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15 August 2020 The Ramco Cements (TRCL) 1QFY21 results highlight the companys continued market share gains. Volumes declined only 28% YoY for TRCL (v/s 53% YoY decline for regional peer India Cements). Cement EBITDA/t also improved to INR1,283 (+34% QoQ), led by higher prices in the South. We maintain our FY21/FY22E EPS estimates and retain valuation at 13.0x FY22E EV/EBITDA prices in the benefit of the expansion- led market share gains. Commissioning timelines of ongoing expansions have also been pushed ahead by 2-3 months due to COVID-19 disruption. Revenue/EBITDA/PAT was down 24%/ 25%/ 43% YoY to INR10.4b/INR2.6b/INR1.1b, but was 8% above est. for all three numbers due to better than expected volumes. Sales volumes declined 28% YoY to 1.94mt (v/s est. 1.76mt), better than industry that declined by ~50% YoY in South India.

We increase our TP to Rs 595 based on 9x (~18% discount to 5Y average) FY22E EPS plus Rs 31/sh for residual 4.7% stake in Majesco US. Mastek announced the acquisition of Evosys in a two step transaction, which involves cash payout of USD 65mn and dilution of 17.5% in Mastek Ltd. The deal is valued at EV/EBITDA of 9.2x and P/E of 11.2x based on FY19 financials and 70% economic interest. The deal is EPS accretive and will boost FY21/22E EPS by 11.8/14.1% respectively. Post the traction, Evosys promoters will hold 15% in Mastek Ltd and 30% CCPS in TAISTech, converted to equity based on targets over the next three years. This is a complex traction but involves value unlocking and diversification of revenue. Risk involves higher dependence on Oracle and multi geography footprint, which the company has not handled before.

We remain constructive on AACL owing to healthy product demand from the Pharma/Agro industries, impending capacity expansion for multiple products and rising market share in Methyl Amines. Owing to better (1) Margin profile (EBITDA margin of 22-25% in FY20-22E vs ~19% for Balaji amines), (2) Return ratio (RoE of 38.5/29.8/25.4 in FY20/21/22E vs 16.1/15.1/13.5% for Balaji amines), we ascribe a valuation multiple of 22x Dec-21 EPS to Alkyl amines as against 13x for Balaji Amines. AACL beat our EBITDA/APAT estimates by 29.1/55.5% in Q3FY20. We bump-up our FY20 EBITDA estimate by 25.1% to factor in the 9MFY20 performance. We maintain BUY with a revised TP of Rs 1,840 (22x Dec-FY21 EPS).

After a mixed bag in FY19, this year was expected to be solid for revenue acceleration and recovery in margins. The co has failed to deliver revenue growth but margins have continued to expand. We expect partial recovery in revenue growth in 4QFY20. We believe various disruptions (Demon, GST, Floods) over the last 2 years delayed the benefits from its non-south investment. Co is now investing behind expanding its distribution and differentiating its revenue profile. We expect co's up-front investments on newer products to start accruing benefits once overall consumption improves. V-Guards 3Q performance was mixed with miss in revenue but beat in margins. Slow revenue growth was on account of weak growth in Stabilizers, Cables and Southern market. Fan and Water Heater posted healthy low double growth. Management has witnessed better growth in Dec-Jan as compared to Oct-Nov, thereby 4Q can be slightly better. The co continued its efforts to expand non-South markets in order to diversify its revenue profile. V-Guard also intends to add 3,000-5,000 retailers/year across the country for the next 5 years. Custom duty increase (10% to 20%) will impact competitive edge for V-Guard for Fans and KEA. We cut EPS estimates by 3-4% for FY20-22 on account of slow growth, rising competition in its growing products and custom duty increase. We value V-Guard at 35x on Dec-21 EPS, with TP of Rs 232. Maintain NEUTRAL.

