We had a meeting recently with the management of Lemon Tree Hotels. The key takeaways are as follows: 1. Occupancy rate and ARR continue to improve. 2. Strong room addition primarily through management contracts. 3. Changing mix of guests to aid ARR growth. 4. Negative working capital helps in keeping the balance sheet healthy. We have retained Buy rating on the stock with a target price of Rs92. Occupancy rate and ARR continue to improve: Hotel industry is not only a cyclical business, but also a seasonal business. The management informed us that the occupancy rose from 78% in 2QFY19 to around 79% in 3QFY19. In some markets the...

Cipla is expected to report a strong performance in the US market aided by ramp-up in Albendazole and Voltaren gel generics. Albendazole generic - Cipla has ramped up market share to 48%. The company launched...

IIP Growth Slows To 0.5% YoY, Muted Growth Ahead The Index of Industrial Production or IIP growth slipped to 0.5% YoY in November 2018 from 8.4% Research Analyst (Economist) in the previous month, and 8.5% YoY a year ago. While we had anticipated a slowdown because teresa.john@nirmalbang.com of a late festive season, a high base and weak demand, particularly in the automobile sector, the +91 22 6273 8114 reading was below our estimate of 4% and also Bloomberg consensus estimate of 3.6%. The slowdown was led by a decline in manufacturing output which fell 0.4% YoY. The softening was across the board with only 10 out of 23 manufacturing segments registering positive growth, compared to 22 in the previous month. The production of capital goods declined 3.4%YoY,...

Closing In On Double-digit Growth: Is It The Cycle Or The CEO? Infosys hit double-digit YoY revenue growth in 3QFY19 in constant currency (CC) terms after a gap of 10 quarters. It also delivered large deal TCV of US$1.57bn in a historically lean quarter. YTDFY19 TCV is 2.1x on YoY basis. EBIT margin was a tad softer than even the cautious guidance that Infosys had given (unlike TCS), largely driven by a one-off. Based on a strong 3Q and order inflow, Infosys revised its FY19 revenue growth guidance to 8.5%-9% CC from 6%-8% earlier. It kept EBIT margin guidance constant at 22%-24%. All of the above (except the margin part) have been positive surprises for the market. However, sustainability of this robust growth in revenues and TCV is the...

Karnataka Bank (KBL) reported 3QFY19 results with the key pointers being: (1) KBL did not recognize interest income of about ~Rs 300mn, which led to tepid NII growth (2) Barring IL&FS; exposure, which was conservatively recognized as NPA, no new large corporate stress emerged (3) Staff cost jumped 49% YoY due to provisions made due to wage revision and on superannuation and such high delta in staff cost is not repeatable. (See detailed conference call takeaways for significant incremental colour.) Per se, on the results front, KBL posted 8.1% NII growth YoY to Rs4,880mn, PPOP growth of 24.4% YoY to Rs4004mn and PAT growth of 60.7% YoY to Rs1,404mn. We...

A Double-digit FY20? Not Yet. Talent Hoarding Impacts Margins In 3QFY19, TCS' constant currency (CC) QoQ revenue growth at 1.8% (12.1% YoY) was in line with expectations. However, EBIT margin slipped to 25.6% (our estimate 27.2%). This has been because of lower gross margin and higher-than-expected SG&A; expenses as a significantly talentconstrained market for new age services, primarily in the US, led to what we believe as talent hoarding by TCS. That, in our view, is a pre-emptive move by TCS to handle demand fulfilment problem that players like DXC, Hexaware and Persistent Systems specifically and the industry in general has talked of in recent times (Refer: Onsite Supply Bottleneck Unlikely A One-Off). It also potentially addresses a tighter market for H1-B visas under the new rules (Refer: Likely Change In...

We expect the companies in our coverage universe to report a decline in 3QFY19 earnings on YoY as well as QoQ basis on account of multiple headwinds like waning demand, unfavourable operating scenario and rising commodity costs. We expect the earnings to fall 3%/18% on YoY/QoQ basis, respectively. However, on the sales front we expect a low single-digit YoY increase, supported by two-wheeler (2W) volume growth YoY and product mix improvement following price hikes. Commercial vehicle (CV) segment fared the worst in 3QFY19, while passenger vehicles (PV) posted low single-digit volume growth. The two-wheeler segment was plagued by heavy channel inventory, while tractors witnessed double-digit despatches in case of most players. As regards margins, we expect our coverage universe to report...

