Stock Recommendations – February 2021



Healthcare Global Enterprises Ltd, operates one of the largest private-sector cancer treatment centres in India with 22 cancer centres and 3 multispecialty hospitals across Karnataka, Maharashtra, Gujarat and other states. Addition-ally, it has a 50% stake in Milann, one of India’s leading providers of fertility treatment. It also owns and operates 3 cancer diagnostic centres.

HCG has seen a revenue growth of 16% CAGR over FY15-FY20 mainly on back of ramp up of new centres in Maharashtra and Gujarat which have seen significant additions in the number of beds and average revenue per operating beds (ARPOB). Over the years, the company has focused on better efficiency by decreasing the average length of stay (ALOS) and increasing ARPOB. As a result, ARPOB per day has increased from Rs.24,676 in FY15 to Rs.32,760 in FY20. We expect revenue to de-grow in FY21E with FY21 seeing lower patient footfalls amid varying lockdown restrictions in different parts of the country. However, we expect to see a recovery in revenues from FY22E with the company focusing on improving operational efficiencies at centres launched in the last 1-2 years.

In Q1FY21, CVC capital partners, a foreign private equity firm, completed an investment of Rs.650cr at Rs.130/share for a 36.5% stake in HCG. The company stated that the new investment will mainly be used to reduce its debt. As a result of this investment, we expect its debt/ equity ratio to reduce from 1.6x in FY20 to 0.1x in FY23E. The company is also nearing the end of its capex cycle, with most of its capex to go towards new centres that are planned for Kochi and Gurugram. This would enable HCG to focus on scaling up its new centres that were established in the last 1-2 years and ensuring they break-even as quickly as possible.

While the Covid-19 pandemic and the subsequent lockdown in different parts of the country has impacted its performance in the last two quarters, we expect to see a recovery in footfalls and average revenue per operating bed as lockdown restrictions ease in different parts of the country. The main focus for HCG will now be towards reducing losses at its new centres in Tier-1 cities like Mumbai and Kolkata while improving margins and profitability at its mature centres. The recent investment by CVC will enable the company the deleverage its balance sheet and remove a key overhang on the stock. Considering these factors, we recommend a BUY rating on HCG based on 12x FY23E EV/EBITDA with a target price of Rs.189.

Analyst: Joe V Samuel, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Please find the web link for the research notes: Healthcare global enterprises Ltd: Click here

Mold-Tek Packaging Ltd (MTEP), one of the leading manufacturers and suppliers of high quality airtight and pilfer proof containers/pails in India for Paints, Lubricants, Food, and FMCG.MTEP is credited with shifting the Indian paint and lubricants industry to plastic pails which until then were using metal containers. Innovative features like “pull up the spout”; locking system, tamper, and leakproof seals were introduced to the industry. Further, MTEP is the first company in India to introduce the concept of in-mold labeling (IML), a technique that combines injection molding of the container and placement of the label in a single step.

During FY10-FY13, MTEP’s P/E valuations hovered in the range 3x-5x. However, during last 5 years, valuation has significantly re-rated and its P/E band has expanded from 5x to above 20x and touched a high of 40x. Consistent re-rating in MTEP valuation has been largely propelled by strong earnings momentum of 30 % CAGR over FY13-FY20. While EBITDA margins expanded by 790bps to 18.3% in FY20.

MTEP has fully integrated facilities ranging from label making, mould adaptations to in-house robots for use in its production line. Backward integration of design, moulds and use of robots in production process has led to cost reduction, aided margin expansion. MTEP is expected to capitalize on the long-term growth opportunities aided by growing acceptance of IML by paints & lubes industry and exponential growth in F&F (food & FMCG) segment leading to margin expansion. Currently management’s focus is on increasing revenue contribution from FMCG customers where margins are higher. In F&F segment, it has marquee clients like Procter & Gamble, ITC, HUL, Amul, Cadbury, London Dairy, Mondelez, Heinz and Vadilal etc.

Recently, MTEP has invested for pumps for Sanitizers & other personal hygiene products and has firm offtake commitments from Godrej, Rickett benckiser, Asian paints, Apollo hospitals, ITC etc. At full capacity the likely revenue is Rs.50cr and this segment is margin accretive.

In Q3FY21 Revenue &Profitability grew by 33% & 66% YoY led by strong demand revival in Paints and F&F segment. Overall volume grew by 39% YoY while EBITDA margins expanded by 170bps YoY to 17%. With ramp-up of volumes from new plants (Mysore & Vizag) and strong client’s additions in FMCG segment will aid earning momentum to continue in near future. We value MTEP at 17x on FY23E, with a target price of Rs.413 and reiterate to Buy.

Analyst: Anil R, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Please find the web link for the research notes: Mold Teck packaging Ltd:Click here

PVR Ltd owns and operates multiplexes across 21 States and UT’s with a total of 831 screens (including 9 in Colombo). Major income segments for them are Box office, Food & Beverage (F&B) and Advertisement (Ad).During the quarter, PVR reported total footfall of 10 lakhs and have generated revenue of Rs.13.35 Cr from sale of movie tickets, Rs.14.02Cr from sale of F&B, Rs.4.2Cr from advertisement income. Total operating revenue stands at Rs.45.4 Cr against Rs.40.4Cr in previous quarter. Company reported EBITDA loss of Rs.78.1Cr while net loss stands at Rs.49.1Cr. The Average Ticket Price (ATP) stood at Rs.164 against Rs.210 during Q3FY20. Spend Per Head (SPH) is close to pre-covid levels and stands at Rs.95 against Rs.100 during Q3FY20. However, ATP of Tamil movie ‘Master’ is higher than the pre-covid levels.

