Aditya Birla:: Diwali Muharat Top Picks - 2019

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Aditya Birla Capital: Diwali muhurat top stock picks 2018

With positive real interest rates, the financialisation of savings and equitisation (within the financialisation) will continue to gather momentum domestically leading to healthy flows into Equity over the next few years. Also, a start of the new Capex cycle is on the anvil, and a consumption boom likely awaits as India’s per capita GDP is likely to double over the next 5 years (boosting discretionary spending). 

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2017 Diwali Muhurat Picks by Aditya Birla Money

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Diwali Top Picks 2015: Aditya Biirla money

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Subscribe to S H Kelkar IPO for long term- review by Aditya Birla Money

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Subscribe to Interglobe Aviation IPO: Aditya Birla Money

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Hindustan Construction Company – Disappointing set of results: Aditya Birla Money

Result Analysis
 Execution muted; Order Inflow guidance positive: Company’s sales declined by
15.8% YoY to ~`9.8bn below our and street expectations. The company’s order book
stands at~ `149.4bn (29% hydro, 40% transport, 19% water and 12% nuclear and
others). Execution was badly impacted mainly due to issues in Kashmir which stalled the
execution of Kishanganga project (project value of ~`27bn). The order inflow outlook in
the medium term is muted; however the management has guided to bag orders to the
tune of `50bn in FY14 which is positive despite the weak macro environment. We expect
HCC to bag orders worth ~`29.7bn in FY14. The company’s execution is likely to pick up
in FY14 as transportation projects share in the overall order book pie has increased and
we expect the FY14 revenues to be at ~`41bn.
 Operating margin still under pressure: During 4QFY13, the company’s operating
margin expanded by 153bps YoY; however contracted by 163bps QoQ to 9.1%.
Operating margin were below our as well as street estimates mainly led by higher raw
material expenses. We expect the operating margin to be at ~10% levels for FY14 and
FY15 as the share of high margin hydro projects is coming down.
 Loss widens to `742mn; forex loss adds to the woes: Company reported a net loss of
`742mn during 4QFY13 higher than our expectations mainly due to execution delays and
forex loss. HCC booked a forex loss of `115.5mn during Q4FY13 as against a gain of
~`10mn during 4QFY12. Interest costs were down 13% YoY at `1,318mn mainly on the
back of corporate debt restructuring.
Other Key Highlights:
 Karl Steiner AG; another quarter of strong performance: The Company’s sales grew
by ~5% YoY during FY13 to ~`44.5bn, while it’s PAT increased by 3x to ~0.5bn
duringFY13. During the quarter company received order inflows of ~`4.9bn while it has a
backlog of `70.5bn giving us revenue visibility of 1.5-2 years. Karl Steiner is sitting on a
health cash position of ~`9.3bn.
 HCC Infrastructure: The company has achieved 59% progress on Baharampore-
Farakka and 47% progress on Farakka-Raiganj BOT projects and Commercial operation
& toll collection of West Bengal project (NH34) expected later this year.
 Lavasa; Work gathering pace - The construction work has started and ~410 units are
further ready to be handed over. On the institutional front it signed a deal with S.K
enterprises for a 0.55 acre plot for a consideration of `45mn (highest price per acre till
date).
Outlook and Valuations:
HCC has posted a weak set of results on the top-line as well as operating front. On the
profitability front interest costs have been contained mainly due to the debt restructuring
programme. The company’s focus for FY14 is clearly on lowering its debt and monetizing its
assets which we believe is difficult at this stage given the unfavorable market conditions. We
expect execution to slowly pick up pace and estimate HCC’s top-line to increase by 6.2%
during FY14 and 9.6% in FY15, while we expect its operating margin at 10% levels. Given the
stretched balance sheet (~4x) interest costs are likely to take a toll on profitability and we
expect HCC to continue post losses in FY14 and FY15.
Infrastructure segment is still under severe pressure and we do not foresee the situation
improving in the near term. Post, the recent RBI rate cuts interest costs for infrastructure
companies are likely to decline marginally. HCC’s balance sheet is highly leveraged and with
low visibility on asset monetization and high interest cost all are likely to impact HCC’s
profitability negatively. Lavasa continues to be an overhang on the stock and hence till further
clarity emerges we recommend “Hold” rating on the stock. At the CMP, the stock trades at
0.9xFY15E P/B and 11.9x FY15E EV/EBITDA.

