We estimate Star to deliver consol EBITDA CAGR of 8% during FY19-22E (in-line consensus). We continue to like Star for its leadership positioning in the lucrative NE region, which drives its industry leading op margin and healthy return ratios. Further, its net cash position currently boosts its expansion capability. Thus, we value it at 10x EV/EBITDA (15% premium to its 5-yr mean), leading to TP of Rs 135 (10x Sep'21E EBITDA). We maintain BUY on the stock. We maintain BUY on Star Cement with a TP of Rs 135 (10x Sep21E consol EBITDA), implying EV of USD 176/MT.
We like Dalmia for its strong cost control (boosting margin despite weak pricing) and distribution (steady mkt share gain across south and east). Further, its balance sheet remains stable, even as it scales up capacity to become third largest in India. Thus, we value the co at a 20% premium to its 5-yr mean EV/EBITDA multiple of 10x. Maintain BUY with a TP of Rs 1,245 (12x Sep'21E EBITDA). We retain BUY on Dalmia Bharat with a TP of Rs 1,245 (12x Sep21 consol EBITDA, implying EV of USD 124/MT).
Mphasis' growth profile is supported by traction in Direct Core, sustainable recovery in Digital Risk (cross-sell) even as the FY17-19 DXC-HP growth delta fades. Strong deal trajectory (USD 189mn TCV NN in 3Q) largely in new-gen services, strong traction in T2-10 accounts and new logo/Blackstone portfolio (2 logos in T20) are expected to drive growth. Expect 10.3/12.1% USD rev/EPS CAGR over FY20-22E. We maintain BUY on Mphasis following a strong Direct Core-Digital Risk performance. Growth drivers in Direct Core are intact, but DXC-HP risks persist. Our TP of Rs 1,010 values Mphasis at 14x Dec-21E EPS (at 5-yr avg vs. 16x earlier) resetting target valuations to adequately reflect risk-reward.
Key downside risks: slower ramp up in Ilumya, higher price erosion in the US, lower growth in the India, adverse outcome on SEBI's probe on whistle-blower complaint, drug price fixing lawsuits in the US. We resume coverage on Sun Pharma with a Buy rating and TP of Rs 500 based on 22x FY22 EPS. Suns business outlook for the next two years will be driven by ramp up in specialty portfolio led by Illumya and Cequa. We expect the improved traction in specialty sales will drive operating leverage and aid margin expansion. This, along with healthy growth in India and EM markets will drive 14% earnings CAGR over FY20-22e. The stock trades at attractive valuation of 19x FY22 EPS , ~10% discount to its 5-year average PER.
With a balance launch pipeline of ~5.1mn sqft in residential segment and ~2.9mn sqft leasing in commercial segment the company remains well on track to achieve the pre-sales guidance of ~4mn sqft in residential and ~3mn in pre-leases for FY20E ex 0.7mn sqft of hard option. The quarter witnessed improvement in collections (+27% QoQ). Mid-income and affordable segments are expected to drive residential sales with ~86% of BEL new launches in the affordable housing segment. Whilst pending pre-tax cash flows of Rs 22.9bn from real estate projects should cover the capex requirement of Rs 9.3bn primarily towards commercial projects, timing mismatch could result in further increase in D/E ratio. We maintain NEUTRAL. Key monitorable: (1) Leasing velocity in Bengaluru SEZ project and (2) Timeline for conclusion of hospitality business divestment. We maintain NEU on BEL with increased SOTP-based TP of Rs 252/sh (vs. Rs 228/sh earlier). BEL maintained strong residential pre-sales momentum and completely leased out Chennai WTC. We await pick in Bengaluru Tech Garden leasing (30% leasing till date).
