As anticipated, there is no announcement for spectrum usage charge, licence fees, and exemption of custom duty on telecom equipment. Given the resilient performance in a tough environment and some signs of stability in India wireless business, we continue to remain Positive on Bharti Airtel.  

Recommendation: BUY

Britannia is one of the leading players in the domestic biscuit market. Though it has strong penetration in the urban markets it is trying to enhance its presence in the rural market as well. The government has given some push to rural economy through various schemes. This along with normal rainfall going ahead would help Britannia to achieve good volume growth in the near to medium term.

Recommendation: BUY

Dabur India has a strong presence in the categories with mass presence. Its large chunk of domestic revenues is coming from rural India. The revival in the demand environment of rural India would improve the earning visibility in the near to medium term.

Recommendation: BUY

Specific announcements directly affecting retail private banks are not there, but steps to boost consumption, reiteration of Aadhaar etc steps benefit HDFC Bank’s business growth and digital strategy.

Recommendation: BUY

About 50% of HUL domestic sales comes from rural India, which is reeling pressure of consumption slowdown. Maintaining its focus on improving rural economy the government has provide some stimulus to rural economy through various. This along with recent hike in MSPs of kharif crop and better monsoon will revive the demand gradually.

Recommendation: BUY

Move to provide credit guarantee for high rated pool assets of NBFCs will benefit strong NBFCs like HDFC Ltd. Policy boost to Housing demand will also be beneficial.

Recommendation: BUY

There is no announcement specific to Indian IT services companies, though make in India and digitalisation drive could help the IT companies in some extent. However, the companies would now pay additional tax in buy-back of shares, which is a negative surprise as these large IT companies choose buyback route to return surplus cash to shareholders. Being the second largest IT services company, Infosys is well placed to benefit from upcoming government transformational bids.

Recommendation: BUY

The imposition of basic excise duty on cigarettes in Union Budget 2019-20 would result in a nominal increase in tax rates on cigarettes, which will not have any material impact effect on ITC's cigarette sales. However, any significant increase in the tax rate in the upcoming GST council meetings would be a risk to the cigarette sales in the near future.

Recommendation: BUY

The Budget 2019 has been neutral for L&T as allocation towards Railways and Defence remained unchanged from the interim budget, although up 15% and 7% from last year. However, import of defence equipments that are not being manufactured in India have been exempted from basic customs duty. Further, the government will be planning measures to boost infrastructure financing which should result in faster clearance of larger ticket size projects which would be beneficial for L&T.

Recommendation: BUY

Given the government focus on reducing pollution, Budget 2019 has provided incentives such as Rs 1.5 lakh income tax deduction on interest on loans taken to buy electric vehicles. Also, the government has proposed to reduce GST on electric vehicles from 12% to 5%. Custom duty on electrical vehicle components such as chargers, drive assemblies and compressors have been waived off to reduce the cost of electric vehicles. This would boost EV sales and benefit M&M which is the first mover in electric space.

Recommendation: BUY

Contrary to street expectations, there is no announcement for cess reduction on oil production. However, government has maintained fuel subsidy provision at Rs 37,478 crore for FY2020, which provides clarity on net oil realisation for ONGC. We remain Positive on ONGC.

The government's plan to infuse Rs ~70,000 crore in PSU Banks is positive; Capital infusion provides incentives for balance sheet clean-up & aids loan growth.

Recommendation: BUY

There is no announcement specific to Indian IT services companies, though make in India and digitalisation drive could help the IT companies. This budget has proposed to extend the tax at 20% for buyback of shares to listed companies as well, which is a negative for IT companies as they have been returning surplus cash to shareholders through buyback route. Being the largest IT services company and preferred partner for number of government projects in the past, TCS would be a prime beneficiary of upcoming government transformational bids.

Recommendation: BUY

The increase in custom duty on Gold and precious metals to 12.5% from 10% earlier will not have significant impact for Titan who will pass it to customers through selective price hikes. This will not have any impact on the sales of the discretionary item like Jewellery. However, the slowdown in the consumption environment will moderate the sales in the near term.

