SEL 3QFY20 performance was a disappointment as funding constraints limited execution of projects. With conclusion of InfInfravit deal funding issues will get resolved. Group standalone debt reduction by 50% will augur well for reinstating financial markets confidence in the group. Whilst it will take time for SEL to revert to historical levels of quarterly execution, we believe 3QFY21E onwards things should normalize. We maintain BUY. Key risks (1) Delay in new order inflows; and (2) Further delay in execution ramp-up. We maintain BUY on SEL with a reduced TP of Rs 175sh (vs. Rs 241/sh earlier). We value SELs EPC business at 15x FY21E EPS and assign a 20% hold co discount to SIPL stakes market cap. TP reduction is owing to FY20/21E EPS cut by 43/24%.
AHLU delivered yet another 3QFY20 miss. We continue to remain patient as execution shall start on entire order backlog from 4QFY20E. While Mohammadpur project is in preparatory stage after receiving EC, Rs 5.5bn Charbagh Station redevelopment may get foreclosed due to environment hurdle. New wins of Rs 32.3bn doesn't have environment concerns. Delhi construction ban has lifted. The 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 on AHLU with unchanged TP of Rs 388 (15x FY21E EPS) despite 40% 3QFY20 miss on APAT. We downgrade our FY20E EPS by 24% to factor in slow order book to execution conversion and ~Rs 5.5bn of non moving projects. We retain FY21E estimate. Robust order book and strong BS augurs well for re-rating.
The company has received approvals from NHAI, lenders and SEBI for the IRB-GIC deal and is expecting to receive the proceeds during this quarter. The proceeds from this deal should help IRB meet its equity infusion requirement of ~Rs 28bn in under implementation projects. IRB will also leverage this partnership to bid for upcoming BOT and TOT projects, though it will have to bring in 51% of equity under such agreements. Securing Mumbai Pune expressway TOT project will provide further fillip to the revenues from toll collections. We maintain BUY. Key risks (1) Sustainability of toll revenue collection rate in the BOT portfolio, (2) Market acceptability for BOT projects IRB delivered in-line revenue with EBITDA/APAT beat of 9%/17%. IRB-GIC deal is expected to conclude during 4QFY20 with all the approvals in place. We maintain BUY with an SOTP based TP of Rs 172/Sh.
Despite production cut from OPEC and non-OPEC countries, we expect the oil prices to remain muted owing to the robust supply from US Shale and weakening global macros. Thus, we do not foresee subsidy sharing in FY21/22E as well. Besides, ONGC will generate OCF yield of 32.1/35.1% and dividend yield of 9.7% over FY21/22E. Though the stock has remained out of flavor given GoI's stake sale to achieve its disinvestment target, it still remains a key overhang on the stock (in the last 2 years, GoI's shareholding shrank from 67.7% to 62.8%). We value ONGC at Rs 173/sh (8x Dec-21E standalone core EPS (adj. for dividend income) + OVL EPS and Rs 31 from other investments) vs the consensus TP of Rs 184. We maintain BUY on ONGC following an inline performance with our PAT estimate in 3QFY20. The current valuations after adjusting for investments (OVL and others) for FY21/22 are 1.5/1.3x EV/EBITDA, 3.6/3.1x PER. Such pessimism is unwarranted in our opinion.
KNR delivered yet another steady quarterly performance. Order wins are on track with 4QFY20 ask at Rs 8bn to meet the Rs 30bn FY20 order intake guidance. KNR has entered into Kerala BOT stake sale arrangement with Cube Highways for equity consideration of Rs 3.9bn (expected by Mar/Apr'20). For 3 HAM projects Rs 1.7bn investment, KNR expects to receive Rs 3.3bn over the next 4yrs. Strong balance sheet, periodic BOT/HAM equity churn and robust execution capability reinforces our positive stance on KNR. We maintain BUY. Key risks (1) Slowdown in government ordering (2) Higher crude and cement prices (3) Increase in interest rates and (4) Further liquidity tightening in the financial sector. We maintain BUY on KNR with SOTP-based TP of Rs 376/sh (valuing core EPC business 18x FY21EPS at Rs 317/sh, Subsidiaries Rs 60/sh). KNR delivered yet another steady quarter with Revenue/EBIDTA/APAT beat/(miss) of (0.4)/17/(12)% respectively.