Given the (1) Uncertainty in the ramp up of BSCPL (2) Muted earnings growth prospect (3) Declining return ratios (ROE: 16.1/15.1/13.5%, RoIC: 22.5/21.7/18.8% in FY20E/21E/22E), we prefer Alkyl Amines over Balaji in the amines space. Maintain BUY. We maintain BUY on BAL, post its muted performance in Q3FY20, with a TP of Rs 490 (13x Dec-21E EPS). The operating performance was adversely impacted by lower product realizations but offset by strong volume traction.

Given the newly signed long term contracts in the CRAMS BU at Dewas and a growing customer base (Europe now accounts for 50% of order book vs erstwhile 100% from US), we have better earnings visibility for NFIL's high margin CRAMS BU. Hence, we raise our FY21/FY22 EPS estimates by 13.3/13.5% to Rs 46.8/51.8. Post announcement of Rs 4.50bn of capex for Greenfield project at Dahej on Dec 12th, the stock has already surged 35.8%, pricing in the key positives. Our revised TP comes to Rs 1,011 (20x Dec-21E EPS). Maintain SELL. We retain our SELL rating on NFIL as the CMP already bakes in the (1) Earnings visibility from the CRAMS BU, and (2) Earnings potential of the Greenfield project at Dahej. The stock is currently trading at 25.5/22.9x FY21/22E EPS, which is contextually high, given the return ratios of RoE 16.2/18.3/17.9% and RoIC 23.0/23.2/21.0% in FY20E/21E/22E.

Key downside risks: Delay in resolution of facilities, delay in approvals; adverse outcome on drug price fixing lawsuit in US; Key upside risks: higher growth in India and EM markets, resolution of plants. We resume coverage on Dr Reddys with a Neutral rating and a TP of Rs 3,440 based on 20x FY22 EPS. With improved performance across geographies we believe the multiple is well justified. While DRL has a rich pipeline of products for the US market, approval and launch timeline for key products - gNuvaring and gCopaxone does remain elusive. Despite factoring in these launches along with sustenance of good performance in non US markets and margin expansion as per company outlook, upside is limited from current market price.

Despite an encouraging quarter on collections and pre-sales, PEPL has seen further debt built up, posing a challenge for the management in achieving optimal leverage (target D/E of 1.4 by FY20E). One of the few positives is that ~64% of debt is backed either by annuity or by rental securitization/ bill discounting. Launches during 1HFY20 were largely tilted towards commercial projects (6.2mn sqft out of 7.9mn sqft). The company continues to look at opportunities for monetization of its retail/hospitality assets and update on the same (expected in 3QFY20) would provide a re-rating trigger. Retain NEU with Rs 297/sh TP. We maintain NEU on Prestige Estate (PEPL) despite pre-sales and collections holding steady, owing to increasing debt and limited visibility on asset monetization. Our SOTP based TP is Rs 297/sh. We have increased our FY20/21E EPS estimates by 16%/20% respectively.

CIL 2QFY20 was largely in line with miss on APAT. Extended monsoon impacted execution. With robust financially closed order backlog of Rs 111.3bn ((5.5x FY20E rev) we model for 26/39% FY19-21E Rev/APAT CAGR. The order book is now well balanced between Private/Govt clients. This brings in diversification and lowers risk premium as revenue predictability improves with Govt. clients. We Maintain BUY with an increased TP of Rs 360/sh. Key risks (1) Slowdown in real estate (2) Delay in debtors recovery & (3) Slowdown in Government Capex. Capacite Infraprojects Ltd (CIL) delivered Rev/EBIDTA/PAT miss of 2.3/2.1/16% respectively led by extended monsoon. Large CIDCO order win of Rs 45bn was the key highlight of 2QFY20. We maintain BUY on CIL with an increased TP of Rs 360/sh (12.8x FY21E EPS).

