With significant deterioration in macros, we anticipate a substantial slowdown in all the business verticals over at least the next 2 quarters. For the AMC business, we are concerned about fund raising, fee renegotiations and regulatory clampdown impacting growth, while for broking we are wary of increased competition. Lastly, despite much of the negatives in MOHL being factored in, the business needs to display scalability and improvement in asset quality. Challenging macros compel us to downgrade our FY20E/21E earnings (ex-MOHL) by 16.3/16.7%; we also cut our multiples for the AMC business to 17x (-15%) and thus maintain a NEUTRAL with a TP of 545 (+9.3%). Key Risks: any sharp turnaround in fund raising and broking market activity, stronger scale up and lower stress in legacy book at MOHL. MOFS (ex-MOHL) reported an in-line APAT of Rs 1.12bn (-3.2% vs. est). APAT for AMC/capital markets segment were at Rs 409/356mn (-8.5/45.6% YoY). Difficult macros drive our earning cuts; retain NEUTRAL with TP of Rs 545.
Summer 2019 confirms our thesis that Symphony will always delivered strongly if the season has no disruption. Organised air cooler market will deliver healthy growth despite rising affluence towards RAC. Symphony's constant focus on product innovation and superior franchise with distributors will make the company competitive. With trade inventory now at historical low levels, Symphony will enjoy off-season stocking, opportunity to launch tech-rich coolers and benefit from a favorable base. Besides, its international performance will improve given the various initiatives undertaken. Symphonys 1Q performance was a blowout, even beat our aggressive estimates. 1Q performance has proved the naysayers wrong about the relevance of air coolers (in the era of fast growing RAC) and Symphonys market share loss. Growth visibility for FY20E is high despite slowdown in macros owing to low channel inventory and new launches. We maintain our estimates and value Symphony at 45x Jun-21 EPS, arriving at a TP of Rs 1,686. Maintain BUY.
We are NEUTRAL as (1) Demand outlook remains challenging as economic growth is sluggish (2) Sector dynamics will be impacted by the roll out of the DFC in FY21. As compared to earlier cycles, AL has a well capitalized balance sheet and is better prepared to withstand the current downturn. Key upside risk to our thesis is the introduction of a scrappage scheme in FY21. 1QFY20 PAT (-45% YoY) was significantly below estimates as negative operating leverage impacted margins. The demand outlook is weak, with the company scaling back on its capex plans. We reduce FY20/21 earnings by 20/15% to factor in the above. Reiterate NEUTRAL with a revised TP of Rs 77 (13x on FY21E EPS). While the stock has corrected, we recommend that investors should await an uptick in the cycle before investing in the stock.
We are structurally positive on IOC, owing to its diversified business model and healthy FCF (Rs 285bn) over FY21-22E. Our SOTP based target price of Rs 190 (5x Jun 21E EV/e for standalone refining, pipeline, petchem and 5.5x Jun 21E EV/e marketing and Rs 28/sh from other investments). We maintain BUY on IOC with a TP of Rs 190 as the 1Q performance exceeded our estimates. As International Maritime Organisations (IMO) regulations kick in from Jan-20, we expect middle distillate margins to improve further and in turn GRMs.
To accommodate the stellar Q1FY20 performance, we raise EPS estimates for FY20/21E from Rs 8.8/11.1 to Rs 11.1/11.7. We expect (1) Low LNG prices to boost industrial volumes; (2) The development of CGD ecosystem across Gujarat to push CNG volumes. We remain positive on the company as it generates OCF yield of almost 9.5% and RoE of >25% over FY21/22E. Valuations are contextually unreasonable at 15.4/14.6x FY21/22E EPS. Post the outstanding Q1FY20 performance, we maintain BUY on GGL. Our target is Rs 246/sh (20x Jun-21E EPS).
