Buy

For 1QFY2017, PNC Infratech (PNC) reported top-line growth of 18.6% while the bottom-line grew by substantial 145.6% yoy. The top-line growth was driven by strong execution across Agra-Firozabad and Varanasi-Gorakhpur road projects. Despite strong execution, decline in raw material and other expenses led to 81bp yoy decline in EBITDA margin to 13.0%. A 11.6% yoy EBITDA growth coupled with tax benefits and MAT credit led PAT grow by 145.6% yoy. PAT margins stood at 12.4%, rose significantly on a yoy basis.

Outlook and valuation: Considering the strong uptick in roads and highways EPC award activity especially in north India, where PNC has more comfort, and given its past track record and recent wins, we expect the standalone entity to report 20.1% top-line CAGR over FY2015-2017E. With normal tax rate applicable from FY2018, the bottom-line growth would be of -3.3% CAGR during the same period. Accordingly, RoEs would decline from 23.3% in FY2016 to 13.9% in FY2018E. We are also now comforted that the consolidated Balance Sheet would peak from FY2017E onwards. Using the SoTP valuation methodology we arrive at a FY2018E based price target of `143. Given the 19% upside in stock form the current levels, we recommend BUY rating on the stock.

Ashoka Buildcon Ltd. (ABL), 1QFY17 financial performance was impacted by delays in execution pickup in recent order wins, resulting in lower EPC revenue (-3.4% YoY). EBITDA margins declined ~150bps YoY to 12.8% led by ~293bps YoY contraction in EPC margins to ~10.9%.ABL’s YTDFY17 order inflow stood at Rs 20.9bn i.e. ~59% of our FY17E order inflow estimate. Recent project wins are an indication of ABL’s conservative stance, with its bids being not only ~1-6% above NHAI’s benchmark costs but also within 2-9% range of L2 bidder. Consequently, we expect ABL’s FY17E EPC EBITDA margins recovery to ~12.1% primarily on account of the new order crossing margin recognition threshold. ABL didn’t recognize margin on Rs 400mn of revenue during 1QFY17 as margin threshold was not met. Maintain BUY with SOTP-based TP of Rs 202/share.

Valuation: They maintain BUY on ABL with TP of Rs 202/share. We value the (1) Standalone EPC business at Rs 111/share (15x one-year forward FY18 EPS) and (2) ABL BOT projects at Rs 76/share (3) land at historical costs at Rs 15/share.

 

Despite apparently stiff valuations, long term investors should accumulate Carborundum Universal (CUMI). After muted performance over FY12-15 (1% rev CAGR), CUMI is well set for growth as the manufacturing cycle recovers in India and international operations undergo restructuring. CUMI owns a globally dispersed set of abrasives, ceramics and electro minerals businesses. Its business model is more stable than most other capital goods makers, as it manufactures consumables (rather than equipment) for clients.

Management’s prudence is visible in CUMI’s consistent FCFs across cycles. It has a light balance sheet (0.1x net D/E) despite the capital intensive nature of the business (asset turns of ~1.4x), three acquisitions and a prolonged global slowdown. With improving capital efficiency, RoEs are on their way up to earlier levels of 17-20%. Our TP of Rs 391/sh values CUMI at 25x FY19E EPS (45% upside). This is at a premium to the 3-yr avg (~21x), which is justified given an all round improvement in business mix and earnings. Initiate with BUY target price of Rs 391/share (FY19E P/E of 25x)

Finolex Industries Ltd. (FIL) reported strong performance at both operating and earnings level. Though it reported just 6% revenue growth (slightly below our estimate), EBITDA income grew significantly by 25% YoY (better than our estimate) while lower-than-expected interest outgo boost earnings by 36% YoY to Rs980 mn. With the better demand recovery, the company's PVC pipes & fitting business volume saw a strong 14% YoY growth to 66.1KT mainly led by strong agriculture growth. Also, due to widening PVC-EDC delta and lower power cost, FIL's EBITDA margin expanded 357bps YoY to highest ever 23.7%. Further, due to significant debt reduction, interest expense was down by 68% YoY to Rs50 mn. We expect company to report...

