Re-iterate BUY as (1) Bajaj is well prepared for BS-VI due to its tie up with KTM. Further, 3W/exports are ~50% of volumes which provides cushion against volatility in domestic 2Ws. (2) Co is launching new premium brands in India including the Husqvarna and Triumph (3) Valuations at 17/15x for FY21/22E are not demanding and RoEs are in excess of 20%. Bajajs 3QFY20 PAT (Rs 12.6bn, +15% YoY) was ahead of estimates as operating margins surprised at 17.9% (+130bp QoQ) due to higher share of exports/3Ws as well as favorable fx. Reiterate Bajaj as preferred pick in the sector. Maintain BUY with a revised TP of Rs 3,630 (@ 18x Dec-21E EPS).
We like Ramco Cements for its strong distribution (driving its industry leading volume growth), healthy profitability metrics (despite turbulent south markets) and balance sheet prudence. Thus, we continue to ascribe it premium valuation multiple of 13x Sep'21E EBITDA. Out TP is revised down to Rs 790 on earnings downgrade. Our TP implies EV of USD 149/MT. Ramco currently trades at 15/12.1x FY21/22E EBITDA and at an EV of ~USD 159/MT. We downgrade our rating to Neutral amid rich valuations. We downgrade Ramco Cements rating to Neutral with a revised TP of Rs 790 (13x Sep21E EBITDA). Our TP implies EV/MT of USD 149/MT.
We foresee enough levers of growth in Domino's like (a) Splitting urban stores (margin accretive), (b) Menu expansion (pizza variants and in-house beverages), (c) Shorter delivery time (20min live in few stores), (d) Reimaging stores to combat slowdown in dine-in and (e) Loyalty program (winning strategy in Domino's US). Additionally, JFL is aspiring to grow non-linearly driven by its investments in technology, core team and creating more brands under JFL umbrella. JFL reported healthy SSG of 6% (7.2% like-like) amid an environment marred with weak demand. Sequential improvement in SSG despite disturbance in several markets due to protest is encouraging (4.9% in 2QFY20). Steep dairy inflation impacted gross margin, it can sustain in 4Q also. Co has opened a record 42 net additions in Dominos stores in 3Q (highest in 22 quarters). JFL plans to maintain high store opening in the coming quarters. Thereby, JFL is entering into a high revenue growth phase (healthy SSG along with higher share of new stores). Despite the recent run-up in the stock, JFL still holds potential of delivering healthy upside. We value JFL at 46x P/E at Dec-21E EPS, our TP is at Rs 2,175. Reiterate BUY.
CDSL has a diversified revenue stream, ~35% of the revenue is annuity in nature and ~42% is market linked (Transaction, IPO/corporate action and KYC). The opportunity related to demat of ~60K unlisted public companies is unfolding and hike in Annual issuer charges is also due in FY21E. Transactions charges/KYC revenue will revive with retail participation and improved market sentiments. New revenue streams like NAD and e-warehouse receipts are future growth drivers. We expect revenue/EBIT/PAT to grow at a CAGR of 13/10/10% over FY19-22E. Net cash stands at Rs 6.50bn (~23% of Mcap) and the company trades at a P/E of 22/19x FY21/22E earnings. Risks include regulatory changes, market slowdown and increase in competition. We maintain BUY on CDSL based on inline revenue and better margin performance in 3QFY20. Growth in Annual issuer charges and revival of transaction revenue is driving growth. Regulatory tailwinds like hike in Issuer charges and compulsory demat of unlisted companies and Insurance policies will provide further boost to growth. We value CDSL on SoTP basis by assigning 30x to Dec-21 core profit and adding net cash to arrive at a TP of Rs 325.
Amid continued demand turbulence in the south, Orient exhibited opex reduction. As demand recovers in subsequent quarters, op-lev gains should bolster margin recovery. Orient is also planning to add 10MW WHRS in Karnataka to further reduce opex (FY23 onwards). The stock currently trades at an attractive valuation of 6.9/6.8x FY21/22 EBITDA and at EV of USD 58/MT. We reiterate BUY with a TP of Rs 120 (8x Sep'21E EBITDA). We reiterate BUY on Orient Cement (ORCMNT) with a TP of Rs 120 (8x FY21E EBITDA, implies EV of USD 68/MT).
