Despite the continued struggle to grow revenues in FY20, market share gains were unprecedented. It reflects BRIT's strong execution capabilities in the challenging phase. Although new product launches will be slow in the near term, we believe BRIT will bounce back in 2HFY21. BRIT can become a total snacking company as it has all the right ingredients i.e. brand strength, deep distribution, superior management execution and operating scale. Besides, we expect BRIT to continue gaining share in biscuits led by premiumisation and distribution expansion in Hindi belt. BRIT's 3Q performance was soft and revenue grew at slow pace of 4% (11% 3QFY19, 6% 2QFY20) vs. expectation of 7%. Weak rural demand continues to impact BRIT and 9M revenue growth was at 5%. However, market share gains were significant and unprecedented. Considering weak offtake, BRIT is focusing on strengthening the core i.e. (1) Higher focus on distribution reach, (2) Efficient supply chain to improve ROI for trade partners and (3) Targeted product campaigns. Co is consolidating new launches and concentrating efforts on depth of distribution. Steep inflation has been well managed by RM hedges and reduction in wastages. GM was down by mere 44bps. While, cost efficiencies and control on overheads (flat ASP) has improved EBITDA margin by 94bps. EBITDA growth of 11% was healthy. We cut estimates by 3% to factor slower recovery. We value BRIT at 45x P/E on Dec-21E EPS, arriving at a TP of Rs 3,551. Maintain BUY.
We remain constructive on GAIL as the risk/reward is favorable. India will derive higher benefit from the low LNG prices as the domestic natural gas ecosystem (CGD network, RLNG terminals, pipelines, revamp of fertiliser plants) develops. New US liquefaction terminals will boost RLNG exports and also keep Henry Hub (HH) prices subdued, enabling GAIL to swap cargoes. Thus, US LNG is not a concern. Maintain BUY. We maintain BUY on GAIL following a performance in-line with our PAT estimates in 3QFY20. Our target price is Rs 190/sh (6.0x Dec-21E EV/e for the stable Gas and LPG transmission business, 5.0x EV/e for the volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC business, Rs 42 for investments and Rs 11 for CWIP) versus the consensus TP of Rs 168.
We like MGL since we do not foresee any significant regulatory adversity in its CGD business either through a change in gas allocation or capping returns. Its loyal customer base of CNG and commercial establishments (who together comprised 79% of Q3's sales mix), that are less price sensitive than industrial customers enable it to maintain per unit margins higher than peers. We see the risk/reward as favorable. Weaker operational metrics in terms of volume growth, feeble earnings growth and lower return ratios compel us to value MGL at 19x Dec-21E EPS vs 25/20x for IGL/GGL. MGLs Q3 EBITDA/PAT was above our estimates owing to better per unit margins. We maintain our BUY despite muted volume growth given its remarkable pricing power (hence, better spreads) and inexpensive valuations (15.6/15.3x FY21/22E PER) versus its peers (IGL 27.8/24.6x and GGL 24.5/21.3x). Our TP is Rs 1,475 (19x Dec-21 EPS) vs the consensus TP of Rs 1,165.
With a muted residential pre-sales backdrop, ORL is utilizing surplus cash flows to build robust lease asset portfolio. Work has started on Oberoi Borivali/Worli mall and Worli Office/Commerz III. Whilst in initial stages of construction and leasing, the rental potential of the ORL portfolio is expected to increase from Rs 3.3bn to Rs 15-18bn over next 3yrs. This shall then become REIT able and unlock value for shareholders. Residential projects sales velocity has been muted except for Borivali project, which is seeing strong demand due to lack of large gated project in the micro market. Mulund is seeing strong over supply with stressed projects being taken over by credible real estate players like L&T/Prestige Estate. ORL is building out affordable luxury product in Thane which shall augur well for volumes recovery/pre-sales velocity. We maintain NEU. Key risks (1) Approvals delays; (2) Continuation of weak underlying demand and (3) Delays in pre-lease tie up of under construction lease portfolio. ORL reported Revenue miss of 5% while EBITDA/PAT beat came in at 3.7%/4.1%. Pre-sales remain sluggish despite new inventory being opened up. Lease assets are shaping up on ground, we incorporate Borivali mall in our valuation. We maintain NEU with SOTP-based TP of Rs 573/sh (vs. Rs 539/sh earlier). We have reduced our FY20/FY21E EPS estimates by 50.6%/18.6%.
Voltas is winning through better product range across the pyramid i.e. mass (window), mass premium (fixed speed and inverter) and premium (7 star products for EESL). This is in contrast with peers who have migrated towards inverters and 5-star products. Low channel inventory drives visibility for healthy growth in the coming quarters. While, RAC supply issue from China will remain overhang in the near term. Gradual recovery in EMPS can be a catalyst to improve overall performance in FY21. Voltas delivered another strong show in its UCP business while lumpiness in EMPS dragged the overall performance. UCP rev/EBIT growth at 14/36% with market share gain was heartening. Voltas has been able to manage rising competition better than its peers. EMPS rev/EBIT was down by 8/46% on account of slow execution (liquidity crisis impacting visibility of payments). While strong order book (40% YoY) gives visibility of ramp up in project business in 1HFY21. We cut EPS estimate by ~5% to factor-in delayed recovery in EMPS. We value Voltas on SOTP basis, EMPS/EPS/UCP at 17/20/35x on Dec-21 EPS and Volt-Beko at 1x P/S, translating to a TP of Rs 724. Maintain BUY.