In our opinion demand conditions have largely remained unchanged from previous quarter vijay.chugh@nirmalbang.com but the cost headwinds have seen substantial deceleration and that will start aiding margins +91-22-6273 8064 for most companies in 3QFY19. Rural uptick in our opinion has still not materialized substantially and will be a key factor to watch in CY2019. We expect our coverage universe to grow its top-line, EBITDA and net earnings by 11.3%, 14.6% and 16.9% YoY, respectively. We expect growth during the quarter will be led by Alcobev, Food and QSR names. We expect the somewhat benign cost trends in both crude and food should aid margins and help compensate for somewhat lower than expected growth rates on rural side. On the operating...

IndusInd Bank (IBL) reported its 3QFY19 results with the key takeaways being: (1) IBL took provision cover to IL&FS; parent exposure to ~30% and expects a cumulative provision requirement of 40-50% on this exposure to IL&FS; parent (2) NIM was largely flat, contracting 1 bp QoQ with management guiding for stable to improving margin (3) Corporate loan growth (ex MFI) at 34% YoY continued to outpace consumer finance growth at 28% YoY. (See detailed conference call takeaways from page 2) Per se, on the key P&L; items, IBL delivered NII, PPOP and PAT growth of 21%, 27% and 5% YoY to Rs22,881mn, Rs21,170mn and Rs9,850mn, respectively. We have retained Buy rating on IBL and revised our target price to Rs2,107 (from Rs2,139 earlier)....

In 3QFY19, both Inox Leisure and PVR delivered good stock performance after a poor 2QFY19. Inox Leisure was up ~9% and PVR was up by a stellar ~30% whereas in 2QFY19, Inox Leisure and PVR stock prices were down ~16%/~12%, respectively. Overall, the uptick can be attributed to: (1) Expectation of better numbers in 3QFY19 because of multiple blockbuster movie releases. (2) F&B; controversy receding into the background after having taking centre stage in 1HFY19. (3) Prospects of better organic growth in screens as retail real estate has started expanding faster than it did in recent years as the general consumer sentiment picked up and the impact of online discounting reduced. (4) Strong bargaining power with online ticket aggregators like PayTM and Bookmyshow with both being able to wrangle sizable hikes in their minimum guarantees on convenience...

Consumer Price Index or CPI inflation in December 2018 is likely to come in at 2.13% YoY, down Research Analyst (Economist) from 2.33% in the previous month. The deflation in food prices is expected to sustain. Food and teresa.john@nirmalbang.com beverage inflation is expected to decline 1.58% YoY, after a 1.69% fall in the previous month. Core +91 22 6273 8114 inflation (excluding food and fuel, but including petrol and diesel) is expected to soften slightly to 5.5% YoY, down from 5.7% in the previous month. Soft petrol and diesel prices will contribute to the decline in core inflation. The fuel and light category is also expected to witness a sequential decline on lower LPG prices. Wholesale Price Index or WPI inflation is also likely to soften to 4.13% YoY in December 2018 from 4.6% in the previous month. A lower base is likely to have an...

The 3QFY19 quarter is likely to witness healthy revenue growth for capital goods and chirag.muchhala@nirmalbang.com consumer electricals sectors. The revenues of companies in our coverage universe are +91-22-6273 8092 likely to rise 13.2% YoY in 3QFY19. While the capital goods sector is undergoing a pick-up in execution largely driven by urban infrastructure projects, the consumer electricals and durables sector is likely to benefit from festive sales and a favourable base effect. The festivals of Diwali and Dussehra were part of 3Q in FY19 compared to 2Q in FY18. The pressure on margin is also likely to reduce, especially on QoQ basis, as (a) the companies took 3%-5% price hike in October-November 2018 to counter...