Robust profitability should keep JKLC's net D/E at comfortable levels (below 1x), despite factoring in capex acceleration from FY21E. We thus, estimate its standalone net Debt/EBITDA to further cool off to below 1.5x levels during FY20-22E (vs its >3x levels in the last six years)! Stable north market outlook and healthy cashflow generation should drive re-rating for JKLC. We reiterate a Buy with a TP of Rs 485. We reiterate BUY on JK Lakshmi (JKLC), with SOTP based TP of Rs 485 (Standalone at 8x Sep21E EBITDA, its 71% holding in Udaipur Cements at 20% disc and 50% value to Sep21E CWIP). Our TP implies EV of USD 84/MT.
HG's NWC is ~58days, standalone debt reduction to Rs 2.7bn by FY20E is on track and HAM equity infusion of Rs 2.6bn will be met from internal accruals. HG targeted bid pipeline is robust at ~Rs 150bn (envisages securing HAM orders of ~Rs10bn and EPC orders of ~Rs10-15bn during 4QFY20). Lending institutions continue to draw comfort from the company's execution track record and financial position as it has achieved timely Financial Closure for its 3 HAM projects. Thus, HG is well placed to achieve FC for its incremental HAM projects. We maintain BUY. Key risks (1) Further delay in NHAI ordering activity; (2) Delays in receipt of pending dues from Rajasthan Project. HG Infra reported Rev/EBIDTA/APAT beat of 2.3/0.9/(3.8)% vs our estimates. The company continues to maintain EBITDA margin around the 15% mark. We maintain BUY on HG with SOTP based TP of Rs 441/Sh, valuing the EPC business at 12x FY21E EPS.
Mastek has invested in strengthening its executive team both in US and UK geography. UK Govt. growth has slowed down due to Brexit uncertainties and UK elections but is expected to revive post the Brexit outcome and completion of spending review. US revenue is impacted by Retail slowdown but will recover led by ramp-up of new deals. Mastek will benefit from off-shoring opportunity at UK public sector given its long relationship with UK government and limited competition from Indian IT, off-shoring can aid margin expansion. We expect GBP growth for FY20/21/22E at -2.7/8.2/11.6% and 11% EPS CAGR for FY19-22E. The stock trades at 9.0/7.7x FY21/22E and Brexit clarity will result in re-rating. Mastek's stake in Majesco US (Rs 39/sh) and net cash (~Rs 145/sh) protects downside. We maintain BUY on Mastek following a weak 3Q on revenues but stable margin performance. UK elections, Retail slowdown, Brexit uncertainty and furloughs impacted revenue growth but cost management was impressive. Mastek successfully monetised 56% of its Majesco US holding and net cash stands at Rs 3.71bn (35% of Mcap). Our SoTP based TP of Rs 510 is based on 9x (~18% discount to 5Y average) Dec-21E EPS plus Rs 39/sh for 5% stake in Majesco US.
We like company's low risk business model (non outcome based), focus on scaling core associates and diversified client base across sectors. There is scope for margin expansion through productivity benefits and better business mix. Teamlease's ability to grow ~15-20% organically, focus on driving productivity through automation, lower funding exposure, domestic focus and high management pedigree commands premium valuations vs. peers. We expect revenue/EBIT/PAT to grow at 19/21/17% CAGR over FY19-22E. Risks include adverse macros, discontinuation of Sec 80JJAA tax incentive and delay in tax refunds. We maintain BUY on Teamlease based better than expected revenue growth in 3QFY20. Growth in core business will continue based on higher open positions and recovery in NETAP. Margin expansion was lower than estimate but cost cutting initiatives, improving productivity and change in business mix will lead to margin expansion. Our TP Rs 3,444 is based on 40x (5Y average 1-y forward P/E of 35x) Dec-21E EPS.
Diageo's global market leadership (17/40% share in spirits/scotch) and its dominance in premium segment drives our confidence on UNSP. India is a critical market for Diageo, given the scale (largest Whisky market), leadership position and opportunity to premiumise. UNSP's return to the premiumisation path (P&A revenue mix up 1180bps vs. FY17) aided by a deprioritisation of Popular. We remain believers in the co's ability to deliver consistent growth and benefit from the category expansion happening in the premium segments. UNSP posted healthy 8/3% rev/vol growth in P&A; in 3Q despite industry growth remaining sluggish (vol growth of 1.5/2.5% in 3Q/9M). Price hike and product mix has led to P&A; realisation growth of 5% (3% in 3QFY19 and -3% in 2QFY20). RM pressure continued and led to GM contraction of 421bps YoY to 44.4% (>400bps avg. dip in the last 4 qtrs). Co's sharp cost control initiatives continue to support EBITDA margin. We value UNSP on Dec-21E EPS, arriving at a TP of Rs 759. Maintain BUY.
