NEGATIVE SURPRISE: Change in company's business strategy Shankara building products in its conference call has updated on the business strategy of achieving higher revenue growth in retail segment but at much lower margins which came as a negative surprise. It is transitioning into a low price retailer with focus on plumbing and sanitaryware as key growth drivers in the retail segment. Company expects healthy growth in the retail segment and...

KNR Constructions Ltd (KNR) is a leading EPC player largely focusing on national and state highway projects. KNR has successfully executed ~6,000 lane km road projects across 12 states in India. Q2FY19 revenue growth (6%) was tepid due to low carry forward orders & challenges in getting financial closure for HAM projects....

JK Lakshmi Cement (JKLC) reported a steady set of numbers for 2QFY19 driven by double-digit volume gains in a weak monsoon quarter. Cement realisation (adjusted with ready-mix concrete or RMC revenues of Rs390mn) declined ~2.4% YoY to Rs3,820/tn (above our estimate of Rs3,753/tn). The volume push in weak eastern and western regions led to a hit on realisation. This would have been further impacted, but for better pricing in northern region (in trade segment). Effectively, revenues grew ~10% YoY to ~Rs8.5bn (above our estimate of ~Rs8.3bn). Logistics costs declined because of higher truck axle load permission and better lead distance management (reduction by ~30km), but this was offset by higher energy costs. Effectively, overall operating costs/tn were flat...

JK Lakshmi Cement's (JKLC) results were above estimates, with EBITDA at Rs916mn vs. our estimate of Rs654mn and OPM of 10.8% vs. our estimate of 8%, largely driven by a steep decline in freight costs (down 12.2% yoy/11.5% qoq) and higher sales volumes. Sales volumes were up 12.6% yoy to 2.13mt (Emkay est: 2mt), while realization at...

Thermax posted 2QFY19 consolidated revenues of Rs14.3bn, up 38% YoY and 18% above our as well as consensus estimate each, led by execution of strong order book (mainly the large Rs10bn Dangote order from Nigeria). However, resource mobilisation for executing the large order, INR depreciation and commodity cost inflation led to lower profitability, especially considering the fact that orders won during the challenging times in FY18 carry tight margins. EBITDA grew only 15% YoY to Rs1.1bn with a 150bps YoY decline in operating margin to 7.7%, below our/consensus estimate of 8.9%/9.1%, respectively. Higher other income (up 51% YoY at Rs356mn) led to a 31% YoY increase in PAT to Rs745mn, broadly in line with our as well as consensus estimate. Consolidated order inflow in...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a dismal Q2FY19 performance. Topline de-growth of 20% YoY was following the de-growth in sales volume. The real dampener was, however, EBITDA margin that came in muted at 1.9% vs. the usual run rate of 13-15% Power tiller volume in Q2FY19 was at 5,396 units, down 24.2% YoY while tractor volume was at 2,087 units, down 18.3% YoY Net sales in Q2FY19 came in at | 144.6 crore, down 20.2% YoY...

ANDA launches along with favourable USD/INR and steady growth in India drive 13% EBITDA miss. The favourable benefits of Rs370m forex gain in operation helped to improve EBITDA margin by 120bps in Q2FY19. US and India contributed 61% of net sales and are the only two profit-making SBUs. Post adjustment of Rs950m one-off bonus and forex gain, adjust EBITDA was...

Net sales, adj. EBITDA and PAT all miss estimates by big margin. India Change in Estimates | Target | Reco having normalized base (as it grew only 11% YoY in Q2FY18). The sales in...

Overall Weak Show; Challenges Lie Ahead With South India Foray Shree Cement's (SRCM) revenue growth of ~21% YoY in 2QFY19 at Rs25.9bn was largely in line with our estimate. The performance was driven by volume (14% YoY jump including clinker sales) from eastern region and realisation gain of ~ 4.0% YoY backed by northern region. However, costs escalated ~15.1% YoY driven by higher fuel costs and other expenses. Effectively, EBITDA fell ~7.3% to Rs5.2bn and EBITDA margin slipped to 20% from 26.2% in 2QFY18. The power segment's performance, however, was strong with ~36% YoY jump in external power sales to ~400mn units and revenue jump of 33% to Rs4.42bn. Reported PAT at Rs493mn was impacted because of a provision of Rs1.78bn towards...

Rising Debt And Decline In Operational Cash Flow Raises Concerns Despite the strong growth in earnings of Sobha in 2QFY19, we are concerned on the sharp decline in cash flow after income tax and interest expenses by 70% QoQ and 60% YoY to Rs238mn. Consequently, net debt increased to Rs23.6bn, an increase of 4%QoQ. The weak cash flow is partially because of rising marketing and overhead costs following pricing pressure in a weak market. Given the weak market and the company's deteriorating balance sheet, we are concerned over Sobha's planned foray in the commercial real estate market which is expected to increase the strain on its balance sheet further. We have...

