As expected by us in the last series outlook, the market witnessed new highs. But again the up move was driven by select stocks and the broader markets were not reflecting a similar sentiment. We feel post last 3 months' up move, markets may take a pause in December Series and Nifty may remain in a range of 11700 12300.

Asset quality deteriorates, remains key monitorable; Growth intact

Valuations and Recommendation The stock has underperformed the markets and has corrected 35% in the last one year on the uncertainty of new supply facilities coming up and the unclear stance of the government on the use of single use plastic. However, both the issues have turned out to be inconsequential for the industry as a whole and we believe the stock has bottomed out and can a turnaround fr

Repco Home Finance (RHFL) has reported its 2QFY20 results with the key pointers being: (1) Lack of demand and high competition from banks were the key reasons for subdued growth (2) We sense signs of pricing/margin pressure (3) GNPAs remain unchanged QoQ at 4.2% with uptick in the selfemployed/non-salaried segment. (See detailed conference call takeaways on page 2 for significant incremental colour). Per se, on the key P&L; items, RHFL posted NII growth of 11% YoY at Rs1,237mn, PPOP growth of 5% YoY at Rs1,021mn and PAT growth of 51% YoY at Rs1,006mn. We have revised our estimates for FY20/FY21/FY22 and retained Buy rating on RHFL, revising our target price to Rs389...

Thermax posted 2QFY20 consolidated revenue of Rs16.1bn, up 13% YoY and above our/consensus estimates of Rs15bn each. The topline was driven by the Energy segment, up 17% YoY at Rs13.4bn (82% of total sales), led by robust execution in the Dangote project (sales of Rs3.5bn-Rs3.8bn booked in 2QFY20). Gross margin remained flat YoY at 45.5%. EBITDA was up 18% YoY at Rs1.3bn, leading to an operating margin of 8.1%, up 40bps YoY. The margin was above our/consensus estimates of 7.6% each. Thermax has written down deferred tax assets worth Rs675mn as it has opted to shift to the new tax regime. This led to higher tax at Rs947mn (79% tax rate). Consequently, PAT fell 66% YoY to Rs257mn (our/consensus PAT estimate was...

Aurobindo Pharma's (APL) 2QFY20 revenue at Rs56,005mn is up 3% QoQ and 2.7%/0.4% above our/consensus estimates, respectively. The Formulations business grew by 21.8% YoY and 1.7% QoQ, Formulation business growth was led by US which grew 5.5% QoQ despite compliance woes at its multiple manufacturing units. The company launched 10 products including 3 injectables in the US during the quarter. Injectable sales run rate further ramped up during the quarter to reach $75mn as against $67mn in the previous quarter. Spectrum pharma sales remained flat QoQ at about $25mn. FTC consent for Sandoz transaction closure is expected anytime now (in next few weeks)....

Natco Pharmas (NPL) sales in 2QFY20 at Rs4,857mn is 2.7% below our estimate and 5.6% below consensus estimate. Net profit at Rs1,177mn declined 17.6% QoQ and 35.2% YoY. Net profit is below our estimate by 18.8% and below consensus estimate by 25.9%. The performance was affected by a steep decline in domestic sales. Domestic sales during the quarter stood at Rs1,220mn, which is lower 37% YoY and were affected by lower Oncology, Hep C sales and QoQ decline in C&D; sales. The C&D; decline and Hep C decline was anticipated, but the Oncology decline came as a surprise. Hep C business has been seeing structural decline and the QoQ decline in C&D; was also expected as the previous quarter had...

Cadila Healthcare's (Cadila) 2QFY20 reported net profit of Rs1,072mn was adversely impacted by one-offs pertaining to write off of Levorphanol intangibles, which was partially offset by Rs357mn gain from the sale of Zyptimagrights for the US and Canada to Medicure. Adjusted for the one-offs, net profit stood at Rs2950mn during the quarter, which was down 10% compared to previous quarter's net profit adjusted for one-offs. Revenue declined by 5% QoQ due to seasonal decline in wellness business (48% QoQ), which was partially offset by strong growth in the US business (6% QoQ). Gross margin improved 100bps QoQ, led by a change in business mix. However, higher other expense during the quarter affected EBITDA margin. Other expense as a proportion of sales...

