Metals & Mining: Q3FY21 Preview- Margins likely to rise to new highs

Strong FCF will accelerate deleveraging; uptrend likely to persist; valuations benign; TATA, HNDL & JSPL top picks
Coking coal prices corrected by 1% q-o-q in Q3FY21 but given the inventory lag, we estimate a $5-7/ton cost reduction for steel companies.

Auto & Components: Prospects are strong for tyre makers

Volume estimates up; rise in rubber prices a worry; Apollo Tyres downgraded to Reduce; TP raised for MRF and CEAT

With economic activity picking up, we expect the OEM segment to grow by 6.2% CAGR and the replacement segment to grow by 5.5% over FY2020-25e.

Westlife Development Rating: Neutral- Stock offers great opening for investment

However, valuations limit upside; coverage initiated with Neutral and TP of Rs 440

WLDL offers strong growth potential with 3x store network expansion potential, robust SSSG performance led by brand extensions, profitable and improving unit economics, and improvement in return ratios.

Gujarat Gas Rating: Buy; volumes at an all-time high in November

Long term margin guidance up to Rs 5/SCM; growth prospects are bright; ‘Buy’ retained with TP of Rs 373

Siemens India Rating: Neutral; strong operational showing in quarter

Results indicate demand recovery is faster than expected; FY21/22 EPS up 10/3%; TP raised to Rs 1,420; ‘Neutral’ maintained

General Insurance Corp Rating: Buy; recovery is slower than expected

Fire segment still a worry; estimates lowered to factor in Q2 showing; TP down to Rs 188; ‘Buy’ maintained

Astral Poly Technik Rating: Add; Deal with SPPL can be very rewarding

FY22e PAT up 1.5%; given recent spurt, downgraded to ‘Add’ with TP up to Rs 1,530

IndusInd Bank Rating: buy; Sustenance of book quality augurs well

Provisions expected to be high in H2FY21; FY22-23e EPS up 3-5%; valuations are attractive; Buy retained with TP rising to Rs 1,030

JSW Steel Rating: Reduce- Great performance at the standalone level

FY21/22e Ebitda up 19/3%; potentially high leverage and valuation are concerns; TP revised to Rs 260 from Rs 250

Taking note of the Q2FY21 performance and earlier-than-expected uptick in spreads, we are raising FY21e/FY22e Ebitda by 19%/3%.

Kotak Mahindra Bank Rating: Buy- A strong second quarter for company

Asset quality remained resilient; FY21/22e EPS up 27/20% given outlook; upgraded to ‘Buy’ with TP rising to Rs 1,650

Subsidiaries reported mixed performances, with PAT down 23% y-o-y for Kotak Prime, up 19% y-o-y for Kotak Life, and rising 34% y-o-y for Kotak Securities.

Hindustan Zinc Rating: Hold- Q2 indicates company’s on steady course

Integrated silver output key surprise in results; firm paid interim dividend of Rs 21.3; ‘Hold’ rating maintained

Integrated zinc production was 180kte, up 9% y-o-y and 15% q-o-q, while integrated lead output was 57kte, up 29% y-o-y and 28% q-o-q.

Hindustan Unilever Rating: Buy- Q2FY21 performance marks an inflection point

Quarter sales were ahead of expectations; several catalysts are at work; HUL’s valuation remains very appealing; ‘Buy’ retained

Equity Strategy: Activity at 90%+ of pre-crisis level

Improvement in 1H Sept was broad-based; urban indicators up consistently; economy holding up well

Broad based indicators such as toll collections, rail and road freight are now consistently higher y-o-y.

Coal India rating: Buy — Muted power demand hit quarter results

COAL’s management has noted that the company’s receivables have increased to Rs 230 bn in Q1FY21 from Rs 178 bn at end-FY20. However, these decreased to Rs 210 bn at end-Aug’20. COAL expects the

Page Industries rating: Hold — Covid cast a shadow on performance in Q1

Page reported 66% y-o-y contraction in revenue (volumes down 69% y-o-y), primarily due to its metro city focus, where the lockdown impact was sharper. Gross margin plunged to 48% (Q4FY20: 59%, Q1FY20:

Gold outlook: Decline in gold price a temporary correction

Gold’s near-term movement will no longer be linear in direction. But the macroeconomic tailwinds that instigated the bull market in gold in the first place, are very much intact, and are expected to

United Spirits rating: Hold — Worst is over for the liquor company

Manufacturing and sale of alcoholic beverages was banned from 24th March to 4th May, which dragged USL’s volumes 49.2% y-o-y. By the end of June, all manufacturing units had become operational; by m

ONGC rating: Reduce – Lower other costs behind Ebitda beat

OVL’s oil production at 2.2mmt fell 5% q-o-q and 10% y-o-y, while gas production at 1.2bcm declined 6% q-o-q and 10% y-o-y. OVL reported a Q1 loss of Rs 3 bn due to lower production and subdued oil/

Automobiles August dispatches are sign of early festive kick-off

As per media reports, Tata Motors saw highest sales since Mar’18 at ~18.6k units, up 154% y-o-y to become 3rd largest player for two straight months as incremental market share gains are driven by r

Reliance Industries rating ‘hold’; Deal for Future Group highly synergistic

While costs are modest, deal likely to dilute RoCE in near term; RIL valuation bakes in too much optimism; ‘Hold’ retained

Info Edge rating ‘hold’; Zomato critical to future valuations

TP raised to Rs 2,810 due to rise in Zomato valuation; need for caution; ‘Hold’ retained

Suprajit Engineering rating ‘buy’; resilient show by subsidiaries is the highlight

Despite near term weakness, growth story is intact; ‘Buy’ retained with TP of Rs 219.

Maruti Suzuki rating: Sell – Slump in volumes marred Q1 Ebidta

17% fall in volumes expected in FY21e; TP revised to Rs 4,500 due to rollover to Sept ’22; ‘Sell’ maintained.

The company is currently producing 4,000 vehicles per day.

Lupin rating: ‘Buy’; Performance in the quarter was weak

Despite 14.5/5% cut in FY21/22e EPS, outlook for earnings is good; ‘Buy’ retained with TP of Rs 1,000.

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