Recommendation: BUY

The Budget 2019 has been neutral for cement sector in general and Ultratech in particular as allocation towards schemes like Pradhan Mantri Awas Yojana and Pradhan Mantri Gram Sadak Yojana remained unchanged from the interim budget presented earlier. The allocation to Ministry of Road and metro projects remained unchanged from the interim budget. However, government gave a thrust to affordable housing through additional interest deduction of Rs. 1.5 lakh for house purchase till 31st March 2020 having value upto Rs. 45 lakh. Hence, we maintain our Buy rating on the stock with unchanged price target of Rs 5000.

Recommendation: BUY

Aditya Birla Fashion & Retail (ABFRL) is India’s largest branded apparel and retailer estimated to cross Rs 10,000 crore revenues in FY21E. ABFRL is present across every category like menswear, womenswear, kidswear, ethnic wear, western wear, formal wear, casual wear and accessories. It is also present across every price point from economy to super premium. The company has gradually scaled up by expanding existing brands and incorporating new ones, along with maintaining profitability and improving working capital which leads us to believe that the company can be a multi-bagger in the years to come.

Houses 4 of India’s biggest brands

ABFRL houses four of India’s largest brands (Louis Philippe, Van Heusen, Allen Solly, Peter England), which have all crossed Rs 1,000 crore revenues while no other brand, except USPA has come close to even touching Rs 1,000 crore in India. These 4 brands are a cash cow of the company and generate ROCE upwards of 50%. Most other brands in India have struggled to cross Rs 500 crore and hence having four brands of this size gives us confidence that the company can keep delivering in the years to come.

Diversified portfolio

In addition to the above 4 brands which are primarily into mens formal wear, ABFRL has successfully diversified itself with the addition of brands like Forever 21, Ralph Lauren, American Eagle, Collective, Hacket, Simon Carter, Ted Baker, etc which are present across the womens wear and casual wear categories. However as most of these are premium brands, ABFRL has also spread its wings across price points with the acquisition of value fashion format Pantaloons in 2013. Pantaloons has witnessed a major turnaround with EBITDA margins increasing from 3-4% in FY15 to 7.2% in FY19.

Strong distribution network and entry into new categories to continue growth trajectory

ABFRL has a robust distribution network of 2,046 brand stores, 308 Pantaloons stores along with a presence in 18000 MBOs, 5077 Large Format Stores and e-commerce. Total foot print of these brands is over 7.5 mln sq. ft. Growth should remain in double digits on account of strong store additions p.a. of 450 stores in Madura and 75-80 in Pantaloons along with higher ad spends (5% of sales vs. 4% earlier). Innerwear has grown from NIL to Rs 200 crore plus in 2 years under the Van Heusen brand while entry into the branded ethnic segment through the acquisition of Jaypore should further aid growth.

Outlook and valuations

Overall margins are likely to improve further in the coming years as Fast Fashion and Innerwear are still making EBITDA losses of more than Rs 100 crore every year. While Fast Fashion will break even next year, innerwear may break even by FY21E which can lead to an EBITDA swing of Rs 100 crore. Higher cash generation should help improve leverage ratios and continue to drive re-rating. We value the company based on 3x sales FY21E for Madura and 15x EV/EBITDA FY21E of Pantaloons to arrive at a TP of Rs 301.

Axis Bank had clocked a spectacular 32% loans CAGR over FY05-16. However, during FY16-FY19, it slumped to 12-14% marred by sluggish industrial activity and deteriorating asset quality. This was primarily due to mere 6-7% growth in corporate loans. However, corporate loans have now perked up a tad led by marginal pick-up in industrial loans and management’s sharpened focus on accelerating working capital loans. Hence, we estimate 19% loan growth over FY19-21 riding 12% growth in corporate loans and >18% growth in retail loans.

Softening delinquency and shift in management’s focus to high yielding retail loans are envisaged to augment margin. Further, the bank is making credible efforts to mobilise low-cost deposits (CASA & retail term deposits), which were 81% of the total deposits mix as on Q3FY19. Ergo, we estimate Axis Bank’s NIM to rise from 3.2% in FY19 to 3.4% in FY21E.

