KEC International (NS:KECL): KEC reported robust execution with revenue at Rs 43.6bn (10% beat), driven by non-T&D segments. However, margin contracted by 197/95 bps to 8.1% due to SAE EBIDTA loss of ~Rs 0.7bn (higher commodity prices and overhead/idling costs). Margins could deteriorate further if commodity prices inch up further. FY21 order inflow stood at Rs 119bn, taking the order book (OB) to Rs 191bn (Rs 250bn with L1). Despite the lockdown, all sites are operating. With robust prequalification in domestic/international markets and across sectors, KEC is well-placed for a re-rating. However, sustained higher commodity prices could impact the margins. We maintain BUY on KEC with a reduced target price of Rs 452/sh (Rs 476 earlier), 14x Mar-23 EPS.
Sonata Software (NS:SOFT): