Buy

India’s domestic petroleum consumption growth will be 4-5x the world average, and is expected to grow at ~5% over the coming decade. However, the mix is expected to change in favor of gas (current share at ~7% v/s world average of ~24%) and clean energy sources. Indian petroleum consumption will be supported by (a) rising affluence and urbanization, (b) massive potential in end-market growth, (c) young, vibrant and upwardly mobile working class and (d) stable and pro-development government. Supportive macroeconomic trends that will drive energy demand and mix include: (a) improving GDP – more freight movement, (b) increasing disposable income, (c) thrust on clean energy sources and (d) demographic change with a higher share of working age population.

Valuation : Pure play petroleum marketing companies - US based CST Brands (CST US; M Cap: USD3.6b) and New Zealand based Z Energy (ZEL NZ; M Cap: USD2b) trade at >10x EV/EBITDA. These valuations (in-line with the underlying business dynamics) are more similar to consumer business than refining or oil & gas. They value HPCL (on FY18E) at 5x for refining and 7.5x for marketing to arrive at a fair value of INR1,490 implying a 19% upside. HPCL trades at 8.8x FY18E standalone EPS and 7x FY18E consolidated EPS of INR175. Maintain Buy.

Cement demand at the cusp of a new cycle: Over FY16-21, Mr Maheshwari expects cement demand in India to closely track the growth trajectory in China in the 1990s. Cement demand in China had increased multi-fold in the 1990s, led by infrastructure development. In India too, the growth in cement demand would be initially led by infrastructure – development of roads, railways, ports, power projects, and irrigation facilities. Demand growth from the housing segment would be gradual and back-ended.

Simplex Infrastructure’s (SIL) topline de-grew 6.9% YoY to | 1407.4 crore and was below our estimate of | 1536.6 crore on account of muted execution and a stretched working capital .The EBITDA margin expanded 45 bps YoY to 11.7% and was above our estimate of 11.2% . PAT de-grew 32.1% YoY to | 17.2 crore and was in line with our estimate of | 17.2 crore mainly on account of a higher effective tax rate (37.7% in Q1FY17 vs. our expectation of 33.9%), lower other income (| 20.1 crore in Q1FY17 vs. | 28.7 crore in Q1FY16) and a muted topline performance.

Valuation: We like Simplex on the back of its focused approach towards EPC business model, robust order book, better quality management & strong execution capabilities. With the government’s focus on reviving infrastructure coupled with the recent Cabinet move to boost construction sector liquidity, we believe SIL would be a key beneficiary. Hence, we maintain our BUY recommendation on the stock with a revised target price of | 440/share. We have valued its EPC business at | 413/share (at 6.5x FY18E EV/EBITDA).

Tata Motors’ (TML) Q1FY17 results were below our estimates. Consolidated revenues were at | 65,895 crore (up 9.1% YoY), below our estimate of | 70,245 crore. JLR revenues came in at £5461 million (mn) (up 9% YoY), came in lower than our estimate of £5815 mn mainly on account of lower than estimated volumes. JLR wholesale volumes were at 134,334 units (up 17.4%YoY) vs. our estimate of 143,094 units. Standalone revenues were at | 10,320 crore (up 11% YoY) vs. our estimate of | 10,375 crore. The marginal miss on estimates was on account of lower than estimated ASP

Consolidated EBITDA margins at 12.9% (vs. our estimate of 14.8%) were impacted by JLR’s performance. JLR’s reported EBITDA margin for Q1FY17 was at 12.3% (down 410 bps YoY, 390 bps QoQ). However there was an adverse forex impact of £207 million, including revaluation of £84 million, mainly euro payables resulting from depreciation in pound following Brexit vote. EBITDA margins excluding FX revaluation were at 14%.Standalone margins at 6.7% (up 195 bps YoY) were marginally above our estimates of 6.6% . Consequently, consolidated PAT came in at | 2260 crore (vs. estimate of | 3120 crore). JLR reported PAT of £304 mn vs. our estimate of £444 mn. The miss on PAT was mainly attributable to lower than estimated revenues & adverse impact of forex loss of £207 million. Chery JV share of PAT at £45m (vs. estimate at ~£60 mn vs. £49 mn in Q4FY16 vs. £6 mn loss in Q1FY16. Arrive at a target price of | 660 with BUY rating.

