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Q2FY20 revenue grew by ~200% YoY on account of higher sales in CRAMS (+186%) and specialty chemicals (currently 2 products) EBITDA & PAT registered a +300% growth each YoY on account of increase in high margin commercial CRAMS sales, lower employee cost & other expenses as a percentage of sales. Clinical trial data on molecule SUVN-502 which got delayed is expected to be available in 3 weeks time and will be presented in CTAD 2019 - Alzheimer Congress at San Diego, USA ....
With the sale of majority of the assets in the SIPL platform to IndInfravit the SEL-SIPL Merger provides an opportunity to the company to recalibrate its business model to an asset light structure where it can further monetize its under construction portfolio through the ROFO agreement with IndInfravit, ensuring capital churning for securing new orders. Going forward, SEL is expected to prioritize securing new orders through EPC mode while selectively bidding for new HAM projects, once the NHAI activity gathers pace during 2HFY20. We maintain BUY. Key risks (1) Delay in new order inflows; and (2) Further delay in appointed dates for balance projects. We maintain BUY on SEL with a reduced TP of Rs 241/sh (vs. Rs 269/sh earlier). We value SELs EPC business at 15x FY21E EPS and assign a 20% hold co discount to SIPL stakes market value. Price cut is on account of revision in FY20/21E EPS by 4.9/(6.6)%.
22 October 2019 Infrastructure Directors of Sadbhav Engineering (SADE) has approved the merger of the company and its listed subsidiary Sadbhav Infrastructure Project Limited (SIPL). In consideration of the merger, SADE will issue one equity share for every three SADEs shareholders. As a result of the merger, the promoter stake in SADE will come down from 46.55% to 38.74%. recap, SADE had divested its stake in nine road assets at an EV of INR66.1b, resulting in a debt reduction of INR40.6b at the project level and realization of INR25.5b in lieu of equity invested. Anyway, the investor interest in the listed asset arm has been on a decline, as InvITs are better products compared to listed companies in the road assets business, given the removal of the dividend distribution tax on SPVs and the minimum construction risk. Prima facie, the merger appears value accretive to standalone SADE as the entire benefit of debt reduction in SIPL standalone gets captured in the new merged entity.
Extended monsoon, delays in water division payment from Telangana Govt and resurvey/change in scope of electrical division orders impacted 2QFY20 execution. AP orders resumption remains a black box. Despite this, we believe that 2QFY20 is an execution bottom for NCC. We have built in Rs 23/32bn revenue for NCC during 3Q/4QFY20. We are now entering bid heavy 2HFY20 and NCC stands to gain from the same. Resumption in AP order execution (from 3QFY20) and likely favorable Sembcorp settlement by Mar-20 (unlocking Rs 4-5bn of cash inflow) are key re-rating tailwinds. We have cut FY20/21E EPS by 22.4/18.2%. Maintain BUY with reduced TP of Rs 127/sh. Key risks (1) Adverse ruling on ongoing arbitrations; (2) Slow down in government capex; (3) Deterioration in NWC days; and (4) Weak real estate monetization. NCC reported a weak headline 2QFY20 performance, Rev/EBIDTA/APAT miss of 22/11/38%. With tailwinds like (1) Resumption of stuck AP orders (Rs 110bn, 33% order book) (2) Pick-up in new order inflow & (3) Sembcorp settlement, NCC de-rating may have settled for now. We maintain BUY with reduced TP of Rs 127/Sh (EPC business at 15x FY21E EPS) vs. Rs 154/sh earlier.
NCC Ltd. (NJCC) has reported better-than-expected operating performance in 2QFY20 despite missing our estimate on revenue front. While revenue declined by 44% YoY to Rs17.3bn vs. our estimate of Rs19.3bn, EBITDA came in ahead of estimates at Rs2.33bn (-36% YoY and -13% QoQ) vs. our estimate of Rs2.22bn. EBITDA margin improved by 170bps YoY and 127bps QoQ to 13.5% vs. our estimate of 11.5%. Notably, claims worth Rs310mn booked pertaining to three Maharashtra projects led to higher margin, adjusted for which its margin stood at 11.7%. APAT declined by 62% YoY to Rs601mn marginally ahead of estimate of Rs587mn mainly led by better operational performance. NJCC secured order worth Rs15.2bn during the quarter...
AP orders removal improves visibility on net executable order book and we believe this is already reflected in the price. AP NWC recovery of Rs 8.3bn is the key overhang now. NCC has resumed orders bidding and is likely to surprise positively on new order inflows for FY21E. TAQA out of court settlement may result in Rs 1bn hit for NCC. Sembcorp arbitration hearing is expected to conclude by Mar-20 with final judgment by Sep-20. We have cut FY20/21E EPS by 8.9/5.0%. Maintain BUY with reduced TP of Rs 106/sh. Key risks (1) Adverse ruling on ongoing arbitrations; (2) Slow down in government capex; (3) Deterioration in NWC days; and (4) Weak real estate monetization. NCC reported inline 3QFY20 financial performance, Rev/EBIDTA/APAT beat of 11.4/11.5/0%. With removal of Rs 71bn of slow moving AP orders net executable order book stands at Rs 250bn. We maintain BUY with reduced TP of Rs 106/Sh (EPC business at 15x FY21E EPS) vs. Rs 111/sh earlier.
