MGL did not win any new GAs in either of the recently concluded ninth or tenth rounds of CGD biddings. This factor may weigh on its long-term growth. We believe that the company will continue to enjoy pricing power and be able to maintain its per unit spread. This is because of a loyal customer base of CNG and commercial customers (who together comprise ~80% of total sales mix), that are less price sensitive than industrial customers. Moreover, we do not foresee any significant regulatory adversity in its CGD business either through a change in gas allocation or capping returns. We maintain BUY on MGL post an impressive performance on spreads albeit disappointing volume growth. Our TP is Rs 1,133/sh (19x Jun-21E standalone EPS).
We upgraded CDH recently as we believe that the impact of OAI on its key formulations facility at Moraiya, Gujrat is already priced-in. The sharp ~30% FYTD fall in the price makes it one of the cheapest among the large-cap pharma stocks at 15.7x onFY21E EPS. With ~100 pending approvals and 2/3rd of them being filed from Ex-Moraiya units, we believe US$ 800mn US revenues and Rs 14.6 EPS (ex-Asacol HD) are achievable. With the ability to generate Rs 8-10bn FCFs annually, net debt position remains comfortable at ~Rs 70bn (0.7x FY19). We maintain BUY on CDH despite a miss on our estimates due to certain one-time costs. We have cut our FY21 EPS by 6% to accommodate higher interest cost. Our TP is revised to Rs 265 (18x FY21E EPS).
With bids placed for orders worth ~Rs 25-30bn, PSP expects to replenish it order book and maintain order book-to-bill ratio at around 2.5-3x. Opportunities in affordable housing schemes coupled with expansion into newer geographies like Maharashtra and Karnataka would enable the company to scale its operations and help grow and maintain sufficient order book backlog. We believe further re-rating is contingent on this successful transformation. We upgrade PSP to BUY. Key risks (1) Delay in diversification outside Gujrat; (2) Delays in receipt of new awards & (3) Slowdown in Private capex. PSP delivered Rev/EBIDTA/APAT beat of 12/12/15%. Owing to recent price correction we upgrade the stock to BUY from NEU with Rs 579/sh TP (we value EPC business at 16x FY21E EPS). We have maintained our FY21E Rev/EBITDA/APAT estimates.
CIL has been sustaining strong financial performance in tough real estate environment amidst tight liquidity. NWC days and debt is under control. Order book health is being maintained with slow moving/delayed projects being reviewed and removed from backlog. New Grade A clients have seen continuous build up over past 4-5qtrs. Business is getting de-risked by new order wins from Government projects. We Maintain BUY with Rs 351/sh TP. Key risks (1) Slowdown in real estate (2) Delay in debtors recovery & (3) Slowdown in Government Capex. Capacite Infraprojects Ltd (CIL) delivered Rev/EBIDTA/PAT beat of (2.2)/18.4/18.6% led by strong EBIDTA margins of 17% (300bps beat). Workman shortage due to Central Elections impacted execution. We maintain BUY on CIL with a TP of Rs 351/sh (15x FY21E EPS).
NCC has seen significant de-rating post the AP Govt order cancellation and uncertainty of execution on balance Rs 125bn of AP order book. Our channel checks will local Govt officials suggest work of significant importance will start in next 3months. We ascribe low probability of further project cancellation for NCC in AP. Debt levels may remain at current levels, though AP receivable realization may take time. Sembcorp arbitration will unlock Rs 4-5bn of cash inflow. With inexpensive valuation (6.3x Core EPC FY21E EPS) and receding headwinds we maintain BUY. Key risks (1) Adverse ruling on ongoing arbitrations; (2) Slow down in government capex; (3) Deterioration in NWC days; and (4) Weak real estate monetization. NCC reported inline 1QFY20 performance with Rev/EBIDTA/APAT beat of (4.5)/2.5/1.6%. We expect AP projects execution to resume from Oct-19. Core EPC valuation is inexpensive at 6.3x FY21E EPS. Maintain BUY with a TP of Rs 154/Sh (EPC business at 15x FY21E EPS).