Axis Bank’s gross NPLs fell 150bps to 5.30% over FY18-FY19. This was led by: a) aggressive recognition of bad loans over the past 8-10 quarters; b) rising share of retail loans; c) incremental disbursement of corporate loans to A- & above rated; d) dip in share of BB & below loans; e) corporate loans’ slippage reaching zenith; and) implementation of IBC, which led to higher recovery & upgradation. This resulted in waning of gross stressed assets. Hence, we envisage significant improvement in the bank’s asset quality.

Axis Bank’s RoA/RoAE fell from average ~1.8%/18.0% over FY13-16 to 0.7%/7.2% in FY19 (0.04%/0.5% RoA/RoAE in FY18). We expect overall cost (Credit & opex both) to normalise over FY19-21E. Hence, we estimate FY21E RoA/RoAE to improve to 1.4%/16%. Driven by all the aforementioned factors, we recommend a ‘BUY’ rating on Axis Bank with an target price of Rs 890.

Balaji Amines is a key player in the oligopolistic aliphatic amines market in India, with a portfolio of products which cater to a diverse set of end-industries like agrochemicals, pharmaceuticals, paints, dyes, rubber chemicals among others. The company has undertaken (and also planning to undertake) capacity expansions which will act as multiple levers of growth of the company in the coming years.

Consent to Operate received – first leg of growth to start

Balaji Amines has recently received Consent to Operate in both its brownfield expansion as well as subsidiary Balaji Speciality Chemicals (BSC), which would catalyse growth over FY20 and FY21. Products like Acetonitrile and Morpholine which are part of the brownfield expansion will add bulk of the growth in FY20.

Subsidiary Balaji Speciality Chemicals (BSC) will add to growth in FY21

BSC’s products like EDA, Piperazine and DETA will be key growth drivers in FY21 as their capacities ramp-up. The company has received approvals from clients in the agrochemical sector and has also applied for REACH certification for its products, which will help in exports. At its full utilization, the subsidiary is expected to add Rs 350-400 crores to the top-line. The subsidiary has also received ‘Mega Project’ status, which will result in some tax advantages.

Further growth to come from Mega Project

Balaji Amines has planned capex of Rs 200 crore for Phase I of its Mega Project with products like Ethyl amine, MIPA/IPA etc. which we believe will drive further growth in FY22. Most of these products are import substitutes in nature and is expected to have asset turns in the range of 1.5-2x.

Valuation and rating

We estimate FY20 Revenue/EBITDA/PAT to be Rs 1191 crore/239 crore/138 crore. The stock is currently trading at ~9x its FY20 EPS. We have a ‘BUY’ recommendation with a target price of Rs 640/share.

Bata, India’s largest footwear retailer, has been operating in the Indian subcontinent for around 9 decades with a retail network of 1,400 stores across 550 cities, entailing 3 mn sq. ft. retail space. It has 5 manufacturing plants at West Bengal, Bihar, Karnataka and Tamil Nadu. Bata is a part of Bata Shoe Organization (BSO) that has presence in 70 countries and operates through 3 business units—Bata India is the largest entity of the BSO in terms of pairs sold and revenues.

Market leader and a one-stop footwear destination

Bata is a strong brand in India’s footwear retail market with a formidable pan-India distribution retail network. The company is present across 550-600 towns & cities and offers products across price points, segments and categories. Based on the strength of its distribution, product portfolio, width and assortment, Bata is far ahead of peers at the national level and serves as a one-stop footwear destination.

Inflection point due to company-driven initiatives

We believe: (a) parent’s sharpened focus on India operations; (b) rejig of management & operations with clear focus on brand rejuvenation, product portfolio re-orientation & cost rationalisation; (c) marked improvement in merchandising, brand communication & customer engagement; and (d) increased thrust on technology, will lead to Bata clocking industry-leading growth. Hence, we estimate it to post ~15% revenue and 25% plus earnings CAGR over FY18-21.