The India Cements (ICEM) reported a listless operating performance in 2QFY19 because of the sustained fall in realisation. Cement volume continued to pick up with ~14.0% YoY growth at 3.08mnmt (above our estimate of 3.03mnmt). However, realisation continued to decline ~2% YoY to Rs4,508/tn. Effectively, revenues grew only ~9% YoY to ~Rs13.9bn (marginally above our estimate of ~Rs13.7bn). Operating costs were flat YoY (but up 2.2% QoQ) at Rs4,004/tn because of savings in logistics costs and other expenditure. Continued weakness in realisation owing to demand-supply imbalance in key ICEM markets led to EBITDA margin compression of 310bps YoY to 11.2% YoY. Effectively, EBITDA/tn fell sharply to Rs503/tn, down ~24% YoY (in line with our estimate of...

SUNP's net sales, adj. EBITDA and adj. PAT declined by 4%, 5% and 1% QoQ Change in Estimates | Target | Reco respectively due to declining sales in negative development in key geographies. India formulations and US generics, contributed 62% of net...

Net interest income grew by 12% and PAT grew by 16% YoY in Q2FY19 mainly led by consistent 17% YoY growth in loan book. NIM contracted 14bps to 4.32% against 4.46% in Q2FY18 due to 25bps decline in yield on funds against 21bps improvement in cost of funds YoY. Deposit grew by 12% YoY in Q2FY19 in which CASA grew by 15%....

Gujarat Gas volumes number were below our estimates. Growth in the commercial segment has been encouraging but has come at a cost of margin decline. Gujarat Gas was impacted by the sharp increase in the input cost mainly RLNG. Gas cost increased by 35.8% on a YoY basis. With prices on the higher side and ongoing festive season, Gujarat gas could not pass on completely the impact of increased input cost. Industrial segment (nearly 70% of volumes) is very price sensitive and creates lot of volatility on spreads. We believe that volume and spread balance will be the key for...

Berger's Q2FY19 revenues came in line with our estimate but EBITDA and APAT came below. The company posted better performance compared to APL on key counts domestic sales growth ~16% and better volume growth (~15% vs 9%). We believe that the demand in the system is continuously improving and should sustain with better urban and rural demand. As feel good' factor remains with better economic conditions, mainly in the rural markets, improved macros and better monsoon would result in pent-up demand. Being the second largest player in the domestic...

Cipla's adj Sales, adj. EBITDA and PAT of Rs39.9bn, Rs6.4bn and Rs3.7bn Change in Estimates | Target | Reco were below our estimates by 8%, 15% and 28% respectively. The company...

Downgrade to SELL with a TP of Rs 1,345 (22x Sep-20E EPS). Divis Labs (DIVI) reported a blowout quarter, benefitting from a favorable base, currency impact, one time API opportunities and a belated surge of orders post import alert clearance. Revenues grew up 44/29% YoY/QoQ to Rs 12.85bn, EBITDA margin at 40% expanded 887bps, while PAT jumped 92% YoY to Rs 3.98bn. Margin expansion was led by currency benefits and oplev.

With benefits from the sequential growth of USD/INR by 4.7%, LPC's sales Change in Estimates | Target | Reco were flat, adj. EBITDA grew by 4% while adj. PAT declined by 7% QoQ. Its EBITDA margin was 13.9% in Q2FY19 vs 13.7% in Q1FY18. Lupin's total forex...

Emami's (HMN) 2QFY19 operating performance was below our expectations. Consolidated revenues were flat YoY whereas operating profit declined 6% YoY. Volumes declined by 4% during the quarter. Erratic monsoon in northern and eastern regions of India and the long truckers' strike could have impacted growth during the quarter. Also, the management indicated that the growth was affected because of the high-base effect due to restocking. Gross margin declined 30bps YoY led by the rise in mentha prices, which rose to the extent of 50% over the past three to four months. The management indicated that the impact on the gross margin could be as high as 2.0%2.5% going forward. Pressure on raw material prices along with the rise in staff costs and other overheads led to a decline in operating earnings. Operating margin declined by 190bps. Media...

We are upgrading CLGT from Reduce to Hold led by 1) 7% volume growth in 2Q19 ( -0.9%in 2QFY18) 2) relatively Stable toothpaste market share in 1H19 post sustained decline in past 8 quarters 3) strong growth momentum in...