The mgmt is confident in achieving 20/25% revenue/PAT CAGR over the next few years driven by the ramp up in formulations and US sales by leveraging its expanded facilities. Increased efficiencies and oplev will enable EBITDA margin improvement (+200bps to 19% over FY19-21E). With limited capex requirements over the next few years, healthy FCF (Rs 1.5bn+ annually) will enable debt reduction (net debt at Rs 8.63bn now). We model 16/23/22% revenue/EBITDA/PAT CAGR over FY19-21E. At 8.0/6.5x FY20/21E EPS, Granules is trading at a steep discount to peers. Improving fundamentals and promoter pledge release will drive re-rating. We maintain BUY on Granules following yet another quarter of robust YoY growth driven by expanded capacities. EBITDA margin at 19.9% was 300bps above estimates, despite a 5% miss on revenue. Our TP is unchanged at Rs 170 (12x FY21E EPS).
DLF has achieved significant BS deleveraging with net D/E hitting 0.09x in 1QFY20. Residual unsold inventory stands at Rs 110bn (~4.5 years of inventory). Total residual collection on sold inventory is pegged at Rs 28bn vs. Rs 20bn of balance construction costs. DLF Phase V luxury projects are seeing good traction. With strong balance sheet, robust lease momentum and residential pre-sales recovery, DLF is well placed. We maintain BUY. Key risks (1) Delay in ready inventory monetization (2) DCCDL settlement (3) Inability to fully utilize mark-to-market potential from rental assets (4) Overall slowdown in leasing momentum. We maintain BUY on DLF post positive pre-sales trajectory in Phase V projects, debt reduction and strong lease rental momentum. Our SOTP-based TP is maintained at Rs 258/sh. DLF balance sheet is strong post QIP and promoter fund infusion.
We reiterate BUY as (1) After significantly outgrowing the industry leader Castrol (over FY16-19 Gulf's vols have risen 17% vs. 3% for the latter), we expect Gulf to grow ahead of the industry over FY20-21. Growth will be driven by increased capacity (new capacity of 150mn KL p.a. in 19), expanding distribution network (~70k retailers vs. 150k for Castrol) and improving product/customer mix (2) Gulf is diversifying its portfolio by entering the battery segment which will drive growth in the medium term (3) The co enjoys robust return ratios with ROEs in excess of 30%. (4) Faster than expected adoption of EVs will be a key risk to our thesis. 1QFY20 operating performance was healthy as EBITDA margins expanded ~120/70bp YoY/QoQ to 17.7% driven by an improved product mix. We expect Gulf Oil to deliver 3-4x the industry growth as the co expands into new segments and ramps up its distribution reach. We have a TP of Rs 1,050 based on 22x FY21 EPS.
VO has been commanding a premium in valuations due to an impeccable history of product selection and best in class return ratios (ROE and RoIC for FY20/21E will be 27.6/25.1 and 26.3/27.2%). However, we expect ATBS volume growth to taper and blended margins to correct with increase in the share of low-margin Butyl phenols. With the PAP project back to laboratory testing and no other products in the pipeline, we maintain NEU on VO. Post an underwhelming performance in 1QFY20, we cut our EPS estimates for FY20/21E and arrive at a TP of Rs 1,986/share based on a 25x Jun-21E EPS. We maintain NEUTRAL.
We reiterate SELL as (1) Margin pressures are expected to sustain given weak demand outlook and lower utilization levels (as new capacities come onstream). We are building in margins at 26.3/26.1% over FY20/21E vs. 30.1% in FY19 (2) We expect a delayed recovery in demand as the environment remains challenged. Also, the impact of new product launches is time consuming, with returns expected with a lag (3) The premium to mass OEMs is expected to narrow as profitability is under pressure (4) VECV is impacted by aggressive discounting by the incumbents. REs EBITDA margins at 25.8% (-640bp/190bps YoY/QoQ) declined sharply as the ABS related cost hikes had to be absorbed by the co. Amidst a slowing economy, lifestyle bikes demand is impacted as consumers postpone their product upgrades. We reiterate SELL and reduce our SOTP TP to Rs 14,760 (at 19x FY21 EPS, earlier 21x) as we reduce earnings by 9%/6% over FY20/21.