Solid balance sheet coupled with revival of growth to propel RoCE and free cash generation

Bata has a strong balance sheet with zero debt and cash constituting ~35% of the overall balance sheet. With growth revival, followed by marked improvement in margin (estimate 250 bps operating profit margin improvement over FY18-21), the core RoCE is likely to expand to 42% by FY21 from 32% currently. Over the next 3 years, we estimate Bata to generate an aggregate of Rs 670 crore free cash.

Outlook and valuations:

We believe that Bata is a high quality consumer brand in the growing fast fashion footwear category taking all the right initiatives to drive growth, improve brand strength and propel earnings. We assign 42x PER multiple to FY21 earnings to arrive at our medium term price target of Rs 1,500.

Crompton Greaves Consumer Electrical Ltd (backed by two private equity investors – Advent International and Temasek Holdings) is the second largest player in Fast Moving Electrical Goods in India, after Havells. CGCEL is the leading market position in the fans & residential pumps and second-largest market share in lighting. CGCEL is expected to post strong earnings growth of 19.5% in FY20 on expectation of a) continued strong demand for electrical consumer durable products, and b) recovery in lighting segment revenue growth (10% in FY20 vs -1% in FY19) and margin (adjusted EBIT margin to improve from 5.1% in FY19 to 7.2% in FY20). We have a ‘BUY’ rating with a TP of Rs 300 (30% upside).

FMEG to benefit on government populist measures and thrust on Power/Housing for ALL projects

After registering mid-single digit sales growth for four consecutive years, FMEG industry recorded strong sales growth of 15.4% in FY19. We believe the sector to continue to grow at rapid pace over the medium-term as we believe the government populist measures (PM Kisan Scheme, Pension Scheme, waiver of income tax upto Rs 5 lakh, proposal to double farmer income by 2022) and thrust on ‘Power/Housing for ALL’ projects would drive the demand of FMEG products.

CGCEL’s EBITDA to grow by 15% in FY20 on multiple positive triggers

CGCEL EBITDA is projected to grow by atleast 15% in FY20 on expectation of a) strong demand for cooling products due to hot & dry summer 2019 season should result in higher sales growth for ECD segment (experienced high sales growth of 25%/14% in FY13/FY15 in similar weather patterns in the past); b) revival in lighting segment sales growth to 10% in FY20 vs -1% in FY19 due to increase in proportion of LED revenue from 74% in Q4FY18 to 85% in Q4FY19 and no major price erosion in LED bulbs; and c) revival in lighting segment adjusted EBIT margin from 5.1% in FY19 to 7.2% in FY20 due to effective implementation of cost rationalization measures in H2CY18.

High likelihood of venturing in new category on strong balance sheet and cash generation

ROCE is projected to improve from 35.1% in FY19 to 39.7% in FY20 on expectation of improvement in operating profit and slight improvement in working capital cycle. Given strong balance sheet position (negative net debt of Rs 35 crore as on March 31, 2019) and annual cash generation of around Rs 500 crore in FY20, we believe there is a high likelihood of company entering into new product categories (kitchen appliances, switchgears, etc) in the near-future through organic or inorganic route.

Attractive valuation; trading at 17% discount to historical multiple

We maintain our BUY rating on the stock with a target price of Rs 300 per share. We have valued the stock at 34x on FY21E earnings. At CMP, Crompton is trading at 29.1x on 1 year rolling forward earnings estimate, which is at a 17% discount to average multiple of 35.0x since the change of management control in 2016. Key risks include significant loss of market share in key product categories (fans/pumps/light) and continued price erosion in LED lighting products. Venturing in new product category would be viewed as key upside risk in the near-future.

Deepak Nitrite (DNL) is expected to perform strongly driven by its base business and its recently commissioned Phenol-Acetone subsidiary, Deepak Phenolics (DPL).

DNL's base business is firing on all cylinders as performance of its basic chemicals, and fine and speciality chemicals business has been strong (except for the recent quarter in FSC which should be transient in nature).

It's fully-integrated optical brightening agents business has seen a sharp turnaround in recent quarters and also has benefitted from a short-supply of DASDA, a key intermediate.