We like DCL for its strong margin focus, increasing cost reduction measures and as regional pricing outlook has improved. Healthy cash generation has increased net cash on books, adding to balance sheet comfort for the capacity expansion. Maintain BUY with TP Rs 670/share (at 6x FY21E EBITDA, implying EV of USD 61/MT). The stock currently trades at 3.8x FY21E EBITDA and EV of USD 39/MT. Key risks: Continuation of weak demand beyond 1H, sharp reversal in fuel/diesel prices as against the falling trends currently. We maintain BUY with TP Rs 670/share (6x FY21 EBITDA). Our TP implies EV of USD 61/MT.
Sonata's platformation strategy to provide IT services around IPs like Rezopia, Halosys, Brick & Click and Retina, is yielding results. Growth in IP-led revenues is improving employee productivity and aiding margin expansion. Microsoft Dynamic 365 is in growth phase and Sonata being a preferred development partner is reaping benefits. Sopris and Scalable Data will enhance Dynamics 365 offerings and will support growth. We expect IITS' USD revenue to grow 13.6/11.1% with margin of 23.4/24.0% in FY20/21E. We like Sonata's IP-focussed business model, high RoE (~35%) and dividend yield of ~4%. The stock trades at a P/E of 11.2x FY21E, which is reasonable. Risks include high client concentration, slow down in Dynamics 365 portfolio and drop in margins due to onsite investments. We maintain BUY on Sonata based on inline 1QFY20. IP-led strategy is driving growth for the past ten quarters (+10.3% CQGR) and is aiding margin expansion. We downgrade multiple to 14x from 16x to factor in growth moderation (ex IP-led) and high dependence on few clients. Our TP of Rs 421 is based on 14x June-21E EPS.
We reiterate BUY on UTCEM with a TP of Rs 5,280 (15x its Mar-21E EBITDA, implies EV of USD 218/MT). In our view, UTCEM deserves premium valuations for its capacity & cost leadership and balance sheet discipline. The stock currently trades at 12.3x FY21E consolidated EBITDA and at an EV of USD 179/MT. In 1QFY20, despite weak demand, UltraTech (UTCEM) reported historic high margins, on windfall pricing and benign op cost benefits. We reiterate BUY on UTCEM with a TP of Rs 5,280 (15x FY21E EBITDA).
Emami's underperformance over the last 3 years has not been caused by competitive intensity rather its own challenges like (1) High wholesale dependence, (2) Core brands' dependence on seasonality, (3) Limited portfolio for premiumisation and (4) Pledge related disturbance. The company has made some progress in the last 2 years in diversifying its distribution from wholesale (~35% mix now vs. 52% earlier) to modern trade (9% mix now vs. 4% earlier) and direct reach (0.95mn stores vs. 0.63mn earlier). Benefits are coming at a gradual pace. Recovery in macros (rural) coupled with a favorable season can lead to a rebound in Emami's performance. We remain believers, given favorable risk-reward and high probability for a consumer business to rebound. Emamis 1Q performance was mixed with in-line revenues but beat on EBITDA margins. Co is yet to find a way to revive its domestic business. Core categories are struggling for growth and market share gains are becoming meaningless to track. Growth is coming in bits & pieces and has failed to revive overall domestic performance. Cost control (10% cut in A&P;) expanded the EBITDA margin in 1Q. We are hopeful for acceleration in domestic revenues in 2HFY20 (driven by improving macros and favorable base) but cut EPS by ~4% for FY19-21E. We also cut our target P/E to 30x (32x earlier) on Jun-21 EPS to factor weak management execution. Our TP is Rs 464 (Rs 500 earlier). Maintain faith, reiterate BUY.
During FY17-19, Radico enjoyed an earnings upcycle which is expected to moderate in FY20. However, co is investing in new launches, driving premiumisation and deleveraging B/S which keeps the story alive. Robust cash flow generation over the last 2 years (Rs 4.4bn cumulative FCF) was redeployed to repay debt (Rs 3bn in Jun-19 vs. 7.9bn in Mar-17). We expect deleveraging to sustain, making the co debt free by FY22. We expect the stock to re-rate as premiumisation and deleveraging continues. Radico Khaitans 1Q performance was mixed with beat in volume growth but in-line EBITDA. Hardening of RM cost led to crack in GM margins. Consistent market share gains and scaling new launches drives our revenue upgrade by 6% over FY19-21E. However, sustained RM pressure leads to only 1% EBITDA upgrade over FY19-21E. We value Radico at 26x (35% discount to UNSP) on Mar-21 EPS, arriving at a TP of Rs 492. Maintain BUY.