Technicals- Tata Global Beverages, Jain Irrigation, TV18, HBL Power, BGR Energy Systems, Aditya Birla Money, ::Business Line

 

Hindustan Construction Company – Riding through rough weather:: Aditya Birla Co

Result Analysis
 Sales increase marginally by 4%; order inflows showing signs of improvement:
Company’s sales increased marginally by 4% y-o-y to `8,657mn in line with our
expectations. The company’s order book stands at~ `150.1bn (32% hydro, 33% transport,
21% water and 14% nuclear and others), with an strong order inflow of `19,070 mn. The
order inflow outlook remains bleak as industrial capex has slowed down and also many
projects are facing execution issues on account of which top-line growth is likely to be
sluggish for FY13.
 Operating profit jump by 106bps y-o-y and 582bps q-o-q: During 2QFY13, the
company’s operating profit jumped by 13.7% y-o-y to `1,121mn, while the operating
margin improved by 106bps y-o-y and 582bps q-o-q to 12.9% due to better top-line
growth and better cost control management. We expect the operating margin to be at
~10% levels as the share of high margin hydro projects is coming down.
 Operating profits and higher other income lead to lower losses; Higher debt and
interest costs still an overhang: Company reported a net loss of `178mn during
2QFY13 below our as well as street estimates due to better operating performance and
higher other income. The company reported a forex gain of `59mn and an exceptional
item of `21.7mn on account of reversal of interest costs due to debt restructuring. Interest
cost rose by 21.1% y-o-y to `1,301 mn.
Other Key Highlights:
 Karl Steiner AG; another quarter of strong order inflows: The Company has a strong
order backlog of CHF.1.45bn (~`84bn) while the Company reported a turnover of
CHF185.6mn (~`10.8bn) and inflows to the tune of ~CHF131 mn(~`7.6bn).
 HCC Infrastructure: Dhule Palesner Highway has achieved 100% completion for Phase I
while Phase II is progressing well.HCC Infrastructure is expecting a revised toll
notification for the Dhule Palesnar Highway. Execution of West Bengal projects (NH34)
underway and is ~35% complete.
 Change in Order book mix –Likely to augur well for the company: On the basis of
current order book mix we believe FY14 onwards top-line is likely to pick up as share of
high gestation hydro projects(32% hydro,33% transport) is coming down, however
operating margin are also likely to take a hit since hydro projects are comparatively higher
margin projects. The major positive which the company is likely to witness on account of
change in order book mix is working capital cycle which is likely to improve FY14 onwards
as transportation and other orders are lower gestation projects.
Outlook and Valuations:
HCC has posted good set of results on the top-line as well as operating front; Top-line is likely
to be sluggish during FY13 due to execution issues and lower capex investments; however
operating performance has improved and is likely to stabilize on account of various cost control
measures. Profitability has been hit badly on account of higher debt and interest costs. Despite
CDR package and control in capex, debt and interest costs are showing no signs of
stabilization and are increasing which is likely to take a toll in its profitability.
Factoring in a) muted order inflows b) improvement in operating performance we maintain our
top-line estimates and marginally increase our operating margin estimates (~20bps); however
interest costs and debt levels are showing no signs of improvement and hence we revise
interest costs upwards. Considering the above factors we revise our FY13 and FY 14 to loss of
`1,797mn (previously loss of `1,856mn) and loss of `1,416mn (previously loss of `1,305mn)
respectively.
Infrastructure segment has been under severe pressure and we not foresee the situation
improving in the near term. HCC has witnessed muted top-line growth however operating
margins are showing signs of stabilisation. The company’s balance sheet is highly leveraged
and with low visibility on fund raising, high debt and interest cost burden are likely to be an
overhang on the stock to and hence we maintain our “Hold rating” on the stock. At the CMP,
the stock trades at 1.1xFY14E P/B and 14.6x FY14E EV/EBITDA.