NIACL is India's largest insurer but continues to make high underwriting losses (9MFY20 COR: 115.8%). We also note company's competitive positioning is only weakening and thus we remain concerned of company's ability of write high quality (profitable) business in the near future. We estimate an FY22E adj. RoE of just 7.1%, and can at best assign a valuation of just 0.65x Dec-21E ABV (less 5% discount for expected 10.4% supply). We rate NIACL a SELL with a higher TP of Rs 130. Driven by a 1,230bps improvement in claims ratio, NIACL reported a better than expected adj. COR of 115.7% (-1,150bps YoY). NEP grew 11.7/4.9% YoY/QoQ to Rs 61.8bn. High investment income (Rs 22.3bn, +65.1% YoY) and low tax rate (17.3%) ensured a high APAT of Rs 10.7bn (vs. -1.1bn in 3QFY19). Post tax one-offs on account of provisioning for gratuity and pension dented profits by Rs 5.8bn to an RPAT of Rs 4.9bn. We retain a SELL with a higher TP of Rs 130.
Sluggishness in its home state and a conscious effort to focus on less risky (low ticket LAP) and salaried home loans, and no major branch addition plans will curtail growth, in spite of REPCO's small base and healthy CRAR. Inexpensive valuations underpin our stance. Even the ascription of a measly 1.3x multiple, yields a considerable upside. REPCOs 3Q was in line with estimates as growth slowed (9%) and NIMs expanded (+30bps QoQ). Asset quality was stable QoQ. Maintain BUY with a TP of Rs 422 (1.3x Dec-21E ABV).
We increase our TP to Rs 595 based on 9x (~18% discount to 5Y average) FY22E EPS plus Rs 31/sh for residual 4.7% stake in Majesco US. Mastek announced the acquisition of Evosys in a two step transaction, which involves cash payout of USD 65mn and dilution of 17.5% in Mastek Ltd. The deal is valued at EV/EBITDA of 9.2x and P/E of 11.2x based on FY19 financials and 70% economic interest. The deal is EPS accretive and will boost FY21/22E EPS by 11.8/14.1% respectively. Post the traction, Evosys promoters will hold 15% in Mastek Ltd and 30% CCPS in TAISTech, converted to equity based on targets over the next three years. This is a complex traction but involves value unlocking and diversification of revenue. Risk involves higher dependence on Oracle and multi geography footprint, which the company has not handled before.
While KEC T&D and Railways segment continue to drive revenues, civil segment has de-grown 21% YoY on back of overall weak outlook. Cable segment revenue de-grew 20% YoY on the back of correction in commodity prices given that it operates on a cost plus model. New order inflow has been below expectation resulting in guidance downgrade. Green Energy Corridor and SEB ordering are expected to drive T&D ordering with PGCIL capex and ordering not expected to significantly ramp-up over the medium term. KEC is trying to diversify beyond T&D segment through ramp-up in order inflows from Railways and Metro for both electrification and civil work. With MENA, far-east, Malaysia and Mexico expected to drive international order, an uptick in inflow from these regions remains a key re-rating trigger. Key risks (1) Adverse currency/commodity movement, (2) Further delays in capex recovery, (3) Slowdown in government T&D capex and (4) Further NWC deterioration. We maintain BUY on KEC International Ltd. (KEC) with a revised TP of Rs 390/sh (vs Rs 369/sh earlier) valuing the stock at 14x FY21EPS. Though execution continues to be in-line with expectation, headwinds remain on new order inflows from domestic T&D; segment. PGCIL order awards are expected to remain muted over the medium term and diversification beyond T&D; segments shall drive new order inflow.
Buoyed by the response to the promotional campaign at Life Republic, KPDL recorded robust pre-sales enabling the company to stay on track for its pre-sales target for FY20E. Though lack of new launches during 2HFY20 is a dampener, KPDL has a strong launch pipeline across Mumbai and Pune for FY21E with 3 commercial projects slated for launch in Pune. Mumbai and Bengaluru continue to be key markets for the company outside of its home base. We derive comfort from large part of KPDL portfolio being affordable and mid-income segment. We remain constructive and maintain BUY. Key monitorables: (1) Aggressive competition in home market, (2) Leverage position. KPDL financial performance under POCM was ahead of our estimates. Pre sales picked up in 3QFY20 after a weak 2QFY20. Stable collections and Net D/E within acceptable limits are other key positives. Maintain BUY with revised TP of Rs 310/sh.