SEL 3QFY20 performance was a disappointment as funding constraints limited execution of projects. With conclusion of InfInfravit deal funding issues will get resolved. Group standalone debt reduction by 50% will augur well for reinstating financial markets confidence in the group. Whilst it will take time for SEL to revert to historical levels of quarterly execution, we believe 3QFY21E onwards things should normalize. We maintain BUY. Key risks (1) Delay in new order inflows; and (2) Further delay in execution ramp-up. We maintain BUY on SEL with a reduced TP of Rs 175sh (vs. Rs 241/sh earlier). We value SELs EPC business at 15x FY21E EPS and assign a 20% hold co discount to SIPL stakes market cap. TP reduction is owing to FY20/21E EPS cut by 43/24%.
NCC Ltd (NJCC) has reported a weak performance in 3QFY20 owing to muted revenue booking led by project cancellation and absence of convincing pick-up in construction activities post monsoon. Reported revenue declined by 34% YoY to Rs21.2bn vs. our estimate of Rs24.5bn, while EBITDA witnessed a de-growth of 36% YoY to Rs2.5bn. EBITDA margin contracted by 36bps YoY and 165bps QoQ to 11.8%. Adjusted profit declined by a sharp 66% YoY (10% QoQ) to Rs543mn mainly led by soft execution. Notably, NJCC has set aside slow-moving and likelyto-be-cancelled projects worth Rs71.3bn from its order backlog in order to have a clear visibility of revenue booking from the ongoing projects. Therefore, its current order backlog stands at Rs250.5bn, which is 2.7x TTM revenue and still gives decent revenue visibility. Going forward,...
Management have reduced its revenue guidance to Rs90bn (from earlier guidance of Rs100bn), with EBITDAM in the range of 11-12% NCC is one of the largest and well-diversified construction companies in India having expertise and experience in every segment of construction sector....
Intellect's growth engine has witnessed slowdown due to delay in decision making (Brexit), deferral of large deals, accelerated shift to cloud (iGCB and iGTB) and absence of licence component in cloud wins. Shift to cloud model will impact near term growth but building of annuity SaaS revenue will improve predictability and profitability. Cost control measures have been satisfactory and margins will recover with growth. The deal funnel stands at healthy USD 524mn with 134 opportunities. We maintain our positive stance based on (1) Huge addressable market opportunity (2) Highly-rated and digital-ready product portfolio, (3) Healthy funnel, and (4) Focus on large deal wins. We estimate USD revenue growth of 1.5/16.0% for FY20/21E. Risk to our thesis includes prolonged delay in decision making and US/UK slowdown. We maintain BUY on Intellect despite a weak 2QFY20. Deferral of few large deals and accelerated shift to cloud has impacted growth. Large deal funnel remains healthy but decision making is taking longer than expected. 2H will witness growth and margin recovery but we cut our FY20/21E revenue est. by 6.6/6.7% to factor in weak 1H and delay in deal conversion. We have a TP of Rs 288, assigning 2.0x EV/rev multiple to Sep 21E revenue.
JMC delivered robust standalone 2QFY20 performance driven by 85% YoY Infra segment revenue growth. However, Rs 420mn BOT loss funding and debt servicing and further anticipated (Rs 380mn) loss funding during 2HFY20 is a dampener. Order book accretion of Rs 27.5bn YTDFY20E is strong, largely driven by B&F segment. We expect JMC to clock 16.9% revenue CAGR over FY19-21E. High tax rate and interest cost to result in 13.4% muted EPS CAGR. The stock currently trades at 8.8/7.9x FY20/21E Core EPC earnings. We will closely monitor the progress on BOT assets monetization and performance in 2HFY20. Key risks (1) BOT Loss funding and progress on asset monetization (2) Leverage. We maintain BUY on JMC, with a TP of Rs 175/sh (vs Rs 176/sh earlier). During 2QFY20 JMC delivered Rev/EBIDTA/APAT beat of 6/5/20% vs our estimates. We value EPC business at 15x Mar-21 EPS (vs 16x earlier). We have increased our EPS estimates for FY20E/21E by 13.6/17.5% respectively.
