In spite of the sequential rise in GNPAs and deceleration in growth, our constructive stance remains (and estimates largely) unchanged. We build slightly slower growth and higher slippages on a/c of deterioration in macros. We like CUBK for its strong regional focus, customer franchise and calibrated credit filters. These are contributors to a steady RoAA (~1.6% over FY20-21E) In line operating performance led by seasonal deceleration in growth (+14% YoY) and dip in NIMs (-29bps QoQ). Lower recoveries drove GNPAs. Treasury gains and MTM reversals negated higher LLPs. Maintain BUY with a TP of Rs 246 (3x Jun-21E ABV of Rs 82)
Despite continued BFS headwinds, Hexaware's low-double digit (organic) growth trajectory is sustainable supported by IMS/BPM (no legacy) and driven by Automation, Cloud and Digital offerings. We expect strong synergies/cross sell from Mobiquity acquisition with portfolio augmentation across BFS, Healthcare and Retail verticals backed by robust partner ecosystem (AWS, Backbase). We build USD rev/EPS of 16/15% CAGR over CY18-21E. Key risks include escalation in client specific challenges (BFS) and low NN wins. We maintain BUY on Hexaware post its lower/inline rev/margin in 2QCY19. Mobiquity acquisition and cloud/automation led wins will support growth. Estimates and TP unchanged at Rs 445, at 16x Jun-21E EPS.
Despite delivering strong performance in the US, we were unimpressed by the continued execution issues in getting complex product approvals - bEnbrel in EU and gProAir in US have been elusive so far. At a time when four formulation plants are under OAI or WL, these big-size product approvals have become crucial. Moreover, Solosec ramp up has been slower than expected, keeping margins in check as marketing spend continues to weigh in. Our FY21E numbers do include a ramp up in gLevothyroxine sales and the launch of gProAir and bEnbrel, keeping Rs 34.3 EPS at risk (in case of further delays). However, the branded domestic franchise (valued at ~Rs 650/sh) continues to support the downside. We downgrade LPC to NEUTRAL owing to visible execution woes in the form of (1) slow scale up in Solosec & gLevothyroxine in US, and (2) postponement of bEnbrel approval in EU. 1QFY20s performance beat our estimates led by higher gRanexa contribution. Our revised TP is Rs 760 (22x FY21E EPS) following a 17% cut to our FY21E EPS
HPCL is doubling its existing capacity at its Visakh refinery from 8.3mmtpa to 15mmtpa by FY21E (outlay Rs. 210bn) and increasing it from the current 7.5mmtpa to 9.5mmtpa (outlay Rs 50bn) at its Mumbai refinery. This will drive the earnings for its refinery business. We remain constructive on HPCL in a falling crude price scenario as it will reduce Govt's intervention in auto fuel pricing, reduce working capital and put subsidy burden overhang to rest. Our SOTP target is Rs 381 (6x Jun 21E EV/e for standalone refining and pipeline, 7x EV/e for marketing and Rs 54/sh from other investments). Maintain BUY. Despite an underwhelming Q1, we maintain BUY on HPCL given (1) 55% refinery capacity addition to 24.5mmt by FY21E, and (2) Restoration to normative marketing margins post elections that will benefit HPCL the most of all OMCs as this business contributes ~60% to EBITDA.
Rising competition from new LNG terminals and capital allocation are unlikely to have structural impact on pricing or volume growth as Petronet remains India's lowest cost regassifier. With no major capex, PLNG can generate free cash flow of over Rs 57.67bn over FY20-22E. It is searching for growth opportunities in overseas markets and after its stumble at Kochi, we believe PLNG will allocate capital more prudently in future. Stock is currently trading at 11.7x FY21E EPS and 6.5x FY21E EV/EBITDA. In our view, we see the risk/reward as favourable, given the rising return ratios and strengthening balance sheet. We maintain BUY on PLNG post a stable performance in Q1. Expected ramp-up at both terminals, predictable earnings from tied-up volumes and robust gas demand driven by benign spot LNG prices keep our faith intact
The frequent one-time' adjustments in various business segments over the last several quarters have been puzzling (switch in Rx and B2B in the US, capacity issues in injectables plant, and now distributor change in India). Higher the frequency of such events, lower would be the predictability in existing numbers. We have cut our domestic growth assumption sharply for FY20/21E after a dismal show in the India biz in 1Q (which is usually a strong quarter). The US performance looks unappealing, adjusted for gSensipar sales. With India recovery likely in 3QFY20, coupled with lower gSensipar sales from 2QFY20 onwards, EBITDA margins are expected to come down in the subsequent quarters. Earnings to remain flat YoY in FY20E. Early gProventil launch remains the only risk to our FY20E estimates. We downgrade CIPLA to NEUTRAL following a mixed 1QFY20 result. Our TP is revised at Rs 565 (22x FY21E EPS). We cut our estimates by 8/9% owing to the slump in domestic business revenue in 1QFY20.