LIC Housing Finance – Margins to improve going forward, Rating changed to Accumulate: Aditya Birla Money

LIC Housing Finance announced its unaudited results for Q4FY12. The top-line as well as
bottom-line came below our expectations on the back of lower NIMs.

Mphasis: Q1FY12 Results - Key Highlights :Aditya Birla Money

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 Mphasis posted a topline growth of 4.1% to ` 13.67 bn from ` 13.13 bn on sequential basis and an increase of 10.8% from ` 12.33 bn on YoY basis
on account of the rupee depreciation of 7.3%. In dollar terms, revenue declined by ~3%. Strong Direct Channel (DC) growth (14.4% QoQ) helped
them to change the composition (HP:DC) significantly to 58:42 in Q112 vs 62:38 in Q411. On industry basis, the strong growth was led by insurance
(7.4%) & Information Technology, Communication & Entertainment (ITCE 8.3%) and Banking & Capital Market (BCM 4.5%). On service wise,
Infrastructure management services (IMS) grew by 8.7%, owing to strong demand seen in DC side of IMS. On geographical mix, Asia Pacific and
Japan (APJ) increased by 15.6% on QoQ basis.
 EBITDA improved by 7.4% to `2.52 bn from `2.35 bn on QoQ basis. Notably, the margin bunked the declined trend with an improvement of 57 bps
to 18.5% from 17.9%.
 PAT remained flat with a slight positive bias of 1.1% to `1.85 bn from ` 1.83 bn (QoQ).
 Direct Channel and HP Channel: Direct Channel continued its strong momentum by growing 14.4% on QoQ, taking the current revenue
proposition to 42% vs 38% in Q4FY11 and 32% in Q1FY11. In particular, DC’s emerging market jumped by 27.2% and DC’s mature market
p p p g g j p y
increased by 11.2% on QoQ basis. During the quarter, Mphasis added 28 new clients, in that 17 clients in DC and rest 11 in HP Channel. Since
Q1FY11 (strategic changes), Mphasis added 128 clients, in that 82 clients in DC channel and rest 46 clients in HP Channel. HP remained sluggish
(-4% growth in $ terms QoQ) due to HP annual shutdown and certain project related impact. The management trimmed its Non-ES guidance to
$75-80 mn vs $100 mn for FY12E.
 Operating Metrics – In application business, Mphasis gained 5% in offshore pricing on QoQ ($21 vs $20), on account of optimal deployment of
resources leading to efficient project execution Whereas they lost 3% in onsite pricing to $67 vs $69 in Q411 on account of current fluctuation
execution. ~Q411, adjustments. Even though, the management attributed no pricing discussions with HP in this quarter, but hinted that if anything, it would be inline
with industry standard. On headcount basis, Mphasis has witnessed a decline for the third consecutive quarter to 38798 in Q112 vs 41739 in Q211.
We believe there is little room for further margin improvement on utilisation front (ITO: 81% in Q112 vs 73% in Q211; App: 77% in Q112). However,
management is quite confident of maintaining the EBITDA margin in the 18-21% range.
Outlook & Valuation: The management’s strategy of transforming the company into more direct business-oriented has started to show positive
results, which is a good sign for Mphasis from medium to long-term perspective. We trimmed our earnings modestly by 1.5% and 3% for FY12E and
FY13E to factor in the slightly below results. On the back of the attractive valuation during Q411, sizeable cash on the BS, market expectations of buyback
& improving DC sentiments made the stock rally ~35% in YTD. However, overhang on HP business and increasing risk of price cuts from HP
would keep the upside capped. Currently, Mphasis trades at a consolidated P/E of 10.9x and 9.2x on its FY12E and FY13E earnings of `37.2 and `43.9
respectively. We think that it might take couple of quarters of stable performance to restore investor’s confidence in the management and growth
prospects. We continue to value Mphasis at 9x on its FY13E to arrive at a price target of Rs.395.2 and maintain our Neutral rating.