majesco US (Rs 94/sh) and net cash (~Rs 79/sh) protects downside. We maintain BUY on Mastek despite slight miss on revenue and margins. Brexit deal announcement is positive but we do not build any optimism in our estimates and will wait for clarity. We cut our EPS est. by ~5% for FY21E. SoTP based TP of Rs 505 implies 9x Sep-21E EPS plus Rs 94/sh for 12% stake in Majesco US.

The company is also a major beneficiary of the recent corporate tax rate cut (FY19 tax rate ~36%) which would improve its profitability and increase the free cash flow generation. The company is expected to utilise the incremental free cash flows towards higher brand investments and...

Supreme is one of the largest plastic processor in India with manufacturing capacity of ~ 6 lakhs tonnes. It has four business division namely Plastic piping division, Industrial products, Packaging products and consumer furniture segments. Supreme Industries is one of the largest PVC pipe and consumer furniture companies with organized market share of ~14% and 26% respectively. Further, Supreme's plastic piping division (contributes ~58% in topline) grew at CAGR of ~15% during FY11-19 (against Industry growth of ~12%) led by sustained demand of pipes from housing and...

The recent tax cut by the government from 33% to 25.2% is likely to boost earnings of Kansai Nerolac (Kansai) by 3% and 6% for FY20E and FY21E respectively. We change our earnings estimates and target price accordingly. We believe a tax cut would help demand revival in both decorative and industrial paint demand (with revival in automotive industry). This would also help organised players to gain market share from the...

High concentration to rural to drive future growth Dabur derives 40-45% of revenue from rural sales vs 35% for the industry, which has led the company to grow at 20% sales CAGR over FY09-14 period. However, rural slowdown due to GST and demonetisation over last 4 years has resulted in a tepid topline growth of ~4% in the last 5 years. Though high base in FY19 and recent rural slackness may impact company's performance in FY20, we remain positive on long term growth prospects for Dabur. We believe that government would increase its measures to improve...

Zee Entertainment overall operating performance was weak given the muted domestic ad growth. Revenues came in at | 2122 crore, up 7.3% driven by 26.8% YoY growth in domestic subscription to |646 crore which was driven by better monetization on account of implementation of New Tariff order. Domestic advertisement was muted at | 1225 crore (up 1.4% YoY), owing to dual impact of conversion of FTA channels into paid and overall weakness in ad environment due to macroeconomic challenges. EBITDA came in at | 692.9 crore, up 2.9% YoY, while consequent margins came in at 32.7%...

PVR reported yet another strong quarter with robust box office performance boosting the topline and bottomline show. Footfalls came in at 29.3 mn, up 25% YoY and much better than our estimate of 20% growth with box office revenues at | 492 crore, up 31.6% (our estimate was 25% growth), The SPH at | 99, grew by 11% YoY, resulting in 38% growth in F&B; revenues. Advertisement revenues grew by 15.6% YoY (ex- SPI, growth at ~8.9%), better than our expectation of overall growth of 12% YoY. EBITDA (without impact of Ind AS116) came in at | 194.4 crore, up 56.8% YoY, and much...

Revenue for Q2FY20 witnessed slow growth both YoY and sequentially (4.0% YoY/2.8% QoQ) in contrast to last quarter's topline performance. Though being the strongest performer historically, BFSIs revenue this quarter was below expectations with a muted revenue growth of 3.6% YoY. The management highlighted that it was mainly due to macroeconomic conditions and lower spending by banking and capital market clients and completion of large digital projects. Energy and Utilities segment grew by 3.6% YoY (6.3% CC) while Health Business Unit had a positive revenue growth of 3.36% YoY (0.58% QoQ), which was in contrast to last quarter's performance....

TVS Motors (TVS) is the third largest two- wheeler manufacturer in India with a market share of 14.8% in FY19. Q2FY20 revenue de-grew by 13%YoY due to sluggish Industry...

We maintain HOLD rating on the stock with a revised target price of Rs.2,210 based on FY21 PE of 55x. Revenue growth in-line with expectations The company reported topline growth of 6.7% for Q2FY20, aided by strong growth in Home Care segment (Rs. 3,371cr./+9.5% YoY), followed by Food & Refreshment (Rs. 1,847cr./+8.4% YoY) and Beauty and Personal Care (Rs. 4,543cr./+5.3% YoY). Despite unfavorable macroeconomic conditions and slow urban and rural demand, companys innovation driven strategy facilitated strong performance and maintained its position...

Federal Bank Ltd is a major Indian commercial bank in the private sector headquartered in Kerala having 1,251 branches and 1,942 ATM/ Recyclers and a loan book size of ~Rs116,000cr. A muted sequential growth in interest income due to the decline in the yield on advances from 9.55% in Q1FY20 to 9.33% in Q2FY20. Business growth was moderate at 17%, with advances and deposits growing at 15% & 18% YoY respectively. The provisions slightly increased on a YoY basis and the bank has...

The stock has surged ~35% in a month and almost fully reflects our bull case, leaving little upside. Government's demonstrably weak stance on auto fuel pricing (across different political regimes), expected credit rating downgrades (likely on losing implicit GoI support on balance sheet) and rich valuations compel us to downgrade BPCL to SELL A group of Secretaries on disinvestment has approved the strategic sale of Government of Indias (GoI) entire 53.2% stake in BPCL. The Department of Investment & Public Asset Management (DIPAM) has floated a request for proposal inviting transactions, legal advisors and asset valuers for this purpose. Yet, there is uncertainty on whether this will lead on to genuine privatisation or yet another stake sale to a Public Sector Unit (PSU).