DPL has achieved high levels of utilization in FY19 within five months of commissioning and will aid in growth in FY20 which will be its first full year of operations. The company is planning on adding further downstream derivatives of Phenol and Acetone which will aid in margin expansion.

Our estimates for FY21 Revenue/EBITDA/PAT are Rs 4194 crores/767 crores/353 crores respectively. DNL is currently trading at ~11x its FY21 EPS. We have a ‘BUY' recommendation with a target price of Rs 362/share.

ESAB India, backed by MNC parent Colfax Corporation and one of India’s largest welding company in the organised market. We believe the company is at an inflection point driven by expected pickup in demand from user industries due to likely pickup in private capex (b) margin expansion and (c) RoCE improvement.

We expect the company's revenues and net profit to grow at a CAGR of 17% and 22% respectively over FY18-21E while EBITDA margin is estimated to jump by 210 basis points in the same period. Moreover, the asset-light business model is estimated to result in core RoCE expanding to 28% in FY21E from 15% in FY18.

Over the long term, given its strong position in the organised market, ESAB India's growth is likely to be higher than the industry rate of 9% and therefore, we recommend a ‘BUY' rating with a target price of Rs 1482.

ICICI Bank is poised to grow in high teens with 12-14% growth in corporate loans, ~20% surge in retail loans and stable-to-positive traction in overseas loans over FY19- 21E

ICICI Bank has increased the focus to enhance non-IHL (high-yield loans) and also overall gross stressed assets shrunk to 8% in FY19 from 11% in FY18. We expect net interest margin to inch up 20bps over FY19-21E to 3.3% led by: a) moderating delinquency; b) sharpened focus on high-yield retail loans; and c) rise in retail deposits

Asset quality of ICICI Bank deteriorated massively primarily due to corporate and SME slippages. However, over the past three quarters, slippage has softened to 2.6% and hence gross NPA has also fallen from 9.9% to 7.4% in Q4FY19. We expect gross NPA to dip on moderating slippage because of: a) steady fall in BB & below loans; and b) dip in slippage from corporate & SME to 77% in Q4FY19 from average run-rate of 90% during Q1FY17-Q4FY18

Aggressive recognition of bad assets led to higher credit cost. This led to ICICI Bank’s RoA/RoAE dwindling from 1.7%/16% on an average over FY12-16 to 0.4%/3.6% in FY19 on back of ~3.3% average credit cost over FY16- 19 against 1.1% over FY12-16. We estimate credit cost to fall 1.4%/1.3% in FY20/FY21 as: a) incremental provision will be lower as the bank has made excess provision; b) slowing gross addition to GNPA; and) cost-income ratio is also expected to moderate. Therefore, RoA/ROAE will improve from 0.3%/3.6% in FY19 to 1.7%/17% by FY21E. Driven by all the above factors, we recommend a ‘BUY’ on ICICI Bank with a target price of Rs 493.

JMC Projects (JMC) is a formidable player in South India with three decades’ experience in civil construction business underscored by well acknowledged expertise in building construction and structural work. The Kalpataru Group taking majority (67.19%) control and infusing professional management has further burnished the company’s already well established credentials.

Robust order book, government’s infra push, B&F expertise: Potent EPC business boosters

The company has also created a niche for itself in the B&F segment in South India and established a strong brand by dint of quality work and timely execution, rendering it the preferred construction partner for private real estate developers. Public projects contribute significantly to the company’s overall order backlog and the government’s infra push—Smart Cities, Housing For All, AIIMS and IITs—is bound to further augment JMC’s growth.

JMC constructs residential townships, institutional buildings, official spaces, IT parks, education institutions, hospitals and hotels under the B&F segment. L&T and Ahluwalia Contracts (Ahluwalia) are the company’s competitors in South and North, respectively. The company has created a niche for itself in the B&F segment in the South India market and has established a strong brand among end customers (retail home buyers) by dint of quality work and timely execution, rendering it the preferred construction partner for private real estate developers.

