Contrary to investment wisdom SEL has corrected sharply when it is perceived to get significantly deleveraged over next 2-3months. Asset light model, selective focus on EPC projects bidding, ROFO on HAM assets, 10% stake in IndInfraVit (already SIPL is in the money) and potential resolution to bleeding Rohtak Panipat project are other key re-rating triggers. Merger may be another positive as combined entity curtails equity intensive projects and surplus cash is utilized towards pursuing growth, without equity dilution. SEL is in a sweet spot. CPPIB backing is literally a large bank support. We maintain BUY. Key risks (1) Delay in SIPL stake sale; (2) Slow order inflows; and (3) Further delay in appointed dates. We maintain BUY on SEL with a reduced TP of Rs 269/sh (vs. Rs 340 earlier). We value SELs EPC business at 15x FY21E EPS and assign a 20% hold co discount to SIPL stakes market value. Price cut is on account of FY20/21E EPS downgrade by 24.4/20.4%.
We downgrade the target multiple for REPCO (from 2x to 1.5x) in view of deteriorating macros. This is in spite of access to adequate funds (from the largest PSB and PVT Bank), signs of improvement in growth with receding competition. However, we believe that the ill-effects of worsening macros are likely to override these positives. Valuations at ~1.1x FY21E remain enticing. A significant pickup in growth can drive up the stock, while further slips on asset quality pose risks. In spite of an in line 1Q performance (higher but sub-par growth, seasonal NPA spike and higher LLPs) we reduce multiple to 1.5x (from 2x) for REPCO given deteriorating macros. Maintain BUY. Our TP is Rs 443.
With a launch pipeline of ~6.4mn sqft in residential segment and ~2.5mn sqft in commercial segment, the company remains well on track to achieve the pre-sales guidance of ~4mn sqft for FY20E. However, the quarter witnessed less than enthusiastic collections (-18% QoQ). Mid-income and affordable segments are expected to drive residential sales with ~80% of BEL's inventory below Rs 10mn ticket size. Despite capex commitment of Rs 13.7bn, pending Rs 24.8bn pre-tax cash flows from real estate projects should suffice. However, timing mismatch could result in further debt drawdown. We maintain NEUTRAL. Key monitorable: Leasing velocity in SEZ projects. We maintain NEU on BEL with SOTP-based TP of Rs 289/sh. 1QFY20 financial performance was below estimate. Strong residential pre-sales momentum and uptick in leasing in two SEZs were key positive.
KNR delivered inline financial performance though execution could have been better. Delay in ADs impacted the same (Rs 500mn of work could not be billed). While we have cut our FY20E Revenue estimate by 7.1% to factor in back ended ADs, new wins in irrigation segment of Rs 8.5bn will drive EBIDTA margins higher. This has resulted in 1.3% cut to your FY20E EPS and 3.5% increase to our FY21E EPS. Kerala/Muzaffarpur BOT collection per day stood at Rs 1.9/2.7mn vs. Rs 1.8/2.4mn QoQ. KNR for its total Rs 2bn investment in 4HAM projects expects to receive Rs 3.6bn from Cube Highways. We maintain BUY. Key risks (1) Slowdown in government ordering (2) Higher crude and cement prices (3) Increase in interest rates and (4) Tightening liquidity in the financial sector. We maintain BUY on KNR with an increased SOTP-based TP of Rs 375/sh (valuing core EPC business 18x FY21EPS at Rs 315/sh, Subsidiaries Rs 60/sh) vs. Rs 363/sh earlier. KNR delivered Revenue/EBIDTA/APAT beat of 11/(2)/5%.
We expect a volume growth of 11% YoY over FY19-21E. The robustness of business enables the company to maintain stable per unit EBITDA spread of ~Rs 6/scm. The company generates OCF yield of almost 5.5% and RoIC of >30% over FY20/21E. Valuations are contextually moderate at 22.5x FY21E EPS. Maintain BUY. We maintain BUY on IGL following its stellar performance in 1QFY20. Our target price is Rs 402/sh (25x Jun-21E standalone EPS and 23x Jun-21E MNGL and CUGL).