Lupin's Q3 EBIDTA margin came below expectations at 11.4% (down 588bps YoY, down 190bps QoQ) led by higher other exp (remediation cost, higher promotional spend) and R&D cost. Large one offs related to Gavis impairment, Japan divestiture led to reported loss of Rs83.5bn. We resume coverage with a Neutral rating and TP of Rs705/sh based on 20x FY22 EPS. Lupin has an excellent India franchise (35% of revenues, grew at 13% CAGR over last 5 years), however, with 40% of revenues from US, a lot hinges on pipeline execution, outlook for which is contingent on: a) execution of three key assets Levothyroxine (market share ramp up), Solosec (branded product) and approval for gProAir; b) resolution of compliance issues at its US FDA facilities (5 with OAI status including 2 WL). While we factor increased traction in the US and also build margin expansion on back of cost control efforts & operating leverage, valuations at 21x FY22 EPS appear full.
We like IGL given (1) Strong volume growth of ~11% CAGR over FY20-22E, (2) Portfolio of mature, semi-mature and new GAs and (3) Pricing power as evident in 3.9% CAGR growth in per unit EBITDA over FY17-9MFY20 to Rs 6.4. Superior operational metrics (~80% CNG+D-PNG volume), strong earnings growth and healthy return ratios compel to value IGL at 25x Dec-21E EPS vs 19/20x for MGL/GGL. We maintain BUY on IGL following a performance in-line with our PAT estimates in 3QFY20. Our target price is Rs 545/sh (25x Dec-21E standalone EPS and 23x Dec-21E MNGL and CUGL) versus the consensus TP of Rs 435.
Over FY18-20E PNC has delivered 68% Rev CAGR on back of robust order inflows. Order inflow for FYTD20E has been weak at Rs 10bn. PNC needs to win Rs 50-60bn of new orders during 4QFY20 to prevent a PE de-rating. NHAI bid pipeline is strong with limited competitive intensity in HAM segment. We expect PNC to win Rs 52bn new order during 4QFY20E. Balance sheet is strong with net cash of Rs 900mn as of 3QFY20. NWC has reduced to 56days and best amongst peers. Ghaziabad Aligarh monetization proceeds of Rs 3bn will provide further comfort on HAM equity funding. We maintain BUY. Key risks (1) Slowdown in NHAI ordering; (2) Delay in HAM projects monetization. Whilst PNC reported 3QFY20 Rev/EBIDTA/APAT miss of 9.8/9.4/10.7% respectively we have retained our FY20E Rev estimate. We maintain BUY on PNC with a SOTP based TP of Rs 339/sh (18x FY21E EPS). We have increased our APAT estimate by 6/0.3% for FY20/21E to factor in higher other income and lower tax rate.
With slow movement on inventory of Rs 48bn in the luxury projects of DLF Phase V, the company is recalibrating its go-to market with conversion of plotted land-bank to low-rise independent floor development with Rs 1.5-3mn ticket size. This shall enable the company to bridge the gap in sales. Though the net debt is expected to remain in the same range as of 4QFY20, through accelerated monetization of inventory coupled with monetization of its land bank and land entitlements, the company plans to reduce net debt to ~Rs 20bn. We maintain BUY. Key risks (1) Further delays in monetization of luxury segment inventory (2) Inability to fully utilize mark-to-market potential from rental assets. DLF luxury real estate continues to suffer from weak demand, elevated property prices and hence slower churn in ready inventory. Leasing portfolio continues to perform and with addition of new assets we have increased our SOTP-based TP to Rs 284/sh (vs. Rs 265/sh earlier). Strong balance sheet augurs well for lease asset portfolio growth.
We remain constructive on AACL owing to healthy product demand from the Pharma/Agro industries, impending capacity expansion for multiple products and rising market share in Methyl Amines. Owing to better (1) Margin profile (EBITDA margin of 22-25% in FY20-22E vs ~19% for Balaji amines), (2) Return ratio (RoE of 38.5/29.8/25.4 in FY20/21/22E vs 16.1/15.1/13.5% for Balaji amines), we ascribe a valuation multiple of 22x Dec-21 EPS to Alkyl amines as against 13x for Balaji Amines. AACL beat our EBITDA/APAT estimates by 29.1/55.5% in Q3FY20. We bump-up our FY20 EBITDA estimate by 25.1% to factor in the 9MFY20 performance. We maintain BUY with a revised TP of Rs 1,840 (22x Dec-FY21 EPS).
