Buy

Weak P&L: 1QFY17 Consolidated P&L weakened sequentially with revenue at INR9.5b (v/s INR9.6b QoQ), EBITDA at INR1.7b (OPM of 18.1%) v/s INR2.5b (OPM of 26.4%) in 4Q and PAT at INR478m (v/s INR723m). Gearing marginally went down by INR1b QoQ to INR55.8b (net DER of 1.13x). Subnormal presales: Quarterly pre-sales remained subdued at 0.8msf (INR 5.1b) v/s 1.5msf (INR9.9b) in 4Q. Collections up 16%QoQ in 1Q. Leasing and rental runrate was down 1Q, at 0.04msf and INR1.312b respectively. Moderate growth outlook: FY17 guidance comprises 15-25% growth in pre- sales, 10% in collections, 30%-35% in rentals on the back of new completions, and gearing at elevated level of 1-1.25x as capes cycle would continue.

PEPL remains preferred play on Bangalore real estate, which albeit lost momentum, still offers better dynamics. But PEPL’s massive slippage over FY16 (contrary to track record) highlights the magnitude of prevailing weakness in market. Post sharp corrections, stock valuations factor in the concerns of deterioration in capital structure and weakness in operations. At 1.7x/1.6x FY17/18E BV and at an EV of 10x FY18E EBITDA stock offers valuation comfort. Operational normalcy remains near-term trigger. We maintain Buy with target price of INR225.

Merger of HFL to result in ~2.8% dilution, increase promoters stake to 51.3% (+90bp) Swap ratio implies discount of ~38% to HFL's closing price of ~INR54.5 on 14/Sep/16. Though materiality of this deal might be low, it deviates from the managements stated objective of streamlining AL's balance sheet. While we are yet to factor in for HFL in our AL's estimates, given tax shield on accumulated losses we see limited change in FY17/18 EPS. We now value AL at ~8x EV/EBITDA (v/s 9x earlier), to factor in for potential impact of this deal on capital efficiencies.

Short term volatility in volumes notwithstanding, we believe CV cycle has more legs to it and would grow at 12-15% CAGR over next 3 years. Management's focused approach is paying-off in a) market share gains, b) rising ASPs, c) controlled cost, d) reducing working capital, e) significant control on capex and f) debt reduction. ALs valuations at 9.6xFY18E EPS and EV/EBITDA of 6.1x are very attractive, considering strong EPS growth of ~47% CAGR over FY16-18E. We now value AL at ~8x EV/EBITDA (v/s 9x earlier), to factor in for potential impact of this deal on capital efficiencies due to increase in capital employed without commensurate improvement in operating performance. Maintain Buy with target price of ~INR105 (~8x FY18 EV/EBITDA).

Mahindra CIE (MCI) is ready to embark on its Phase 2 (2017-20) growth strategy, which mainly focuses on expansion. The company is looking to expand into newer geographies (expand within India & Asean countries) and segments (entry into plastics & aluminium products). It is also redefining its product portfolio and optimising plant locations. Its Phase 1 (2014-17) strategy of consolidation has made good progress in areas of optimising operations, turnaround of various segments, controlling capex, reducing debt, among others. MCI’s announcement on acquiring 100% stake in Bill Forge Pvt Ltd (BFPL) for | 1,331.2 crore is its first step as a part of its Phase 2 strategy. BFPL is a precision forging & machining with focus on 2-W & PV auto components, primarily for steering, transmission & wheelrelated assemblies.

It has six manufacturing plants across India with capabilities in cold & warm forging in addition to hot forging. In FY12-16, BFPL’s revenue, EBITDA, PAT registered CAGR of 13%, 30%, 29%, respectively. As of FY16, its net debt was at | 75 crore while the deal is valued at 11x FY16 EV/EBITDA multiple, which we believe is fairly valued.The acquisition of BFPL is largely positive thereby diversifying its concentration risk (hence increasing our CY17E revenue & PAT by 11% & 18%). However there would be equity dilution of 17%. Thus, we continue to value MCI at 11x CY17E EV/EBITDA & maintain our target of | 225 with BUY rating.

Suzlon’s 1QFY17 volumes of 204MW (flat YoY) was below our estimates, leading to a loss of Rs 2.6bn (higher than expected). Loss could have been lower (by Rs 1.2bn) had it not been for the new Ind AS norm. With an order book of 1,205MW (to be entirely executed in FY17E), the company remains confident of meeting its FY17E volume guidance of 1.5 - 1.6 GW. The same should also aid in balance sheet healing (primarily debt reduction).

Muted order announcements, so far in FY17E, have cast pressure on the WTG stocks. However we expect the order flow momentum to pick up as most states have finalized their tariffs. Visibility on volumes over the longer run also remains high given continued government thrust, improvement in technology and expected tender based bidding in wind. In this backdrop, we reiterate BUY on Suzlon with a TP of Rs 28/share (10x FY18E EV/EBITDA).

