Buy

Tata Motors Limited - TATAMOTORS believe currency fluctuations (esp post Brexit) will disproportionately affect JLR’s earnings for some time. Adjusted for one-offs, insurance claims and forex, TTMT’s 1Q was slightly below expectation. JLR’s top-line at GBP 5.46bn (+9.1% YoY) was driven by higher net ASP (+3% QoQ) (owing to GBP depreciation). The 200 bps margin miss vs est (13.8%, adjusted for FX markdowns on Euro payables) owed to launch expenses of F-Pace, Evoque Convertible and XE in the US. The India business recorded margin improvement.

They believe JLR’s volume growth momentum will remain healthy given its strong new launch pipe. The India business is also recovering with cyclical CV revival and improving traction in PVs. However, luxury auto demand in UK/EU might weaken due to rising economic uncertainty while weaker GBP will result in translation losses at JLR. Given the improving profitability at Cherry (China JV), we have revised our SOTP for TTMT to Rs 533 (up 3% from Rs 524). Maintain BUY.

Infosys Limited - INFY attended Infosys’ Analyst Meet, where the company largely showcased its progress around digital technologies. We marginally reduce our 2Q estimates to reflect near-term headwinds (RBS & consulting division). Our conviction on INFY remains intact led by (1) Improving market share, buoyed by large deal wins, (2) Higher resilience in BFSI over peers, (3) Increased automation impact on efficiencies in fixed-price contracts (44% of revenue), (4) Continued evidence of ‘renew’ as seen in the multi-vertical/services skilling plus a recast of sales performance incentives, and (5) Proof of better execution (stable sub-con expense) ably supported by the early success of the ‘MANA’ automation/AI platform.

They revise FY17E US$ revenue growth to 9.7% (10.7% earlier) factoring near-term client-specific headwinds while EPS remains unchanged on EBIT% of 25.5/26.1% for FY17/18E. INFY is attractive at 13.6x FY18E (20% discount to TCS’ valuations) and we maintain BUY with TP of Rs 1,350, 18x FY18E EPS.

 

Change in accounting standards, adverse forex impact on account of BREXIT and other non-operational items impacted the performance of Tata Motors (TML) in 1QFY17. Though we believe that adverse forex would continue to impact TML's performance in the near term due to its hedge book, weak GBP would augur well for JLR's performance on unwinding in its hedges, as JLR generates 80% of its revenue via overseas sales. Despite surprising us on revenue front, JLR's EBIDTA margin (12.3%) came below our expectation due to adverse forex movement. However, JLR's EBIDTA margin adjusted for forex loss relating to current asset/...

Tata Motors' (TTMT) delivered strong Q1FY17 performance with healthy operating margins at JLR, post adjusting forex and incentive impact. Its consolidated Revenues/EBIDTA/PAT grew 9%/-31%/-60% YoY but down 18%/33%/60% QoQ to Rs 659bn/Rs76bn/Rs19bn (our estimate of Rs 618bn/Rs80bn/Rs21.5bn) in the quarter. Consolidated EBIDTA margin declined by 667bps YoY and 256 bps QoQ to 11.6%, impacted by product mix and geographical mix at JLR. JLR's reported EBIDTA margin declined 391bps QoQ and 411 bps YoY to 12.3%, while adjusted for forex impact margins stood at 14%. JLR's margin performance was supported by higher ASP on account of higher contribution of high end products and currency. TTMT's standalone business reported positive EBIDTA for the sixth consecutive time in last 15 quarters with EBIDTA of Rs.5.74bn, up22% YoY. It reported standalone net profit of Rs 0.26 bn as against net profit of Rs 2.9bn in Q1FY16.

Capacity expansion to derive growth: The company is currently expanding its conductors and specialty oils capacity by adding plants at Jharsaguda (Odisha) and Sharjah (UAE) respectively. The company is currently at 100% capacity utilization in both the segments. Apar is setting up a plant for conductor manufacturing with a capacity of 30000MT per annum on a capex of Rs. 360mn which makes the company a largest manufacturer of conductors in the industry with 180000MT per annum. As per management, the sites will be operational from Oct

PNC Infratech's (PNC) topline grew 18.6% YoY to | 515.0 crore (our expectation: | 500.8 crore) led by better execution EBITDA margin declined 81 bps YoY to 13% (vs. our estimate: 13.2%) PAT grew 2.5x YoY to | 64.0 crore (vs. our estimate: | 39.4 crore) on account of higher other income (| 17.4 crore in Q1FY17 vs. | 1.9 crore Q1FY16), lower interest expenses (| 2.2 crore in Q1FY17 vs. | 10.3 crore in Q1FY16) and lower effective tax rate (8.9% in Q1FY17 vs. 34.5% in Q1FY16 due to MAT credit entitlement of | 8.2 crore)...

