Stock Recommendations


Jyothy Laboratories Ltd (JLL) is an Indian FMCG player with products across Fabric care, Dishwashing, Mosquito repellents and Personal Care.

For Q2FY19, JLL reported standalone revenue growth of 7% YoY impacted by unexpected flood in Kerala which otherwise used to contribute ~15% of total revenue. Adjusting the flood impact (~25cr-30cr), the revenue growth would have been ~13%-14% YoY. Healthy growth continued in main segments like fabric care (10.8% YoY) and Dish wash (13.9% YoY) even after the flood impact. Management is positive on the rural demand given higher MSP and other rural initiatives of the government and has guided for 12%-14% growth in revenue for FY19E. In the quarter, JLL has introduced new launches in multiple segments which will support traction in respective segments. JLL’s strong focus on innovation and new launches, penetration of existing brands to newer geographies is expected to support healthy volumes. We trim our revenue estimates to factor in de-growth in household insecticide segment and factor 10.4% CAGR in revenue over FY18-20E.

Gross margin improved by 150 bps YoY in the quarter to 45.9% mainly supported by price hike taken and improvement in product mix. EBITDA margins expanded by 90 bps to 17.1%. Company has taken price hike of ~7% in fabric care segment. Any further surge in crude and INR depreciation can impact margins unless the company passes the same to consumer. However, as per management, margins are covered up to crude level of US$80 and INR 73. Also company has the option for withdrawal of consumer offers to save margins. We factor EBITDA margins of 16.1%/16.9% for FY19E/FY20E.

JLL has launched new products ‘Pril Tamarind’ in Dish wash, ‘Maxo Agarbathi in household insecticide segment and new ‘Margo Glycerine’ in personal care. The company continuously push for its power brands through advertisements and promotions. JLL introduced Rs 10 pack of Henko which supported the segment growth and volumes witnessed a splendid growth of 21%YoY in Q2FY19 and 18% YoY in Q1FY19. JLL hopes for better growth in personal care and insecticide segments with its newly introduced products in the coming quarters.

We factor healthy growth and margins over FY18-20E. However, we believe historical valuations were inflated due to expectation of Henkel deal (to buy 26% equity in JLL). Considering the actual earnings growth, we believe P/E of 30x on FY20E EPS will be fair and reduce our target price to Rs198 (from Rs250 earlier), downgrade to Hold from Accumulate rating.

Analyst: Vincent K Andrews

Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Jyothy Laboratories Ltd –

Havells India Ltd (HAVL) is a leading player in electrical consumer goods in India. Its key verticals include switchgears, cables and wires, lighting fixtures and consumer appliances.

HAVL Q2FY19 revenue grew by 23% YoY, led by broad based growth across segments barring Lighting and fixtures segment and Lloyd. Revenue growth was led by Consumer durable which grew by 42% YoY, on back of strong growth in Fans, water heaters and water purifiers etc. Switchgears grew by 28% YoY led by improved industrial segment demand from government electrification projects, traction in residential and exports. Cable and wires grew by 35% YoY but at lower base. Lighting segment growth declined by -0.4% YoY led by negligible ESSL revenue versus Rs45cr in Q2FY18. Lloyd business de-grew by 4% YoY due to weak demand and inventory build–up channel. HAVL‟s strategy of penetration into existing product categories as well as expanding into new products and re-positioning of Lloyd brand will drive its future growth. We factor revenue to grow by 19% CAGR over FY18- FY20E.

HAVL’s Q2FY19 gross margins declined by 400bps YoY to 38.3% largely due to delay in pass through of increase in commodity prices and INR deprecation. Margin compression was seen across segments except for Lighting, which saw 260bps margin expansion. Cables and wires saw a 590bps decline in margin, switchgear 280bps and Lloyd’s margin declined 100bps. However, management expects margin to return to its usual range with pass through of cost albeit with lag effect. While blended EBITDA margin declined by 250bps to 12% largely due to rationalization of cost. We lower our EBITDA margins estimates by 100bps and 30bps to 12.5% and 13.4% for FY19E and FY20E to factor in near term impact on margins. Consequently, our EPS estimates stand reduced by 7% and 1% for FY19E and FY20E. We factor earning to growth by 25% CAGR over FY18 – FY20E.

HAVL investment in new product categories, focus on premiumisation and expanding retail touch points is expected to benefit the company in long term. We expect earnings to grow at healthy 25% CAGR over FY18-20E. However considering the near term impact on margin and premium valuation we lower our valuation to 32x (36x earlier) on FY20E with target price of Rs557. We downgrade HAVL to Reduce from Accumulate.