Despite near term weakness, we continue to like DCL for its strong focus on remunerative pricing and cost reduction measures. We expect demand revival in FY21E to further aid earnings recovery. Thus, we value the co at 5.7x Sep'21E EBITDA (in-line its 5-yr mean multiple). Maintain BUY with TP Rs 500/share (implies EV of USD 47/MT). DCL currently trades at an extremely low val of 2.7/3.3x FY21/22E EBITDA and EV of USD 25/MT. We maintain BUY with TP Rs 500 (5.7x its Sep21E EBITDA). In 3QFY20, DCL posted weak results (in-line EBITDA), hit by sharp demand contraction in AP/T markets (short term pain in our view).
We believe that the current valuation multiples (8.5x EV/e FY21) are already pricing in a full privatisation scenario. We believe that only potential improvement in earnings and cash flows can drive re-rating of the stock. But this will obviously be realized with a lag and is contingent upon the stake acquirer's ability to bring about efficiencies. Our SOTP target is Rs 452/sh (5.5x Dec-21E EV/e for standalone refining, 6.0x Dec-21E EV/e for marketing and pipeline business and Rs 145/sh for other investments). We maintain NEUTRAL on BPCL with a TP of Rs 452 (vs consensus TP of Rs 513) following a performance in-line with our PAT estimates in 3QFY20. 8.2% beat at EBITDA level was due to higher inventory gains of Rs 5.32bn vs est Rs 3.63bn.
We maintain our conviction on GSPL based on (1) Stable volume growth (+5% CAGR over FY20-22E to 42.5mmscmd) (2) Smoothening of cyclicality in its earnings, post acquisition of a controlling stake in Gujarat Gas (3) Steady cash flows (FCF of Rs 32.80bn over FY20-23E) from transmission business that will turn the company's position to a net cash one. We value the transmission business using Discounted Cash Flow (DCF) at Rs 138/sh (WACC of 10.5% and Terminal growth rate of 0%). To this, we add Rs 115/sh as value of its investments in Gujarat Gas, Sabarmati Gas and other investments to arrive at the target price of Rs 253/sh. We maintain BUY on GSPL though the Q3 PAT missed our estimates. Benign spot LNG prices will continue to (1) Drive volume growth from industrial customers and (2) Encourage RIL to continue using LNG. Our EPS estimates for FY20/21/22E stand at Rs 17.3/19.7/21.3 vs consensus EPS of Rs 28.1/25.7/23.7. Our SOTP based TP is Rs 253/share (consensus TP Rs 272).
We reiterate BUY and expect Gulf Oil to outperform industry leader Castrol. However, we believe that the co's performance is now impacted by the slowing industry scenario and moderating growth rates (volumes have declined over Jun-Dec19). We trim down our earnings by ~6% over FY20-22E and reduce our target multiple to 20x (vs. 22x earlier) to factor in the above. Also, the recovery in factory fill volumes is likely to be delayed. Key risk: Faster than expected adoption of EVs. Gulf Oils 3QFY20 adj. volumes declined 2% YoY amidst the downturn in the auto industry. However, EBITDA margin surprised at 18.4% (+260bps YoY) owing to stable input costs. Maintain BUY with a revised TP of Rs 995 based on Dec-21 EPS.
We believe that Brand Factory will continue to reel under the stress of a consumption slowdown for a couple of quarters. Ergo, the management has re-calibrated its expansion plans from 25 to 18 stores in FY20. While Brand Factory struggles, we believe Central will chug along and add 5 stores annually. We revise our DCF based TP downwards to Rs. 500 (earlier Rs. 550) which largely mimics the downward revision in FY21/22 EBITDA estimates by 8.8% and 11% respectively. Maintain BUY FLFL's revenue grew 3.1% YoY to Rs. 16.7bn (4.4% below estimated Rs. 17.4bn). Revenue was mainly impacted by the poor performance of its off-price format Brand Factory. While, top-line disappointed, margins were protected. Gross margins grew by 146 bps YoY to 34.9% (vs est: 34.5%). Adj. EBITDA margins (Pre-IND-AS) stood at 10.2% (vs est: 8.4%). The beat was a function of trickledown effect of a depressed top line. However better than expected cost efficiencies helped reduce the operational beat. The company reported Adj. PAT at Rs 0.57 bn.
