PNC Infratech Ltd (PNC) is an Infrastructure construction, development and management company; with expertise in execution of projects including highways, bridges, flyovers, airport runways, industrial areas and transmission lines. They witnessed robust revenue growth of 54% YoY to Rs727cr in Q3FY19 led by strong execution of big ticket orders while 9MFY19 revenue growth remain strong at 86% YoY to Rs2,021cr.
PNC has received financial closure for all seven projects and four of these projects which achieved appointed date & execution is currently in progress. HAM projects under execution are Dausa-Lalsot, Chitradurga-Davanagere,J hansi- Khajuraho and Jhansi-Khajuraho which comprises 38% of total order book. The total equity requirement for all HAM projects is Rs832cr of which PNC has already infused Rs229cr and balance will be invested over the next two to three years. Execution is likely to smoothen going forward as major project’s construction has started with an average of 85% land availability. Additionally, Nagpur–Mumbai expressway EPC project (Rs2,000cr) received the appointed date and projects is currently under construction.
Order book remains robust at Rs12,478cr which is 4.5x TTM revenue which provides improved visibility in the coming years. Currently, PNC has seven HAM projects of which four projects are under execution. Additionally, the company has bided for four air ports projects on O&M basis viz. Ahmedabad, Mangalore, Trivandrum and Jaipur. Going forward company will take a conservative approach on bidding and looking only for EPC projects given the challenges in getting financial closure and liquidity crunch.
EBITDA margin remain flat at 14% YoY, better than our estimate while margins as on 9MFY19 improved by 76bps YoY to 15.1% led by better execution and bonus received on account of early completion of projects. Q3FY19 Adj. PAT grew by 10% YoY to Rs 47cr. The benefit of higher execution and operational efficiency will stimulate earnings to grow at a CAGR of 27% over FY18-21E.
Pick up in execution with a strong balance sheet and likely monetisation of four BOT projects will support valuation. The existing tender pipe line for infra projects remain strong at Rs1 trillion which will start post general election. The opportunity lies more on EPC model (70%) and rest in HAM mode. We roll over our valuation to FY21 estimate and value EPC business at a P/E of 11x on FY21E EPS & BOT/HAM projects at 0.7x P/B and reiterate BUY rating.
Analyst: Antu Eapen Thomas
Geojit Financial Services Ltd., INH200000345
For Disclosures and Disclaimers: PNC Infratech Ltd: Click here
HDFC Bank is the second largest private sector bank in India. The Bank has a nationwide distribution network of 4,963 branches and 13,160 ATM’s in 2,727 cities/towns. In Q3FY19, loan growth momentum continued to remain strong (↑24% YoY) driven by 24% YoY growth in retail and 23% YoY growth in non-retail loans. Within retail, home loans, personal loans and credit cards witnessed robust growth, while growth in gold loan and auto was relatively weak. We believe that the bank is well placed to harness both retail & expected corporate pick-up given the credit squeeze to NBFCs and consolidation of PSU Banks. Hence, we project HDFC bank’s advances to grow at a CAGR of 20% over FY18-21E. On the liabilities front, while total deposits witnessed a healthy growth of 22% YoY, CASA growth lagged at 13% YoY resulting in moderation of CASA ratio to 40.7%.
As per the latest quarterly results, Net interest income (NII) continued to grow at a healthy pace of 22% YoY backed by advances growth and stable net interest margin (NIM). NIM declined marginally to 4.8%. We expect NIM to sustain around current level over FY18-20E given the bank’s increasing focus on high yielding retail assets. Provisions went up by 64% YoY primarily owing to management’s decision to take contingent provision of Rs320cr in anticipation of higher stress on recently announced farm loan waiver. Going forward, we expect NII and net profit to grow at a strong CAGR of 19% and 21%, respectively over FY18-21E on the back of healthy credit growth coupled with improving operating efficiency.
HDFC Bank’s asset quality continues to remain broadly stable with gross slippage ratio of 2.1% (ex-agriculture of 1.7%) as against 1.8% in Q2FY19. Gross and Net NPA ratios increased by 5 bps and 2 bps sequentially to 1.4% and 0.4%, respectively. Provision coverage ratio (PCR) declined by 36 bps QoQ to 69.6%. HDFC Bank has non-material IL&FS exposure and the bank remains watchful of its NBFC exposure and sees no stress currently. Hence, we don’t expect any major negative surprises on the asset quality front over near to medium term.
HDFC Bank delivered steady performance in Q3FY19. HDFC Bank continues to be one of our top picks in the sector considering its robust retail presence, stable margin, healthy asset quality and superior deposit franchise. Besides, the bank has consistently reported strong earnings irrespective of macro-economic environment. We expect the bank to maintain superior return ratios with RoE of ~18% and RoA of ~2% over FY18-20E. As a result, the bank will continue to enjoy valuation premium. Hence, we value the stock at 3.6x FY21E P/ABV) and maintain BUY rating.
Analyst: Kaushal Patel
DION Global Solutions Ltd., INH100002771
For Disclosures and Disclaimers: HDFC Bank Ltd: Click here
LTFH is a financial holding company offering a diverse range of financial products and services across retail, corporate, housing and infrastructure finance sectors.