Analyst: Anil R

Geojit Financial Services Ltd.,INH200000345

For Disclosures and Disclaimers: Havells India Ltd –


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. KNR has 20 years of experience in road projects and they have an upper hand in road and highway projects, one of the fastest growing sectors. The efficiency of management and their experience in the field have helped to evolve a scientific bidding and execution, instead of aggressive bidding in the industry. KNR has stable asset utilization with the efficient use of company owned assets.

Q2FY19 revenue growth was tepid, rose by 6% to Rs416cr on account of muted order intake and delay in getting financial closure for recently won HAM projects. EBITDA margin declined by 100bps YoY to 20% due to higher raw material cost (47% YoY) and rise in employee cost (29% YoY). While H1FY19 EBITDA margin improved by 74bps to 19.8% led by reduction in subcontracting (-62% YoY) and claims received from two JVs (Rs16.8cr). The unexecuted portion of order book excluding recent won HAM projects is around Rs1,832cr within this the management is expected to execute project worth Rs 900cr in H2FY19.  We reduce FY19E/20E revenue estimates by 2%/8% due to delay in execution. While the management pointed that, appointed date for four out of five HAM projects is expected to receive in H2FY19 and execution to start from Q4FY19.

Order book remain strong @ 2.9x TTM revenue and total outstanding order book stands at Rs 5,955cr (including EPC value of HAM projects). To improve execution outlook, the company continue to bid for projects and expects to win projects around Rs 2,000cr to Rs 2,500cr in FY19. The awarding activity from NHAI remain subdued in H1FY19 (only Rs500cr of order were awarded) due to delay in land acquisition and challenges in getting financial closure. Any turnaround in order inflow will fillip revenue guidance for FY20E.

Adj. PAT de-grew by 6% YoY to Rs 44cr as drop in margins coupled with higher depreciation and interest expenses impacted the earnings growth. H1FY19 depreciation increased by 57% YoY to Rs 75cr due to purchase of new machinery for irrigation projects. We reduce FY20E PAT estimate by 15% due to higher depreciation and interest cost.

H2FY19 performance is likely to be subdued due to delay in getting appointed date for major projects. While strong balance sheet, strong execution capability with better operational margin to support valuation. We value standalone business at a P/E of 12x FY20E EPS and BOT projects at 0.7xP/B to arrive at SOTP target price Rs 180 and revise our rating to Reduce.

Analyst: Antu Eapen Thomas

Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: KNR Constructions Ltd –


Tata Consultancy Services Ltd (TCS) is the country’s largest software exporter delivered solid performance in Q1FY19, ahead of our expectation with strong revenue growth of 6.8% QoQ on consolidated basis (CC revenue growth of 4.1%) led by broad based growth across verticals, continued strong growth in UK (8.2% QoQ in CC terms) and continental Europe (5.3%) and recovery in the US BFS space. USD revenue however grew at a meagre pace of 1.6% QoQ weighed down by cross currency headwinds (impact of 250bps QoQ). Further sustained traction in digital business and ramp up of deal wins aided the growth. Digital business currently contributes 25% to the overall revenue and has grown by 9.1% QoQ in CC terms. Deal signings during the quarter stayed robust with a TCV of USD4.9bn mainly coming from BFSI and retail space.

EBIT margin also came in better than expected at 25% down by only 40bps QoQ despite wage hikes (180 bps), as the benefit of rupee depreciation (+70bps) and operational efficiencies (70bps) restricted the decline. Net profit during the quarter increased by 6.3%QoQ largely driven by higher other income (23%). Given the beat in margin in Q1FY19 and increasing visibility on momentum in revenue growth and traction in deal sizes in digital business, we increase our EBIT margin estimate for FY19E/20E by 40/30bps to 25.6/25.8%.

North America (51% of overall revenue) staged a smart recovery in Q1FY19 with a growth of 3.7% QoQ, the highest in 12 quarters powered by rebound in BFSI and retail verticals. The management alluded confidence in sustaining growth momentum in BFSI vertical (31% of overall revenue) in the medium term particularly in the US on the back of increasing focus of large US banks in scaling digital transformation. This is clearly visible from the strong deal wins of USD 4.9 bn in Q1FY19, of which BFSI vertical accounts for the most (USD 1.6 bn) and North America (USD 2.7 bn). Given positive commentary on the growth outlook of BFSI and retail verticals, continued momentum in digital business and robust deal pipeline, we factor revenue CAGR of 14% over FY18-20E.

We revise upward our earnings estimate for FY19E/20E to factor in the beat in performance in Q1FY19, reset of USD/INR rate to Rs. 69 and management’s positive commentary on the demand outlook. Given visibility on revenue growth momentum, recovery in US BFSI and retail segment and TCS’s differentiated positioning, we expect the company to enjoy premium valuation.

Analyst: Abhijit Kumar Das

Dion Global Solutions Ltd., INH100002771

For Disclosures and Disclaimers: TCS –



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