We attended Infosys's analyst meet and are reassured that its Renew' and New' strategy is progressing well. Our biggest take-away was Infosys' target to become a strategic partner for at least 250 clients in 4-6 quarters and it is gearing itself very well to achieve the same. We believe this would complement their 2020 vision. Infosys confirmed that Q2FY17 revenue growth would be faster than that in Q1FY17 (+1.7% QoQ in US$ and +2.2% QoQ in CC). However, it cautioned about increase in uncertainty in business environment, largely client-specific, vs. that at the start of Q2FY17. It would make change in its FY17 guidance only at the time of Q2FY17 result....

Revenue Challenges Abound; Buy-back could Support Stock 1QFY17 financials of eClerx Services (eClerx) reflect major revenue challenges led by automation, in-sourcing initiatives and project roll offs. USD revenue fell 1.2% qoq (-0.6% in CC terms) to US$50.2mn, while yoy revenue grew by single digit (8.2%) for the first time since 3QFY15. It disappointed on EBIT margin also, which came in 147bps below our estimate (33.5% vs. 35% estimated) owing to pay hikes and reversal of gratuity write-backs. Notably, automation has impacted all its verticals Cable, Digital Marketing Financial Services to varying degrees. 2QFY17E revenue will be flattish, with possible...

Long Term Strategic Growth Drivers in Place: Increased focus on specialty chemical to boost operating margin - FineotexChemical Limited (FCl) has posted consolidated revenue growth at CAGR of 8.0% over the period of FY12-16. EBITDA recorded significant growth at CAGR of 37.3%during same period whereas EBITDA margin has also grown by 819bps YoY to 24.7% in FY16 due to overall decline in raw material cost by 618 bps YoY. PAT Marginhas grown by 301 bps YoY in FY16.

Infosys Technologies (Infy) held its analyst meet to articulate its strategies in the midst of a cautious business environment prevailing in the industry. The management did highlight that Q2FY17 would be better than Q1FY17 by addressing challenges in consulting vertical while Finacle witnessed it in Q1FY17. However, the management cited caution about the business environment on account of uncertainty prevailing across the industry and due to client specific concerns post Brexit. While Infosys would evaluate its full year FY17 revenue guidance of 10.5-12% in CC terms post Q2FY17 results, an overall cautious environment post Brexit could pose a risk to its FY17 guidance, in our view. On the other hand, the company’s dual strategy of renew and new along with automation platforms as ‘Mana’ is going on the right trajectory paving the way for the company’s growth on a long term basis.

They expect Infosys revenues to grow at a CAGR of 12.4% with average EBIT margin of 25.1% over FY16-18E. Hence, maintain BUY recommendation on Infosys with a revised target price of | 1290 (18x its FY18E EPS).

Indian Oil Corporation’s (IOC) Q1FY16 results were above our estimates on the profitability front. The topline increased 33.3% QoQ to | 107200.7 crore, above our estimate of | 88652.1 crore. However, revenues were marginally below our estimates, adjusting for change in accounting method due to Ind-AS. EBITDA at | 13683.5 crore was above our estimate of | 7015 crore due to higher-than-expected GRMs of US$10/bbl (our estimate: $6.7/bbl) supported by higher-than-expected inventory gain . PAT increased 5.7x QoQ to | 8269 crore, above our estimate of | 3621.8 crore. There was nil subsidy burden in the current quarter.

Valuation: ICICI Securities Limited have a BUY recommendation on the stock with a target price of | 670 (based on average of P/BV multiple: | 593/share and P/E multiple: | 747/share).

TV Today Network Ltd. is a part of India Today group and operates a network of TV News channels. The company is one of the leading news broadcasters with four news channels - Aaj Tak, India Today, Dilli Aaj Tak and Tez. Aaj Tak, the flagship channel of TV Today Network, has been able to maintain its dominant position in Hindi news genre, while India today has consistently increased its market share in English news genre.