The legacy business should continue to grow at a slower pace as investments are largely flowing into CRAMS and Specialty chemicals. New orders in CRAMS give earnings visibility. The specialty business is also demonstrating robust traction. Both these BUs will boost margins. Maintain BUY with a TP of Rs 870 (20x Sep-21E EPS). We maintain BUY on NFIL post a beat on our estimated EBITDA owing to strong growth in the specialty chemicals business unit (BU). Our confidence in NFIL is further boosted as CRAMS BU exhibits clearer earnings visibility.

INFY's growth has accelerated over the past six quarters from 6% to 11.4% YoY CC and growth metrics vs. TCS have improved (from 340bps lag to 140bps lead organic). Margin erosion from 23.7% (-130bps vs. TCS) to 21.7% (-230bps vs. TCS) has bottomed out, with stability in delivery metrics (localisation, sub-con). We expect USD rev/EPS CAGR of 9.7/9.2% over FY19-22E. Current valuations (18.6x FY21E) largely bake in this recovery and the recent stock outperformance is mostly done. We await more triggers to confirm a sustainable upgrade; our passive optimism works for now. Despite the hoopla around catchup with TCS, we maintain NEUTRAL on Infosys post a mostly in-line 2QFY20 (unchanged est). Lower band of rev guidance was upped, margin band maintained even as core verticals lagged. Our TP of Rs 835 is based on 18x Sep-21E EPS.

1QFY20 was a bit of disappointment on execution, delay in receiving Karnataka 3 HAM project Appointed Dates had a role to play. ACL asset monetization is expected by Mar-20 and ABL needs to give SBI Macquarie a minimum Rs 15.3bn exit floor valuation for its 39% stake in the platform. Speedy BOT asset monetization (incl. Macquarie's exit) would provide financial flexibility to bid for more HAM projects, without increasing leverage. Standalone debt has reduced by Rs 1.4bn QoQ to Rs 5.8bn. We maintain BUY. Key risks (1) Delay in SBI Macquarie deal closure; (2) Dip in traffic revenue from BOT projects; (3) Delay in ADs. We maintain BUY on ABL with a SOTP of Rs 257/sh despite 1QFY20 muted performance. We value the EPC business at 15x FY21E EPS.

After a mixed bag in FY19, this year looks to be solid for V-Guard given acceleration in growth and recovery in margins. We believe various disruptions (Demon, GST, Kerala Floods) over the last 2 years delayed the benefits from its non-south investment. Co had taken a hard decision last year to invest significantly on branding to grow its consumer business. We believe over the next 3 years, V-Guard will be able to expand its EBITDAM by 200bps. We expect co's up-front investments on newer products to start accruing benefits. Newer categories contributed 7% of FY19 revenues, we expect it to reach to 11-12% in FY22. V-Guards 1Q performance was robust owing to benefits of a harsh summer and favorable base. Stabilizer biz (cash cow) fired led by >20% growth in RAC market. V-Guard is expected to regain lost ground in FY20 led by (1) Healthy growth of stabilizers, (2) Robust festive season performance (Kerala foods impacted last year), (3) Favorable base in the rest of FY20 (adj. EBITDA declined by 9%). We moderate our growth assumptions and hence cut EPS by 2% over FY20-21E. We value at 35x on Jun-21 EPS, arriving at a TP of Rs 261. Maintain BUY.

Zee's core broadcast business and execution have been admirable over FY12-19 under Punit Goenka. However, the delay to sell promoter stake in the face of financial stress at group level is persistently affecting longer term prospects for minority shareholders. This quarter also saw a commendable pro-forma performance, but balance sheet and capital allocation are spinning out of control, in our view. We are unable to justify erstwhile high valuation multiples any more. A majority stake sale to a credible acquirer (e.g. Sony) can drive up shareholder value, else the current drift will only be destructive if it persists. Zee Entertainments 4QFY19 operating beat conceals a sharp deterioration in working capital. Curiously enough, this has come after six months of struggle on promoters intent to sell stake. We downgrade Zee to NEUTRAL with TP of Rs 352 @ 18x FY21E EPS (25x earlier).