In Q3FY19, assets under management (AUM) grew at a strong pace of 22% YoY driven by robust growth of 64% YoY in rural finance. The growth in rural loan portfolio was driven by strong traction in all three products viz. tractor loans (33% YoY), two-wheeler loans (75% YoY) and micro loans (86% YoY). Housing portfolio also continued to grow at a healthy pace of 34% YoY supported by robust momentum in home loans (↑21% YoY) and increase in Real Estate finance book (↑46% YoY. Going forward, we expect LTFH to deliver industry leading growth in microfinance while wholesale vertical is expected to report steady growth leading to 21% CAGR in AUM over FY18-21E.
Net interest income (NII) grew at a robust pace of 54% YoY mainly on the back of 101 bps YoY improvement in net interest margin (NIM) to 5.1%. An increase in the proportion of high-yield business (rural business) and cost increases passed on to customers in wholesale and housing businesses helped to improve NIM. Provisions declined by 9% YoY. Notably, LTFH has set aside Rs85cr as macroprudential provisions in Q3FY19, taking overall macro-prudential provisions to Rs269cr for unforeseen risks in future. We expect net profit to grow at a CAGR of 37% over FY17-21E supported by robust growth in other income coupled with decline in C/I ratio and credit cost.
Gross and Net NPA ratios improved by 36 bps and 15 bps sequentially to 6.7% and 2.6%, respectively. Provision coverage ratio improved by 13 bps QoQ to 60.8%. Notably, LTFH’s exposure to Supertech (Rs800cr) and IL&FS (Rs1,800cr) remains standard as the management attributes negligible probability to their default and consequent loss. The company’s exposure to IL&FS, which are under SPVs and are operational. Though the company has strong risk management practices and we don’t foresee any major setback on asset quality front from rural and housing lending books. Overall, we expect asset quality to improve further and project Gross/Net NPA ratio at5%/2% by FY21E.
LTFH delivered a commendable performance across parameters in Q3FY19. The company is now well on its journey of ‘retailization’ of the balance sheet. We remain confident that LTFH would continue to generate strong return ratios over the medium term and project RoE of 19% and RoA of 2.3% by FY21E. We believe that stock at current valuation (P/ABV of 1.6x for FY21E) factors most of the negatives. Hence, we continue to maintain BUY rating on the stock valuing it at P/ABV of 2.0x for FY21E.
Analyst: Kaushal Patel
DION Global Solutions Ltd., INH100002771
For Disclosures and Disclaimers: L&T Finance Holdings Ltd: Click here
Strides Pharma science (SS) is a R&D focused, vertically integrated pharmaceutical company with an experienced management team and presence across multiple specialty therapeutic segments. With SS to exit Australian business citing leverage concerns, their prime focus will now be shifting to the US business. More emphasis to the US market is given on the backdrop of strong business momentum there. Regulated market also saw high growth rate of 55% YoY driven by better business environment in key markets & portfolio expansion.
Strides has opted out of the merger plan with Apotex whereby they will sell their entire stake at Arrow for AUD394m (~Rs2,000crs). The deal is expected to get completed by the end of FY20 which allows SS to enter into a 10- year preferred supplier contract with the merged entity which enables SS to retain ongoing earnings of 40%-50% of current EBITDA at Arrow. The decision to give more attention to the US is on the backdrop of strong business momentum there (30% QoQ) driven by new product launches and healthy volume trajectory for base portfolio. With healthy order book visibility and steady pricing environment, the management is optimistic on this market as several partnered products is returning in Q4FY19.There is also strong approval (11 in YTDFY19) momentum which looks encouraging. The African business growth was modest with better expectations for future. However, institutional business de-grew by 15% YoY on account of muted procurement by donor funding agencies.
The latest good news they have is the US FDA approval they got for the greenfield oral dosage facility at Singapore, which has now received the Establishment Inspection Report (EIR). At its peak capacity it can produce 1.4 billion tablets and hard gelatin capsules and has already been approved by Health Science Authority (HSA) Singapore and Therapeutic Goods Administration (TGA) Australia. Other corporate actions include Acquisition of Vensun Pharmaceuticals, Inc (US) and 100% ownership in JV with Vivimed Labs which is expected to add ~$40M additional sales.
Q3FY19 revenue grew by ~6% YoY primarily driven by the growth in the US and other regulated markets (accounting for ~15%). We therefore expect EBITDA margins to stabilise around 14% during FY19-21E. However, we are adjusting our FY20 Rev/PAT estimates by 14% and 21% resp. downward to factor sale of Australian business. However, we believe that ceasing of partnership model in US coupled with more product filings and good numbers from other regulated markets will make up the difference and drive the earnings growth going forward. We therefore factor a revenue/PAT growth of 13/57% for FY21. Hence, we value Strides at 18x on FY21E EPS.
Analyst: Dilish K Daniel
Geojit Financial Services Ltd., INH200000345
For Disclosures and Disclaimers: Strides Pharma Science Ltd: Click here