Key highlights: A decent performance with JLR posting healthy margins despite currency hedgesworkingagainstit.WeseemarginimprovementmajorlyfromFY18astheimpactof currenthedgesstartsreducing.WecontinuetoseevolumesCAGRat13%inFY1718ledby new launches, strong developed market performance, and volume recovery in China. The recentsharpdepreciationinGBPboostsJLRscompetitiveness;andmarginimpactwillfade ashedgesturnfavourablemostlyfromFY18.WetweakourestimateswenowexpectJLR topost15.4%EBITDAmargininFY17(15%previously)asthecompanyreapsthebenefitsof...

Top takeaways from Q1FY17 : Strong 19% yoy growth in topline – was inline with our and consensus estimates.  EBITDA margins at 13% (flat qoq) – along expectations.  EBITDA at Rs 671mn (+12% yoy) – was bang inline with our estimate (Rs 670mn). Other income was boosted by Rs 140mn exceptional income on loan to subsidiary. PAT was boosted by higher other income and MAT credit – adjusted PAT was inline with estimates. Orderbook was Rs 51bn (2.4x book-to-sales); 3.1x including L1 of Rs 13.7bn. Standalone debt at Rs 150mn (down from Rs 3.5bn in FY15) on repayment using IPO cash proceeds. Cash reserves at Rs 1.3bn, making it net cash company (from leverage of 0.5x in March 2015). Debtor days reduced to 54 from 68 in March 2016. It expects these to be at 80-90 going forward. Net WC days decreased to 87 from 92 in March 2016 – expected to be 115-120 days going forward.

Valuation: Phillip Capital have made minor revision to FY17-18 estimates. They continue to value PNC using SoTP – EPC business at 15x FY18 P/E (inline with peers) and BOT at 1x P/BV. Also note that DCF value of PNC’s BOT portfolio is 20% higher than the book-value – hence providing further upside potential, over and above our price target. They maintain BUY rating with price target of Rs 140 (unchanged).

 

 

In Q1FY17, consolidated numbers posted a 10% yoy growth while at the bottomline the numbers saw a dip of 64% on reported basis. However, on adjusted basis, the profits were down 52%. This fall was a result of weak JLR margin performance. Although the realizations were up by 2.9% qoq and flattish yoy, EBITDA margins adjusted for MTM losses stood at 14% as three main factors led to this performance – 1). Adverse forex hedges led by GBP depreciation. 2). Lower market incentives, mainly in China and 3). Higher launch expenses. On the standalone business side, margins came at 5.1% which were in-line with our subdued expectations. This was a result of weak MHCV sales in the quarter. PAT at ?258 mn came in lower than expectations due to higher depreciation and lower other income.

Valuation: LKP Securities have pruned down their estimates for FY17 on weak JLR margin expectations but have raised FY18 estimates as we expect better margin performance by then along with strong sales on new launches, improving Chinese demand and China JV profits. Robust domestic business may add some flavor too. The stock still looks attractive to us as it trades at a PE of 9.2x on FY18E estimates. Maintain BUY, target price raised to ?586.

Biocon is one of the largest insulin's producer in Asia and its rh-Insulin today, has marketing approvals in 60 countries & over 20 countries for Insulin Glargine. As on 25th Aug. 2016, European Medicines Agency (EMA) has accepted to review Mylan and Biocon's application for a biosimilar called Trastuzumab, used for certain breast and gastric cancers. Marketing approval for the drug is likely to come in next 12-18 months having an addressable market close to USD 7 billion, which opens up a huge opportunity for Biocon and Mylan both. This is the second biosimilar submission developed by partnership that has been accepted for review in Europe. Last month, Mylan's...