Construction, Ports, Real Estate & Retail 3QFY15E Results Preview ::HDFC Securities

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Construction : Stable operations
 After a seasonally weak quarter owing to the monsoon in 2QFY15, we
expect a pickup in execution in 3QFY15E. Further, companies expect
road project awards to pick up significantly from 4QFY15E onwards at
both the NHAI and State level.
 Key monitorables across construction companies remain operating
profit margins and working capital management. Although there may
not be significant improvement in these parameters in the short term,
we believe that the Government’s thrust on clearing bottlenecks will
yield benefits in the long term.
 For J. Kumar Infraprojects, we expect 25% YoY revenue growth at Rs
3.4bn. Key monitorable is the company’s ability to sustain its
historically strong EBITDA margins of over 17%. We roll forward our
valuation to Mar-17 (earlier Sep-16) and revise our TP for JKIL to Rs
541 (12x FY17 EPS of Rs 45.1 (earlier Rs 422 based on 10x Sep-16 EPS
of Rs 42.2.
 For KNR Constructions, we expect flattish YoY revenues at Rs 1.9bn.
Key monitorable is visibility for order wins from 4QFY15E onwards
from road projects . The company has already submitted bids worth
Rs 50-60bn consisting mostly of NHAI projects and expects to submit
further bids between Nov-14 to Jan-15. We roll forward our valuation
to Mar-17 (earlier Sep-16) and revise our TP for KNRC to Rs 405 (Rs
339 for standalone EPC business at 10x FY17 EPS of Rs 33.9 and Rs
66/sh at 1x P/B of investments for Kerala BOT project and land
parcels).

Ports : Strong operational performance
 We expect both companies in our coverage universe, Adani Ports &
SEZ and Gujarat Pipavav Port (GPPV) to report strong volumes.
 For Adani Ports, we expect double digit YoY cargo volume growth at
Mundra along with good volumes at Dahej and Hazira. Consolidation
of Dhamra Port financials will lead to YoY bump up in revenues
although we expect this to only contribute marginally to consolidated
PAT.
 Key monitorables for Adani Port are capex plans for recent Dhamra
Port acquisition and CT-4 container terminal at Mundra.
 For GPPV, we expect a strong quarter although YoY volume growth
may be in single digits owing to high base of 4QCY13. Margins are
expected to remain strong with repayment of rupee debt reducing
interest outgo that will drive profits higher.
 We see multiple levers for profit growth for GPPV in CY14-16E led by
1) tariff revision in Aug-13 and Kan-15 along with 70% USD
denominated revenues, 2) two new services introduced in Jun-13 in
place of Maersk lines, 3) new Gulf service expected to add 50,000-
60,000 TEUs, and 4) commencement of liquid cargo handling
operationsin FY15E.
 With GPPV having recently received the environmental clearance for
port expansion, the key monitorable will be the final cost and
expected construction timeline for port expansion under the revised
capex plan.
 We currently have a SELL rating on GPPV with TP of Rs 122/sh that
assumes concession period till CY28 and GPPV receiving residual
value based on net block at the end of the concession. However,
key risk to our call remains extension of the concession period with
minimal royalty payments.

Real Estate : Lacking festive fervour, office segment seeing pickup
 3QFY15 volumes at a pan-India level across cities were muted in spite
of the marginal price correction seen across certain pockets. The NCR
market continues to remain under pressure, while the Mumbai
market continues to see sales volumes only in select projects.
However, the Bengaluru and Pune markets continue to remain
resilient . One key positive trend that has emerged over the last two
quarters is a pickup in leasing activity for office spaces, especially in
Bengaluru.
 We expect DLF to report weak operational numbers owing to limited
launches and weak Gurgaon market. However, things may marginally
improve in 4QFY15E owing to two new launches in Gurgaon (Crest
Phase II and Privana Independent Floors).
 Oberoi Realty is expected to report marginal increase in QoQ
revenues owing to better sales at Exquisite (the only project under
revenue recognition). Key monitorables are response to soft launch of
Prisma at JVLR, launch plans for Worli and Mulund projects and
incremental leasing of office space at CommerzII.
 Phoenix Mills is expected to see steady QoQ revenues and PAT for its
standalone High Street Phoenix property. Announcement of the new
operator for Palladium hotel and consumption growth across malls
are the key monitorables.
 Prestige Estates and Sobha are expected to see QoQ rise in revenues
and PAT with few projects hitting revenue recognition while sales
volumes may be lower owing to absence of big launches in 3QFY15E.
 Kolte-Patil Developers is expected to have a muted quarter with no
major project launches. Key monitorables are launch pipeline for
CY16E , especially for Life Republic Phase II and Sanjivani townships.
 Brigade Enterprises is expected to see QoQ fall in revenues as many
projects had hit revenue recognition during the previous quarter with
the hotel and rental portfolio expected to show stable performance.
 Maintain our preference for Prestige Estates (TP Rs 275/sh), Brigade
Enterprises (TP Rs 253/sh) and Kolte-Patil Developers (TP Rs
257/sh).

Retail : Sluggish quarter for Titan
 We expect Titan to post muted single digit growth in 3QFY15E in spite
of a low base owing to absence of GHS sales that contributed
significantly to jewellery sales in the previous quarter.
 We expect watches segment to see single digit YoY volume growth at
5% owing to heavy activations from online retailers during the
quarter.
 For Titan, supply side concerns have been adequately addressed by
the company in terms of gold availability owing to resumption of gold
on lease and the 20:890 rule being done away with.
 We believe that although demand uptick may remain muted in
2HFY15E with single digit YoY revenue growth, Titan remains the
best play on an urban consumption revival.
 With the reintroduction of the Golden Harvest Scheme in Nov-14
that accounts for 25-30% of Titan’s jewellery revenues, we expect
growth to return from FY16E onwards and reiterate our BUY rating
with TP of Rs 454 based on 30x FY17E EPS of Rs 15.1.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010576