Research Reports published by HDFC SECURITIES

Tata Consultancy Services Ltd.    
04 Jul 2020, 04:06PM
HDFC Securities
We expect demand recovery from 2Q-3Q, supported by (1) strong digital playbook, (2) recovery in deal contracting with increase in consolidation deals (advantage Indian Tier-1s) as enterprises consolidate their tech portfolio, and (3) tech budget normalisation in 2Q for impacted verticals. Following -1.5/-6.0% QoQ in 4Q20/1Q21E, we have factored -0.6/+1.5/+2.8% QoQ in revenue over 2Q-4Q21E. The IT sector margin is expected to decline 95bps QoQ. Profitability is expected to be impacted by lower utilisation, pricing, cross-currency (GBP), lower forex gains and should be offset by (1) INR depreciation, (2) lower travel and discretionary spend, (3) deferral of wage increase and variable payouts cuts/deferrals, and (4) lower sub-contracting. We expect the margin trajectory to bottom out in 2Q. Subsequent margin recovery is premised on (1) demand recovery leading to utilisation recovery (onsite utilisation to precede offshore), and (2) continuity in optimal SG&A, including travel and sub-contracting rationalisation. IT sector (coverage universe) is expected to post -6.1/-3.7% QoQ/YoY in 1QFY21E revenue with cross-currency impact of -15 to -70bps QoQ. We expect Tier-1 IT revenue to decline between 5% and 9% QoQ while Tier-2 IT is expected to display a wider divergence (-2 to -14% QoQ). COVID-related economic impact on sectors like travel and transportation, O&G;, retail & CPG (discretionary) will be accentuated in 1Q (dual impact of price/volume cuts and deal deferrals/cancellations), while BFSI, healthcare, retail & CPG (non-disc.) and hi-tech verticals will be more resilient (deal-deferral impact, but resilient on pricing/volume).
Tata Consultancy Services Ltd. is trading above it's 200 day SMA of 2045.5
Market Movement    
TREND | 04 Jul 2020, 03:44PM
HDFC Securities
We see limited upsides across our coverage universe post the recent run-up, except financials and infra names where anyways recovery could take longer. Our preferred sectors are Telecom, IT, Chemicals, Pharma, Insurance, large banks, Cement, Gas while we are underweight consumption (staples, discretionary and autos). Our large cap picks in model portfolio include RIL, Bharti, Infosys, ITC, SBI Life, ICICI Bank, Axis Bank, L&T. Within mid-caps we like Max Life, IGL, Gujarat Gas, Crompton Consumer, Alkyl Amines, Galaxy Surfactants, JK Cement, KNR Construction. Nifty (ex-financials) is back to pre-covid peak levels and overall Nifty valuations back to ~18x FY22 PE (after consensus building in only 2% EPS decline in FY21 and 35% yoy growth in FY22). While earnings are difficult to predict near term, it remains to be seen if consensus can be right in FY21/FY22 after 6 consecutive years of significant overestimation. We still see downside risks to our and consensus FY21 and FY22 estimates. HSIE coverage universe has seen 12%/27%/15% EPS cuts for FY20/FY21/FY22 since Feb and building in -5%/36% yoy growth in FY21/FY22. Key swing sectors from overall earnings picture remain Energy and Financials which disappointed in FY20 and likely to remain so in FY21.
HDFC Securities released a report for Market Movement on 04 Jul, 2020.
Automobiles & Auto Components    
SECTOR | 03 Jul 2020
HDFC Securities
We have a BUY on Maruti, Hero and Escorts and are cautious on CVs (Ashok Leyland) and premium discretionary (Eicher). Amidst the COVID disruption, auto/logistic companies have done well by controlling costs, scaling down capex and improving capital allocation in 4QFY20. These cost control measures have led to better-than-expected EBITDA margins. While capex has been cut by 30-70% across the board, companies have also allocated capital better by exiting loss-making global segments and seeking alliances with partners for sub-scale businesses. The NIFTY AUTO index has, resultantly, rallied ~50% from its lows due to the above and a pick-up in volumes for entry-level and rural-centric products (tractors, 2Ws and A segment cars).
Ashika Research released a Sector Update report for Automobiles & Auto Components on 02 Jul, 2020.
Consumer Durables    
SECTOR | 02 Jul 2020
HDFC Securities
In the FMCG universe, Nestle, Radico, Jubilant and Britannia outperformed, clocking a revenue growth of 11/15/4/2% respectively. Packaged Food and Hygiene products saw a surge in sales, which should continue in 1QFY21. Also, primary sales are expected to be strong in 1QFY21 due to partial restocking. Most companies have resumed normal operations in June, and expect a gradual pickup here onwards. Rural is expected to do better, at least in the near term, led by reverse migration and robust agri economy. However, we remain cautious and selective within the sector due to the unfavourable medium-term risk-reward, given modest absolute growth relative to expectations and valuations. Despite defensive characteristics, we are underweight on the sector in our model portfolio. We recommend BUY on ITC and Radico and ADD on UNSP and Colgate. The HSIE Consumer-Index sales declined by 7% YoY in 4QFY20 (+10% in 4QFY19 and +5% in 3QFY20) as the COVID-induced lockdown has heavily impacted supply chain across categories. The three-year CAGR (which normalises all base adjustments over the past three years) in 4QFY20 was +5% YoY, supported by healthy growth of the past two years. Categories which outperformed our index in 4QFY20 are QSR and Dairy, clocking 2/-1% YoY growth. The Hair Care, Personal Care and Footwear categories have been impacted the most, contracting by 17%, 18%, and 12% YoY respectively.