Sequent Scientific or SSL's 2QFY20 revenue at Rs2,842mn was in line with our estimate. Revenue grew by 14.5% YoY (cc) and was primarily led by growth in API sales. API sales grew by 30% YoY and now contribute 33% to total sales. The growth in API sales should sustain at least until the end of FY21 as the company expects to monetize its niche VMF (Veterinary master files) filings with low competitive intensity. About 5 of the 17 VMF filings of Sequent Formulations are niche, where SSL is the only filer. Formulation sales grew slower at 8% during the quarter as the company's largest geography Europe underperformed and declined 2.5% YoY. The decline in Europe is transient and was...

Muthoot Finance (MFL) reported its 2QFY20 results with the key takeaways being: (1) Gold loan AUM growth at 9% YoY; management cites incremental funding issues (2) Spreads during the quarter expanded to 14.25%, +229 bps YoY/+255 bps QoQ, driven by higher collections/lower concessions (3) Gross stage 3 assets deteriorated by 23 bps QoQ to 3.43% (See detailed conference call takeaways on page 2 for significant incremental colour). Per se, on the key P&L; items, MFL posted NII growth of 31% YoY at Rs14,358mn, PPOP growth of 44% YoY at Rs10,738mn and PAT growth of 77% YoY at Rs8,579mn. We have revised our estimates for FY20/FY21/FY22 and retained Buy rating on MFL, revising our target price to Rs877 (from Rs874...

Consumer Price Index or CPI inflation for October 2019 came in at 4.62%, higher than our estimate of 4.51% Research Analyst (Economist) and Bloomberg consensus estimate of 4.35%. Core inflation slowed to 3.50% - in line with our estimate and teresa.john@nirmalbang.com down from 4% in the previous month. It now stands at the lowest level in the current series. Food & +91 22 6273 8114 Beverage inflation stood at 5.9% YoY, up from 4.7% in the previous month. We expect the RBI to maintain its easing bias on the back of sluggish growth and weak core inflation despite rising headline inflation (led by food prices). Our base case is a 15bps cut in December 2019. However, should the 2QFY20 GDP print surprise substantially below 5%, we would not rule out a larger rate cut of about 25bps. Our estimates suggest that headline inflation is likely to remain above 4.5% for the rest of FY20, with core inflation...

Dixon Technologies (Dixon) reported highest ever quarterly sales in 2QFY20 at Rs14bn, up 90% YoY (on a low base) and above our estimate of Rs12bn. Growth was driven by Consumer Electronics segment (sales up 105% YoY to Rs7.4bn), Lighting segment (sales up 49% YoY to Rs2.8bn) and Home Appliances segment (sales up 34% YoY to Rs1.4bn). Mobile Phone segment (including the effect of 100% stake in Padget Electronics) jumped 204% YoY to Rs1.9bn. Consolidated EBITDA grew by 93% YoY to Rs631mn with an operating margin of 4.5%, up 10bps YoY. Aided by lower tax rate at 11%, PAT jumped 162% YoY to Rs430mn, above our/consensus estimate of Rs306mn/Rs292mn. Achieving scale, migration to ODM, new...

Prestige Estates Projects' (PEPL) profit growth of 64% YoY to Rs1.5bn was driven by: (1) Revenue growth of 48% and (2) EBITDA margin expansion of 350bps YoY to 31.7%. Revenue of Rs19,229mn in 2QFY20 was up 48% YoY and was driven by: (1) Increase in PEPL's share of commercial leasable area by 6% YoY to 8.94mn sq. ft. (2) Increase in PEPL's share of retail leasable area by 32% YoY to 3.40mn sq. ft. (3) Rental income rising by 23% YoY to Rs2,229mn....

Flat RevPar, weakening cash flows and rising debt raise concerns The 2QFY20 results show adjusted net loss of Rs22mn as against a net profit of Rs57mn in 2QFY19 despite revenue growth of 19% YoY. Revenue growth was primarily driven by increase in number of rooms by 17% YoY to 5,828 rooms. RevPar at Rs3,091 remained flat YoY. While reported EBITDA and EBITDA margin rose 35% and 372bps, respectively YoY, the comparable EBITDA adjusted for changes due to Ind As 116 rose 12% YoY and the comparable EBITDA margin declined 153bps YoY to 26.5%. This was mainly because of increase in employee expenses by 24% YoY on account of minimum wage revisions and increase in other expenses by 23% YoY. (Refer Quarterly...