J Kumar Infraprojects (JKIL) delivered 1QFY17 RPAT beat, 7.6% above our estimates (incl. Rs25mn dividend from mutual funds). Net revenue growth of 10% YoY (6.2% below estimates) was on account of subpar execution at the JNPT road project (Rs 300mn), expect strong pickup from 3QFY17E. The Balance sheet remains healthy with net debt at Rs 1.8bn & net D/E stood at 0.13x. QIP proceeds have aided deleveraging.

JKIL has finally received the LOA for the Mumbai Metro line 3 project with bid value of Rs 52bn. The dark clouds on fate of Metro project has cleared now and worst of BMC headwinds may be receding. Whilst litigation on BMC road projects continues, JKIL has been de-registered from further bidding in BMC road segment. Other State Government department, JKIL continues to eligible for bidding. Maintain BUY with TP to Rs 321/sh (15x Mar-18E EPS).

Sobha Developers (SDL) 1QFY17 disappointed on EBIDTA margins as SDL divested Pune land for Rs 1bn consideration at 12.1% EBIDTA margin. Besides IND-AS transition and its resultant impact on JV/JDA land bank contracted EBIDTA margins by 200bps.

Balkrishna Industries’ (BKT) topline at Rs 9.1bn (+7% YoY) was ahead of expectations as volumes improved (+11% YoY). EBITDA margin at 28% (- 452bps QoQ) was lower as higher commodity prices/other expenses offset lower employee cost. BKT enjoys significant cost (30% lower than peers) advantage in the OHT segment and thus is able to generate high margins. The company has sufficient capacity (57% utilisation) to maintain steady volume growth over the next 3-4 years. We believe BKT will grow faster on account of rising penetration in new geographies like India and OEM segment.

They raise FY17/18E earnings by 9-11% to incorporate increase in volume growth guidance to 160-170k in FY17E. Maintain BUY with a revised TP of Rs 972 (earlier Rs 823) based on 14x FY18E EPS. Antidumping duty in US (CVD of 4.7%) is a key risk to our view. The final decision on the same is due by Jan- 17.

Coal India's reported nos (EBITDA: Rs38.6bn, -22.5% YoY, -37.8% QoQ) were disappointing. FSA pricing came in lower than expected (Rs 1,239/t, -4.4% YoY, -8.3% QoQ, -4.9% vs estimates) likely due to adverse mix and despite partial benefit of a price hike taken in end-May. E-auction realisations continue to languish (Rs 1,570, -28.1% YoY, -4.7% QoQ), though in line with estimates.

These numbers are undoubtedly weak, but things have moved significantly post June. The increase in imported coal/petcoke is likely to provide some boost to the e-auction realizations which continue to suffer, as the premium to FSA prices remains at near historic lows (27%). We also note that the realized eauction prices are much below import parity, even accounting for the asymmetric levies on domestic coal (6% excise vs zero import duty on Indonesian coal under FTA). Maintain BUY with a TP of Rs 369 (Unchanged, 8.0x FY18 EV/EBITDA)

Lackadaisical Performance on Lower Volume, Higher Cost On the back of lower-than-expected sales volume of Aluminium & Alumina along amid a overall challenging environment marked with higher cost of inputs, National Aluminium Company Limited (NALCO) has posted lackadaisical performance in 1QFY17, missing our estimate on all counts. Its EBITDA dipped 15% yoy (18% qoq) to Rs1.95bn vs. our estimate Rs2.7bn. Notably, power cost surged 19% yoy (15% qoq) to Rs5bn, which we believe to be due to coal cess. Though Aluminium division's sales rose by 6% yoy, it plunged 34% qoq to 82,836 tonne, and below...

Fundamentals Remain Intact, Existing Trend to Continue: Revenue/EBITDA/PAT have grown by 8.6%/15.2%/15.7% to Rs.16.9bn/3.9bn/2.7bn(Vs Rs.15.6bn/3.4bn/2.3bn YoY), respectively on the back of 9.3% volume growth(domestic) in Q1FY17. The company's EBITDA margin rose by 410 bps QoQ and133 bps YoY due to softening in crude oil prices. Vinyl Acetate Monomer (VAM)is the key input of products which is co-related to crude oil price. Decline in rawmaterial prices by 4.2% YoY has resulted into, EBITDA improving by 15.2% YoY and 65.4% QoQ.Other Expenses/Sales has fallen by 8.5% QoQ because of no cost on advertisement incurred during Q1FY17. The company has reported net profit growth due to high EBITDA margin and high other income (up 72.9% YoY). The improvement in net profit margin by 97 bps YoY resulted into NPM of 16.0% in Q1FY17 Vs 15.0% in Q1FY16

Valuation and Outlook : Strong margin performance and near monopolistic position with ~70% and more than 50% market shares in flagships brands of Fevicol and Dr. Fixit, respectively, growth story of the company is intact. Besides, continuing product innovation, focus on special chemical business, brand building having hired Mr. Amitabh Bachchan as Brand Ambassador, make products premiumized. We value the company at P/E 48.0x to FY18E EPS which is currently trading at PE 40.1x of FY18E EPS and reiterate our “BUY” recommendation with target price of Rs. 840 representing potential upside of 20%