HDFC Securities released a Sector Update report for Consumer Durables on 02 Jul, 2020.
HDFC Securities
Our TP is INR 86 (8x EV/e Sep-21E standalone earnings and INR 25 from investments).The stock is currently trading at 2.4x FY22 EV/e. Our ADD recommendation on ONGC with a TP of INR 86 is premised on rich OCF yield of 6/35% and divided yield of 14% for FY21/22E. We believe the current valuations are contextually low after adjusting for investments (OVL+ other) at 4.0x FY22 PER
Oil And Natural Gas Corporation Ltd. is trading above it's 100 day SMA of 81.1
HDFC Securities
Key risks include (1) Slowdown in government capex; (2) High cost inflation; (3) Extended lockdowns across States; (4) Lower than expected leasing in Kota BOT project. We maintain BUY on AHLU with unchanged TP of Rs 265 (10x FY22E EPS) despite 20% 3QFY20 miss on APAT. We downgrade our FY21E EPS by 68% to factor in higher than earlier envisaged COVID impact on execution, esp. in urban centres like MMR/NCR. We retain FY22E estimate. Ahluwalia is well placed to counter near term COVID related execution challenges owing to robust order book and strong BS. Execution efficiency now stands at ~25% and will normalise only by 4QFY20 ramping up gradually (May-15%, June-25%, July-35-40%, Aug-50%. We continue to remain patient as execution has started across all projects and will pick up full steam only by Sep-20, with overhang of stuck projects & write-offs now largely behind. While Parivahan/Gardanibagh/Mohammadpur projects are in preparatory stage with all approvals now in place and work having started, Rs 5.5bn Charbagh Station redevelopment has been foreclosed due to environment hurdle. Rs ~1.5bn Delhi Govt order has also been cancelled. The Robust balance sheet, net cash status and better than peers RoE/RoCE are other comforting factors, even as EBIDTA margins have trended downwards on one offs.
Ahluwalia Contracts (India) Ltd. has gained 16.56% in the last 1 Month
SECTOR | 01 Jul 2020
HDFC Securities
Current trends in the industrial and service segment are a consequence of higher working capital limit utilisation by businesses, and the moratorium, we believe. Non-food credit growth is likely to trend down gradually until the effect of the moratorium wears off. Post that, one can expect a more perceptible decline as we do not see any major uptick in credit demand. Non-food credit growth slowed slightly to 6.8% YoY (vs. 7.3% in Apr-20). This was a result of a sustained slowdown in personal loan growth, which came in at 10.6% YoY (slowest in the last ~10 years). The personal loan segment has been impacted the greatest by COVID-19 (the segment registered a 17% YoY growth in Feb-20). Industrial (+1.7% YoY) and service credit (+11.2% YoY) growth figures were nearly identical to Apr-20s.
HDFC Securities released a Sector Update report for Banks on 01 Jul, 2020.
Havells India Ltd.    
30 Jun 2020
HDFC Securities
Current state of business: Business has normalised currently, post washout in April and sub-normal business in May. Demand at consumer level is being witnessed across categories. Management is not witnessing any down-trading in different product categories; hence, don't foresee major risk to realizations. Recovery has been swifter in rural India. Tier 1 and 2 cities are still not doing well in terms of demand as key distribution centres in metros are not fully functional due to local regulations. Havells is at marginal disadvantage due to comparatively lower presence in rural markets. Industrial demand has not picked up yet. However, some green shoots are visible in the form of government orders. Capacity utilisation of plants has reached normalised levels. Company has sorted out labour issues. Havells India - Takeaways from call recently hosted by HDFC Securities Institutional team
HDFC Securities released a Accumulate report for Havells India Ltd. on 30 Jun, 2020.
Petronet LNG Ltd.    
30 Jun 2020
HDFC Securities
Our TP is INR 280 based on Sep-21E cash flows (WACC 10%, Terminal growth rate 3.0%). The stock is trading at 12.0x FY22 EPS. Our ADD recommendation on PLNG with a TP of INR 280 is premised on a robust volumes offtake in 2HFY21 and FY22E as (1) Benign LNG prices will ensure high LNG imports, in turn allowing full utilisation at Dahej on its expanded capacity, and (2) Completion of Kochi-Mangalore pipeline by Jul-20, which will subsequently raise utilisation at Kochi.
Number of FIIs/FPIs holding stock rose by 9 to 757 in Mar 2020 qtr.
Subros Ltd.    
30 Jun 2020
HDFC Securities
We maintain our ADD rating on the stock. We believe that while Subros will benefit from a recovery in volumes at Maruti Suzuki- its largest customer (which accounts for over 3/4th of revenues), the diversification initiatives are delayed due to the COVID outbreak (home AC segment ramp-up is pushed back, CV and other segments will witness sluggish trends).
Subros Ltd. is trading below it's 100 day SMA of 180.0