JMC delivered robust 9MFY20 standalone Rev/APAT growth of 19.8/21.4% driven by 51% YoY growth in Infra segment. JMC is on track to deliver 15-20% growth in FY20. Slow order intake and weak real estate demand may impact B&F order book as clients will delay/defer projects. This shall cloud FY21E growth to sub 10%. Besides, Rs 900mn FY20 BOT loss funding/debt servicing is a dampener. Likely restructuring in two BOT assets during 4QFY20 or early 1QFY21 is a positive development and will reduce the equity infusion by the company towards loss funding and debt repayment by Rs 400mn/annum. Order book accretion of Rs 33.6bn YTDFY20E is muted, largely driven by B&F segment. We expect JMC to clock 13.1% revenue CAGR over FY19-21E. We will closely monitor the progress on BOT assets monetization and performance in 4QFY20. Key risks (1) Delay in monetization/resolution of BOT assets (2) Leverage. We maintain BUY on JMC, with a TP of Rs 162/sh (vs Rs 175/sh earlier). During 3QFY20 JMC delivered Rev/EBIDTA/APAT miss of 6/2/5% vs our estimates. We continue to value EPC business at 15x Mar-21 EPS. We have reduced our EPS estimates for FY20E/21E by 3.5/8% respectively.
ABL has delivered strong 2QFY20 performance still the stock is languishing at lows. Concerns on ABL going for cash settlement in an event of SBIM stake in ACL getting distressed valuation, is key overhang. Though there is no mandatory cash settlement, at best asset swap, which may be stake dilutive and incur non-cash diminution of investment value for ABL in ACL. Standalone debt has reduced by Rs 1.2bn QoQ to Rs 4.6bn. We maintain BUY. Key risks (1) Delay in SBI Macquarie deal closure; (2) Dip in traffic revenue from BOT projects; (3) Delay in ADs. ABL delivered 2QFY20 Rev/EBIDTA/APAT beat of 1/20/39% respectively. We maintain BUY on ABL with a reduced SOTP of Rs 206/sh (vs. Rs 220/sh earlier). TP cut is driven by our re-classification of interest income on ABL funding support to ACL as non-recurring over long term. We value the EPC business at 12x FY21E EPS.
SDL has ~16.2mn sqft of unsold area in ongoing projects and expects to add 10.5mn sqft from new projects in the pipeline, over the coming quarters. Whilst SDL has only 0.22 mnsqft of unsold completed inventory worth Rs 1.2bn we remain cautious on land bank addition of Rs 1.8bn during 1HFY20 (given SDL already has a high unsold under construction inventory, 4yrs). Net D/E is expected to reduce to 1.1x by FY20E as the collections from two projects where issue of delay in registration was resolved is expected to see improved collections coupled with 2mn sqft of planned launches in 2HFY20. The contracting business is seeing good growth with an order book of Rs 21.7bn. We maintain BUY. Key risks: (1) Weak order inflow in the contracting business, (2) Dip in collection momentum and (3) Aggressive incremental land bank addition. Sobha delivered a Rev/EBITDA/PAT miss of 34/30/31% respectively on the back of 49% QoQ revenue dip in the Real Estate segment with Contracts and Manufacturing segment holding steady. We maintain BUY with a reduced TP of Rs 647/sh.
Elevated slippages and consequent provisions at IIB dented IIB's RoAAs over FY19 and will continue to do so over FY20E. However, we see these as transient and expect RoAAs to climb to 1.90/1.97% by FY21/22E (one of the best amongst its peers) even as we build elevated LLPs. Our constructive stance on the stock remains unchanged in spite of the stress that has played out so far, and draws on IIB's inherent strengths and asset quality improvement beyond FY20E. A smooth leadership transition will help with current asset quality issues. IIBs 3QFY20 net earnings were below estimates due to higher provisions while the banks operating performance was slightly ahead of estimates (led by higher NIMs and controlled opex). Loan growth (YoY) remained slow, and even as GNPAs inched up, PCR increased. Maintain BUY with a TP of Rs 1,990 (3.0x Dec-21E ABV of Rs 663).
View: Another bad quarter, recovery in FY21E; maintain Buy NCC reported lower than expected numbers on all fronts. NCC posted weak set of numbers with 44.2%/ 36.2%/ 82.7% YoY degrowth in Revenue/ EBITDA/ APAT to `17.3 bn/ `2.3 bn/ `300 mn due to lower execution coupled with higher depreciation + interest cost...
The bank's various tech initiatives are likely to contribute to B/S growth, higher granularity and profitability. However, our estimates are unchanged as incremental benefits will be discernible only over time. A high yielding fixed rate book will contribute to robust RoAAs (1.94% over FY20-22E). Management transition and asset quality are near term risks. Maintain BUY with a TP of Rs 1,904 (3.0x Sept-21E ABV of Rs 635). We visited IIBs microfinance field operations and attended its analyst day. The presentations made were representative of ~65% of the banks demand deposits and retail TDs, 75% of its loan book and nearly half its fee income. Broad strategies included a sharp focus on IT (particularly to ramp up synergies in microfinance and improve risk management), building retail credit beyond Vehicle Finance and improving deposit granularity (IIB has lagged peers for a while) by strengthening its CB (consumer banking) franchise.