Bharat Heavy Electricals (BHEL) posted 8% YoY decline in 2QFY20 revenue at Rs62.3bn, 8%/9% below our/consensus estimate. Gross margin declined by 420bps YoY to 37.2% as orders won at highly competitive pricing gets executed. Lower other expense (down 43% YoY to Rs5.8bn due to lower provisions) led to 11% YoY rise in EBITDA to Rs2.7bn. Operating margin was up 70bps YoY to 4.3%. Depreciation rose 129% YoY to Rs1.2bn while interest expense was up 72% YoY at Rs1.2bn. PAT fell 36% YoY to Rs1.2bn, below our/consensus estimate of Rs1.4bn each. Order inflow in 1HFY20 was low at Rs113bn while order backlog declined by 6% YoY to Rs1,086bn. BHEL has moderated execution of certain projects of...

We maintain Sell rating on Mahanagar Gas (MGL) on our revised DCF-based target price (TP) of Rs823 vs. old TP of Rs743 (18% downside from CMP). This follows a 36.4%/33.3% and 33.2% increase in our FY20-22E earnings after the results concall. MGL reported 2QFY20 PAT at Rs2.7bn, up 98.6% YoY and 41.3% above NBIE estimate. The beat on PAT was due to a one-time tax write-back as the company adopted the lower tax regime. Revenue was in line with expectation at Rs7.83bn and EBITDA along with EBITDA margin were marginally below NBIE estimates by 1.56%/70bps at Rs2.73bn and 34.9%, respectively. The YoY...

Sanofi India's (SIL) revenue in 3QCY19 stood at Rs7,791mn, above our estimate by 2%. Revenue grew by 5% YoY and 4% QoQ, respectively. Net profit at Rs1,266mn was above our/consensus estimate by 7% and 36%, respectively. Net profit benefitted from the new tax regulation. The effective tax rate for the quarter stood at 4% as excess tax expense booked in previous quarters was written back. The write back effectively helped net profit by Rs380mn. However, the company also took an impairment charge of Rs394mn related to its Ankleshwar facility. The impairment charge has been taken considering the discontinuation of supply contract with Zentiva. Adjusting for the one-offs reported profit would have been Rs1280mn....

This was below our expectation of a 2% decline and Bloomberg consensus expectation of a +91 22 6273 8114 2.5% decline. With this reading, GDP growth in 2QFY20 will at best match the 5% registered in 1QFY20, with a high probability of growth slipping to around 4.8%. The slowdown in IIP was led by Mining sector output, which declined by 8.5% YoY. Manufacturing growth declined by 3.9% YoY while Electricity production declined by 2.6% YoY. Capital Goods output declined by 20.7% YoY, Consumer Durables output declined by 9.9% YoY and Infrastructure Goods output declined by 6.4% YoY. Consumer Non-durables output declined marginally by 0.4% YoY, but Intermediate Goods output was up 7% YoY. The decline in IIP was broad based with only 6 of...

We looked at IRDA data for monthly new business figures and note that (1) HDFC Life Individual New Business APE growth for Oct'19 was negative at -15% YoY (2) Max Life's growth for the same metric was 2.6% YoY (3) Growth for SBI Life deteriorated further to 3% YoY (4) Growth for ICICI Prudential Life was 18% YoY. Our interpretation of the above revenue performance is outlined below. Individual APE YoY growth better than last month but we would wait before drawing conclusions: In October 2019, the overall industry has grown at a better rate of 4.9% YoY, with the private sector registering a growth of 3.8% YoY and LIC growing by 6.2% YoY. Industry level individual...

Ticking the right boxes to tackle slowdown Ashok Leyland's (AL) 2QFY20 earnings were in line with our estimate at Rs1.04bn, down 78% YoY, after adjusting for extraordinary expense of Rs648mn (Rs447.4 was due to VRS scheme). Effective tax was negative in the quarter due to MAT credits. Revenue was largely in line with our estimate at Rs39.3bn and was down 48.4% YoY. However, EBITDA margin was below our estimate and declined 360bps QoQ to 5.8% due to negative operating leverage. AL's gross margin improved both YoY and QoQ during the quarter on the back of a benign commodity prices, cost reduction efforts and favorable product mix, partially offset by negative operating leverage on...