Orderbook reported at Rs 10,400 crore in FY19; Order-inflow continued to remain strong

JMC’s current order-book stands at Rs 10,400 crore , a 31% growth YoY. Despite overall slowdown in ordering activity in FY19, the company managed to get an order inflow of Rs 5,600 crore in FY19, in line with management guidance of Rs 5,000 - 5500 crore. Also, Infrastructure now constitutes 56% of orderbook, which indicates increasing focus in this segment.

Expected 20% top-line growth for FY20E, Standalone EBITDA margin improvement

Continuing with its strong growth momentum over last 2 years, JMC’s management maintained 20% growth guidance for FY20E as execution momentum is expected to continue even in next year with strong expected order inflows. After four years of muted performance, JMC started to report growth in FY18 as projects across all segments started showing traction. We believe, JMC’s revenue to grow at 19% CAGR over FY19-21E to Rs 4,600 crore backed by execution of strong order book. Over last five years JMC has shown consistent improvement in its EBITDA margins increasing from 7% in 2014 to 10.36% in 2019. FY19 was a very good year as company reported highest ever operating margins of 10.4% and PAT margin of 4.4% FY19. Good top-line growth and strong operating and financial leverage have lead to these strong margin numbers and this trend is expected to continue in medium term.

Limited BOT Investment with low capex requirement to help sustain current levels of RoCE

JMC’s investment in its 4 BOTs subsidiaries has amounted to Rs 760 crore and the company has incrementally invested Rs 40 crore in FY19. Investment in subsidiaries now constitutes 44% of the standalone capital employed of Rs 1,728 crore. We expect due to high profitable growth in standalone EPC operation RoCE is expected to reach to 18% in FY21E as compared to 15% reported in FY19.

Valuation: Maintain BUY with a revised target price of Rs 180

At CMP of Rs 130, the standalone EPC business of JMC is trading at 9x of FY21E EPS (after putting 25% discount to the invested amount in 3 BOT assets and complete write-off of investment in one BOT asset).

KNR Constructions (KNR) has the rare distinction of being a wealth creator in India’s beleaguered infrastructure sector. This commendable feat has been underpinned by the company’s sustained growth and disciplined capital allocation. Besides capturing a higher share of the industry's revenue pool, the gain has been much higher at the net profit level—a testimony to KNR's strong fundamentals.

One of the primary reasons for KNR's sustainable growth and strong balance sheet is judicious project selection, rational bidding, and robust execution. Since listing, standalone debt/equity has always been lower than 1x. Moreover, it has maintained the best working capital cycle in the industry across business cycles and a healthy profit-to-cash flow conversion ratio. The company has never had high retention money in its balance sheet, implying timely execution and unwavering focus on the quality of work.

KNR has added 6 new HAM road projects over the last few months and that puts it's exit order-book as reported by company at Rs 4,015 crore. If we include Rs 1,800 EPC value of HAMs yet to start execution, exit order-book comes at Rs 5,900 crore, giving 2 yrs of revenue visibility. We believe, revenue will grow at 25% in FY20E and 23% in FY21E and reach to Rs 2,674 crore and Rs 3,279 crore respectively.

Operating margins are expected to remain at a healthy 17% level in FY20E and FY21E. EBITDA is expected to grow at 14% CAGR through FY19-21E.

The standalone debt of the company currently stands at Rs 264 crore and in that ~Rs 220 crore is from promoters. So, the company has very limited exposure to external liabilities. Also, as the company has sold 3 of its HAM projects, equity requirement on those projects will come down significantly and that will benefit the return ratios and cash flow generation going forward. We believe RoCE of the company is expected to rise to 23% by FY21E.

At CMP 282, KNR is trading at 13x FY21E EPS. To remain conservative we do not consider any contribution from the NPV of new HAM projects. We have a ‘BUY' recommendation on the stock with an SOTP based target price of Rs 332.

PSP Projects Ltd (PSP) is an efficient and organised constructor in the medium ticket size institutional and industrial construction segment in and around Gujarat. PSP’s tightly run operation, centralized control and focused approach has made the company most efficient amongst peers with highest net profit margins, negative NWC cycle, lean balance sheet and industry leading ROCE of 30%. The company has completed 97 projects across diverse segments within a decade of its operating history and is currently constructing 37 projects.