Gail reported Q1FY17 numbers, which came in higher than our estimates. Revenues declined 13.6% YoY to | 10851.8 crore and were lower than our estimate of revenue of | 16110.1 crore mainly on account of lower gas costs. EBITDA increased 52.6% YoY to | 1593.3 crore and came in above our estimate of | 1304.8 crore mainly due to higher-than-expected natural gas transmission, natural gas trading and petrochemicals segment EBIT .Subsequently, PAT during the quarter increased 2.1x YoY to | 1335.2 crore (our estimate: | 686.8 crore). Higher-than-expected other income at | 605.4 crore (due to the Mahanagar Gas stake sale) vs. our estimate of | 220 crore contributed to reported PAT.

Outlook and Valuation : Gail India has received six tariff revisions till Q1FY17. Also, it is awaiting tariff revision for five other pipelines (including HVJ pipeline). Positive judgement by APTEL, tariff revision for major pipelines and restoring gas volumes to higher levels would serve as key triggers for the stock. Stabilisation of the petchem business would be an important factor to watch for the stock, going ahead. They have valued the company using the SOTP methodology, valuing the core business using DCF and assigning a target multiple to the EBITDA of other business segments. They have a BUY recommendation on Gail with a target price of | 475.

TV Today had entered into DD’s Free Dish platform for an outlay of | 6.0 crore. Such an entry will help the company garner better rural viewership share and, negotiate better terms with advertisers. However, it has led to renegotiations on subscription deals culminating into a quarterly impact of ~| 3.0 crore. The subscription revenue estimates have been curtailed accordingly to | 21.5 crore in FY17E and FY18E, respectively.

Valuation : TV Today has been able to take a hike in ad yields owing to its leadership position in the Hindi news genre. In addition, there has been incremental revenue flow from the English Channel India Today, which has been able to improve its ranking in the English news genre. Expecting TV Today to post 23.5% CAGR in EBITDA with 13.0% CAGR in revenue in FY16-18E. EBITDA margins are expected to expand to 32.1% by FY18E with the complete exit from radio business being an upside risk. They value the stock at a 15x FY18E EPS of | 24.2, arriving at a target price of | 363, maintaining BUY.

Maruti Suzuki India (MSIL) is currently in a sweet spot as it has multiple triggers in its favour-1) positive impact of Seventh Pay Commission is expected to lead to incremental growth of ~16% YoY for the PV segment in the next two years 2) implementation of GST will result in lower ASPs of <4 million (mn) cars thus benefiting MSIL (market share of ~56% in <4 mn cars), 3) its focus on adding more content per vehicle (CNG, automatic, smart hybrid, etc) with aggressive pricing is creating a pull-strategy favouring MSIL 4) Stronger product portfolio with presence in the fast growing segments like UV, premium hatchback, etc. 5) normal monsoon in 2016 is likely to drive rural sales. Further, MSIL’s capacity expansion plans, which we believe will take the company closer to its goal of manufacturing 2 million vehicles by 2020. We raise our target to | 6150 (from | 5095 earlier) based on 22x FY18E EPS.They value at 22x FY18E EPS of | 279/share, to arrive at TP of | 6150 with BUY on MSIL.

Navkar Corporation (NCL) reported a good set of numbers for 1QFY2017. The consolidated top-line grew by ~10% yoy while on the operating front, the company reported a margin contraction on account of higher employee and other operating expenses. The net profit grew by ~41% yoy due to lower interest cost and higher other income.

Outlook and Valuation: Angel Broking estimate NCL to post a revenue CAGR of 32.7% and PAT CAGR of 31.3% over FY2016-18E. They have factored in lower utilization levels of 34.7% and 42.6% for FY2017E and FY2018E, respectively. At the current levels, the stock is trading at 16.7x its FY2018E earnings. Historically, NCL has consistently grown at JNPT and increased its utilisation from 68% in FY2012 to 87% in FY2015 by leveraging on its rail advantage during periods when JNPT posted flattish volume growth. Going forward,expect NCL’s utilizations to improve;expect the company to be able to garner a good chunk of business over the next three to four years due to its rail advantage at both JNPT and Vapi. They maintain our Buy recommendation on the stock with a target price of `265.

GMDC has seen its lignite volume taper off in the past few years. Decline in international coal prices and heavy state taxation further weighed on lignite pricing. We expect lignite volumes to be close to bottoming out, while strengthening international coal prices and GST led normalization in taxation should help support lignite pricing and profitability.HDFC Securities initiate with a BUY and a TP of Rs 125 (5.0x FY18 EV/EBITDA).

Valuation and view: With repeated disappointments on volume front weighing it down, GMDC trades at inexpensive valuations (3.6/2.9x FY17/18 EV/EBITDA and 10-11 P/E). Despite excess cash, payouts have been dismal. Higher payouts/buybacks, in line with other PSUs, should help rerate the valuations further.