Cloud revenue registered 54% YoY growth in FY19, growth was led by MetLife, new deal wins and build-up of cloud subscription revenue. The large MetLife implementation project is complete and is impacting cloud revenue. Back-filling of MetLife revenue will be gradual. New deal wins, extension of the MetLife project to other geographies and increase in minimum subscription revenue will drive growth in cloud. The partnership with Capgemini for L&A and Group life is promising and can bring large deals on the table. We expect USD revenue CAGR of 13% over FY19-22E (cloud CAGR of 21%). We maintain our positive stance on Majesco based on (1) Rising adoption of third-party software by insurers, (2) IBM & Capgemini partnership and (3) Continued deal wins. Risk to our thesis includes a slowdown in deal wins, prolonged sales cycle and deterioration in US/Europe macros. We maintain BUY on Majesco following slight miss on revenue & margins in 1QFY20. Revenue grew despite a steep fall in the cloud revenue and margin expansion (lower than est.) was healthy. The order backlog is robust and cloud deal wins are stable. We await a large deal win from the IBM/Capgemini channel. Our TP of Rs 685 implies EV/rev multiple of 2.0x on June-FY21 rev.
AHLU has witnessed strong order inflows during FY19 but somehow there has been quarterly execution misses leading to failure in achieving FY19 annual guidance. FY20 is no different with a weak quarterly start amidst tight liquidity conditions. We remain skeptical on AHLU achieving its FY20E growth guidance. Only hope is strong starting order backlog and Patna PWD project (Rs 5.2bn) breaking ground from Sep-19. Robust balance sheet, net cash status and better than peers RoE/RoCE are other comforting factors. We maintain BUY. Key risks include (1) Slow down in government capex; (2) High cost inflation; (3) Stuck projects; (4) Lower than expected leasing in Kota BOT project. We maintain BUY with a reduced TP of Rs 402 (vs. Rs 430/sh earlier) despite 25/25/33% 1QFY20 miss on Rev/EBITDA/APAT. We downgrade our FY20/21E EPS by 6.6/6.6% to factor in ~Rs 10.6bn of non moving projects. We value the core EPC operations at 16x FY21E EPS.
The volatile quarterly performance is inherent to CRAMS business models. So, it would be inappropriate to extrapolate this quarter's performance to the full year of FY20E. Historically, both in FY18 & FY19, operational performance has recovered strongly in 2H. This year too, on the back of higher commercial orders in India and Swiss coupled with the new development capacity, we expect the company to overshoot its guidance of 10% YoY revenue growth and 26-27% EBITDA margin. Expect 19% EPS CAGR over FY19-21E. Unlike generic pharma companies, this business is more sustainable and insulated from pricing pressure until patent expiry. Hence, DCAL merits a higher multiple as it is trading at 10.1/7.9x FY20/21E EPS, a ~60% discount to peers. We maintain a BUY on DCAL following a disappointing quarter. Our TP is revised to Rs 355 (15x FY21E EPS) with a 5% cut to FY21E EPS (higher depreciation expectation).
Maintain BUY as Spice will benefit from the benign competitive environment in the near term. The airline is gaining market share post Jet Airways closure (+280bps YoY). However, we are lowering valuation multiples to factor in the grounding of the 737 MAX planes as the resolution of the same is expected to take longer than expected. Aided by lower competition in 1QFY20, Spiceadded 32 planes to its fleet (now at 107) and load factors remain elevated at 93%. Market share of the airline has risen to ~15% post the grounding of Jet. However, the 13 B737 MAX planes are grounded, on which the co is incurring expenses. Valuation multiples will remain constrained till this issue is resolved. Maintain BUY with a revised TP of Rs 170 (7x FY21E EV/EBITDAR, 8x earlier).
1QFY20 was a bit of disappointment on execution, delay in receiving Karnataka 3 HAM project Appointed Dates had a role to play. ACL asset monetization is expected by Mar-20 and ABL needs to give SBI Macquarie a minimum Rs 15.3bn exit floor valuation for its 39% stake in the platform. Speedy BOT asset monetization (incl. Macquarie's exit) would provide financial flexibility to bid for more HAM projects, without increasing leverage. Standalone debt has reduced by Rs 1.4bn QoQ to Rs 5.8bn. We maintain BUY. Key risks (1) Delay in SBI Macquarie deal closure; (2) Dip in traffic revenue from BOT projects; (3) Delay in ADs. We maintain BUY on ABL with a SOTP of Rs 257/sh despite 1QFY20 muted performance. We value the EPC business at 15x FY21E EPS.