Projects in Gujarat dominate the order book of the company with 93% share. We believe, there are ample opportunities in the state of Gujarat (Gift City, Dream City, Riverfront) that will likely to suffice the growth potential of the company over the next few years. The management is confident of expanding its presence beyond Gujarat and is targeting to get 30% business from the other geographies compared with 13% presently.

Backed by a strong order-book of Rs 2,951 crore, the revenue of the company will grow at 40% CAGR over FY18-20E to reach Rs 1,486 cr in FY20E. With timely execution and strong track record of disciplined bidding, EBITDA margin is also expected to remain in the range of 13% –14% going forward. Due to its lean balance sheet structure, the company is also reported industry-leading PAT margins (of 8-9%) amongst peers.

As a result of the lean balance sheet, prudent working capital management, and profitable execution, the return metrics are the best in the sector and are expected to remain healthy going forward. RoCE of the company improved by 300 bps YoY to 31% in FY19.At CMP of Rs 523, the stock is trading at 14x/12x of FY20E/FY21E EPS. We maintain ‘BUY’ with a target price of Rs 590/share after assigning 14x PE multiple to FY21E EPS of Rs 42.

Sobha is one of the reputed South-India based developers with a strong track record of quality construction and timely delivery led by a backward integrated business model. The company has a robust pipeline of ongoing projects with improving pre-sales and aggressive launch pipeline.

Sobha currently has 59 projects registered and received approval under RERA, which translate in to developable area of 27.2msf (Sobha’s share: 24.0msf). Additionally, Sobha has a visibility of ~8msf of new launches over the next few quarters

Also, the pre-sales have improved consistently from 3.0msf in FY17 to 4.0msf in FY19, with sales value of over Rs 2,516 crore, supported by improving sales momentum in Gurugram and Cochin

Healthy contractual order book imparts significant revenue visibility. Currently, it is executing ~8.9msf across 26 cities and has an order book of Rs 2,344 crore, which gives a revenue visibility over the next 2-3 years

High quality land bank gives a cushion in a real estate upcycle. Sobha has a total land bank of ~2,444acres across 9 cities, with potential saleable area of 208msf.

When it comes to real estate, we prefer to value in terms of Net Asset Value, instead of P&L due to revenue recognition standards wherein actual numbers may flow into P&L at a much later stage than actual sales

Our NAV stands at Rs 682 per share, with 40% of value derived from ongoing & future projects (net of debt), 14% from its contractual & manufacturing business, 39% from land bank and balance 8% from refundable JDA deposits

We are very positive on AC business long-term potential due to low penetration in India (at 10-11%) vs 300% in Japan and >130-140% in China. Rising income, improved electrification, increasing urbanization and soaring temperature to increase penetration over long-term. In FY20, we are expecting strong rebound in profitability in AC segment due to favorable 2019 summer season coupled with slight improvement in margin due to weak commodity prices and operating leverage benefits.

Timely entry into fast growing white goods segment (refrigerator, washing machine, microwave and dishwasher) to increase Voltas target market size from Rs 16,500 crore to 60,000 crore. Given that Voltas has a strong distribution network and access to improved technology through JV partner (Arcelik which is Europe's largest consumer durable player), we believe entry into white goods space would take it among top 3 consumer durable player in India over the next five years. However, the benefit of the same would mainly come once it starts the manufacturing facility by Dec 2019.

Voltas is one of the best EPC play due to smooth execution of existing orders (which is reflected from book to bill ratio below 10-year historical average despite record order inflow and ROCE at eight year high level) and strong balance sheet with nil debt and cash balance of around Rs 2,200 crore.

Voltas textile, construction and mining machinery equipment segment to also benefit on any revival in capex cycle.

Voltas is trading at 40x FY20E and 34x FY21E, which is well above the historical average. Given that the product revenue share to rise in the future due to contribution from new JV, which gets 3-4x higher multiple than non-product segment, we believe the company's valuation multiple to continue to trend upward. We recommend a ‘BUY’ with a target price of Rs 709.