Given the (1) Muted earnings growth prospects, (2) Declining return ratios (ROE: 19.4/15.3/15.4%, RoIC: 30.0/26.3/26.9 in FY19/20E/21E), we prefer Alkyl Amines over Balaji in the Amines space Owing to a disappointing performance in Q4FY19, we cut our valuation multiple from 17x to 13x (Mar-21E consolidated EPS) and arrive at the target price of Rs 525/sh. This is on account of (1) Consistently poor volume growth, (2) Vagueness on imposition of Anti-dumping duty on Di-methyl Formamide (DMF), resulting in significantly low capacity utilizations (currently at ~45%), (3) Deferment of capacity augmentation projects to FY21.

Over the last four years (FY15-19), Gulf's volume/revenue/EBITDA/PAT has grown by 17/19/21/20% vs. market leader Castrol's 3/6/4/4%. Gulf's superior growth is led by low base, increase in capacity (75 to 90mn KL p.a. in FY16 and 150mn KL in FY19), expansion in distribution reach by ~15% p.a. (~70k retailers vs. 150k for Castrol), and improving product and customer (B2C) mix. We advise investors to BUY, as Gulf's story is solid with focused management, market-share gains and strong franchisee. Short-term weakness, if any would be an add-on opportunity. Gulf Oil 4QFY19 was in-line. Gulf has registered 16% volumes CAGR over FY15-19 against industry average of 3-5%. We expect Gulf to continue to deliver 3-4x industry volume growth and gain market share. BUY with TP of Rs 1,052 @ 22x FY21E EPS.

HCLT's recovery in organic growth trajectory (converging with larger peers TCS/INFY) is impressive. With continuity in strong deal wins (78 transformational wins in FY19) and focus on integrated deals across Apps/IMS/ERS (40% of pipeline), the growth trajectory looks sustainable. Expect USD/rev CAGR of 14/9% CAGR over FY19-21. Favourable risk-reward with valuations at 12.8x FY21E (lowest in tier-1 IT trading at >20% discount to Wipro). Key risks include adverse visa regulation, escalating macro headwinds (trade war) and integration of product portfolio. We maintain BUY on HCL Tech following a slight beat in 4Q. Strong (inline) guidance offset by margin cut. Our TP is Rs 1,250, valued at 14x FY21E EPS.

We maintain BUY with TP of Rs 352/sh (at 15x Dec-20E EPS, BDD NPV at Rs 15/sh). Capacite (CIL) reported strong 3QFY19 execution at Rs 4.5bn (5% beat, despite ~Rs 500mn lower revenue owing to NGT ban and NBFC crisis). EBITDA margins dipped 80bps QoQ to 13.7% (due to negligible revenue booking on initial stage projects; also resulted in lower amortization of site establishment costs). Despite the margin dip, a 23% QoQ decline in depreciation led to PAT coming in line with our estimate at Rs 239mn.

The 1QFY19 results beat was on all fronts sales volume growth, margin expansion, profit growth and debt reduction. The premium product sales growth of 30% YoY was as expected but regular product sales volume of 3.9m cases (+15% YoY) exceeded our estimates. This momentum should sustain in FY19-20E. The EBITDA margin improved 260bps YoY backed by premiumization, low raw material costs (molasses) and price hikes in Southern states. The...

Price target change, Top Picks: On back of strong inflows we increase PNC FY19/20E EPS 14.8/39.3% and TP from Rs 250 to Rs 322. We change KNR FY20E EPS by 10% and TP from Rs 364 to Rs 385/sh. Top Picks: PNC, KNR, Ashoka Buildcon, Sadbhav & Dilip. Record FY18 ordering, More to come in FY19E: NHAI awarded ~7,400km/Rs 1.2tn of projects in FY18E and looks to better this number in FY19E with a ~8,000km target. 1QFY19E has been muted with 3,700km bids out for tendering but only 150km has been awarded. NHAI and MORTH are targeting to award 3,700km by Sep-18 and balance 4,300km in 2HFY19E. This shall continue to lend visibility to order momentum.