Zensar's organic growth has improved led by robust deal wins but the margin recovery is lagging. Higher on-site revenue mix, slowdown in Retail, drop in utilisation (fresher's hiring) and investments in the business are impacting margins. We expect gradual recovery in EBIT margins (10.7/11.0% in FY20/21E). Deal pipe-line is healthy at USD 1bn, ~60% of the pipeline is large deals (TCV >USD 10mn). TCV for the quarter stood at USD 160mn (including renewals) and USD 750mn (~50% net new) for FY19. We maintain our positive view based on (1) Focus on POC led Digital sales, (2) Robust deal pipeline and (3) Growth visibility in the core business. We build 12/16/15% Revenue/EBIT/PAT CAGR over FY19-22E. Risks include delay in execution of large deals, onsite wage inflation and deterioration in US/Europe macros. We maintain BUY on Zensar post an in-line 1QFY20. Strong deal pipeline, ramp-up of large deals and improving win-ratio provides revenue visibility. Margins are not showing signs of improvement despite revenue up-tick. We cut multiple to 14x from 16x on slow margin recovery and rising on-site cost. Our TP of Rs 265 is based on 14x June-21E EPS.
While the jury is out on the acquired products of IBM, (1) Synergies with services (product differentiation), (2) Cross-sell/market opportunity, and (3) Better margins justify the increased capital intensity. We are more impressed with the recovery in organic growth trajectory (converged with larger peers), supported by large deal momentum (Nokia, Broadcom, Xerox) and differentiation in IMS (benefiting from vendor consolidation) and ER&D (scale). Expect USD rev/EPS at 12/9% CAGR over FY19-22E. Key risks include escalation in client specific headwinds impacted by adverse macro and scaling HCL Software division. We maintain BUY on HCL Tech (HCLT) following a strong revenue and tad lower margin performance. Organic growth momentum is strong and integration of IBM products (key monitorable) will keep growth at top-end of guidance and margin at the lower end. Our TP is Rs 1,250 at 14x Jun-21E EPS.
SIL faces headwinds on back of slowing Pvt/Public capex and tight liquidity environment. The company needs to bank on less cyclical segments like Smart Infrastructure. Government investment in Gas & Power is expected to recover as the installed base ages and upgrades are needed. Meanwhile, Metro projects will drive the Mobility segment. While Mobility business sale being put on hold for time is a minor reprieve we await clarity on highest revenue contributing segment Power & Gas. We maintain NEU. Key risks (1) Delays in Government capex recovery, (2) Slowdown in private investments, (3) INR depreciation, and (4) Any adverse corporate action. Owing to slowing Private/Public capex and tight liquidity environment, SIL delivered 8/7/5% Rev/EBIDTA/APAT miss. We have upgraded FY19/20E EPS by (1)/3.7%. Maintain NEU on Siemens India Ltd. (SIL) with a TP of Rs 1,197/sh (vs. Rs 1,165/sh earlier).
TRCL is prudently expanding its cement capacity by 27% over next two years, funded mainly through its strong internal accruals. While TRCL remains a regional player, we ascribe it premium valuations of 13x EV/EBITDA (for its robust cost and profitability metrics), leading to TP of Rs 800/share (implied EV USD 167/MT). It currently trades at 12.2x FY21E EBITDA and at EV of USD 158/MT. Amid limited upside, we maintain Neutral rating on the stock. We retain NEUTRAL rating with TP of Rs 800 (13x FY21 EBITDA). Our TP implies EV/MT of USD 170/MT.