Ministry of Home Affairs allowed cinemas to reopen from Oct 15th, 2020 with 50% capacity. As on date, all states except Rajasthan and Jharkhand (6-7% of total Bollywood revenue) where PVR has presence, have allowed cinemas to re-open.  Though theatres are allowed to operate in majority of states, availability of content and lower footfall is dragging the recovery. Decisions on release of big budget films will determine the recovery in occupancy. Tamil movie “Master” has seen the second-best opening day collection in Tamil Nadu even with restricted capacity. Even though this shows a positive view for the Tamil film industry, the release of big budget Bollywood movies remain the key for PVR’s recovery.

During the quarter, company was able to reduce its fixed cost by 64% YoY.  Improvement in cost control was on account of reduced staff cost because of manpower and cost rationalisation. However, expenses are expected to reach near pre-covid levels from FY22 as theatres are opened while revenue will take longer period to recover to pre-covid levels. Salary cut for front line staffs has been reversed once theatres reopened while pay cut for corporate and other staffs will be rolled back in staggered manner. We expect occupancy to reach normalcy only by H2FY22.

PVR has decided to raise additional equity of Rs.800Cr over and above Rs.300Cr raised during July 2020.  Though the timing of the fund raising is yet to be decided, the raised capital is expected to be used to manage the current liquidity crunch arising from possible losses in coming quarter and to spend on screen additions in order to get advantage of industry consolidation.

Although theatres are allowed to open in most of the states, non-availability of content is dragging recovery. We expect muted occupancy at least till H1FY22 while a strong comeback can be expected in FY23. Considering the current valuation and slow pace of recovery, we take a cautious stand and therefore downgrade our rating to REDUCE with a roll forward target price of Rs.1,403 at 2.2x FY23E EV/Sales.

Analyst: Cyril Charly, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Please find the web link for the research notes: PVR Ltd:Click here

Infosys Limited provides IT consulting and software services, including e-business, program management, and supply chain solutions. The Group’s services include application development, product co-development, and system implementation and system engineering. Infosys targets businesses specializing in the insurance, banking, and telecommunication, manufacturing sectors.

The company recorded revenue growth of 12.3% YoY to Rs. 25,927cr during the quarter ended December 2020 led by double-digit growth across almost all segments. Financial Services grew 17.9% YoY to Rs. 8,578cr. Hi-Tech revenue increased 21.8% YoY to Rs. 2,130cr. Life Sciences were up 17.2% YoY to Rs. 1,827cr. While energy and communication rose 10.3% YoY toRs.3,251cr and 7.1% YoY to Rs. 3,215cr, respectively. Geographically, North America grew 8.8% YoY on a constant currencybasis, Europe increased 1.3% YoY, and the Rest of the World’s (RoW) contribution increased 6.1% YoY based onconstantcurrencyterms, while India revenue was up 4.3% YoY on a constant currency basis. EBIT margin improved by 350bps YoY to 25.4%, benefitted by improved utilization and offshore mix. Margins were further supported by lower staff costs and selling expenses as a percentage of sales 54.4% (vs. 56.3% in Q3FY20) and 0.5% (vs. 2.7% prior).As a result, Net Profit rose 16.6% YoYto Rs. 5,197cr. 

In Q3FY21, Digital contribution surpassed ~50% of total revenue, also, the company witnessed a shift towards offshore with a 74.8% mix vs. 73.9% in Q2FY21. As travel restriction is coming off management now expects the onsite mix to improve from now on. Utilization including trainee and without trainee improved 170bps QoQ to 82.3% and 270 QoQ to 86.3%, respectively. Attrition rate rose to 10.0% vs. 7.8% in Q2. 97% of the employees across the world are continuing working from home due to COVID. The company continues to invest in the Cobalt platform, which was launched in Q2FY20 and this should help the company to strengthen digital transformation further. During the quarter, management revised its guidance upward for FY21 revenue and operating margin to 4.5-5.0% on constant currency terms (earlier; 2-3% YoY on constant currency terms) and 24.0%- 24.5% (earlier; 23-24% YoY on CC), respectively, on the back of large deal wins and a strong pipeline. Infosys recorded the highest deals ever of USD 7.13bn, of which 73% contributed from net new deals, 13 deals were signed in America, and 7 signed in Europe.

The robust pipeline, large deal, and higher utilization should improve the company’s growth prospects over the medium-term. Additionally, higher investment in IT, digital transformation should support the company’s performance further. We reiterate our BUY rating on the stock with a rolled forward TP of Rs. 1,535 based on 26x FY23E adj. EPS.

Analyst: Rajin Rajan, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Please find the web link for the research notes: Infosys Ltd: Click here


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