Margin Pressure Continues Despite Relative Relief On Cost Front We expect the cement companies in our coverage universe to report a tepid performance in the quarter ended December 2018, with average EBITDA margin at 15.4% versus ~16.9% in the quarter ended December 2017. Our coverage companies' continuous focus is on aggressive despatches and we expect the volume growth at 10.4% YoY in 3QFY19 (13.5% in 2QFY19). The pace of volume growth from the infrastructure segment fueled by government spending has tapered, although this segment continues to be key driver of current demand. Effectively, the performance in the December 2018 quarter was weak YoY because of healthy prices in the...

In 3QFY19, the Indian Banking and Financials sector will witness the following key themes playing out from a results perspective: (1) Credit costs for specific corporate-focused Banks with would remain relatively elevated due to NPA ageing but slippage ratio would be lower than recent historical run rate (See recent sector report on asset quality and other themes: Power Play To Digital Dreams) (2) Systemic liquidity crunch in the earlier portion of 3QFY19 would, ceteris paribus, see some impact on NBFCs and wholesale-funded banks but we note that liquidity conditions have, since, eased significantly (See sector report on systemic liquidity crisis: Where's My Liquidity Crisis?) (3) Government bond yields have also eased materially over the quarter and that will help aid Banks eke...

Since our recent IT services sector downgrade (Street Is Not Factoring Even A Soft Landing; We Downgrade), our economist, Ms. Teresa John, has revised her estimates on the INR in her recent report (2019 Macro Outlook - Thematic Report- Feeling The Way In A Wobbly World). Incorporating those in our models, we are revising our EPS estimates lower for our coverage universe. Earlier, for INR/USD we were assuming 72/77/79.7 for FY19/FY20/FY21. Teresa has revised her estimates to 70/72/74.5 respectively. Consequent to our downward revision of our EPS estimates, our Target Prices go lower. We add Infosys to the list of Sells'. Upside on our only...

Gurugram Residential Segment Remains Subdued, U-shaped Recovery Likely Amit Agarwal We had a meeting with real estate brokers in Gurugram recently. The key takeaways from our meetings are: 1) Prices have declined 20%-30% over the past two years and builders are offering discount of 5%-15% to improve sales. 2) Second sales are at a 20% discount to the...

The Central Statistics Office (CSO) has released advance estimates for FY19, pegging India's Research Analyst (Economist) FY19 Advance Estimates Peg GVA At 7% And GDP At 7.2% GDP growth at 7.2% and GVA growth at 7%. This is in line with our estimate, but below the Reserve Bank of India's estimate of 7.4%. Agriculture sector's GVA growth is pegged at 3.8% which is in line with our estimate. Overall industry and services (including construction) sector growth is also broadly in line with our estimates at 7.4% and 7.5%, respectively. Private consumption is expected to slow to 6.4% from 6.6% earlier, but we expect private consumption to grow faster at 7.7%. Gross fixed capital formation is expected to accelerate to 12.2% from...

Dismal Earnings To Be Driven By Poor GRM & Inventory Losses We expect 40.3%/ 93.9%/92.2% QoQ decline in the December 2018 quarter earnings of Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). Earnings of Indraprastha Gas (IGL) are expected to grow 10.2% QoQ. Earnings disappointment for oil marketing companies or OMCs will be primarily driven by: 1) Lower gross refining margin or GRM. Average Singapore GRM declined from US$6.0/bbl in 2QFY19 to US$4.4/bbl in 3QFY19. 2) Rising interest costs and depreciation. 3) Inventory losses on account of the decline in average crude oil price (Dubai-Fateh) from US$74.0/bbl to...

Since our recent IT services sector downgrade (Street Is Not Factoring Even A Soft Landing; We Downgrade), our economist, Ms. Teresa John, has revised her estimates on the INR in her recent report (2019 Macro Outlook - Thematic Report- Feeling The Way In A Wobbly World). Incorporating those in our models, we are revising our EPS estimates lower for our coverage universe. Earlier, for INR/USD we were assuming 72/77/79.7 for FY19/FY20/FY21. Teresa has revised her estimates to 70/72/74.5 respectively. Consequent to our downward revision of our EPS estimates, our Target Prices go lower. We add Infosys to the list of Sells'. Upside on our only...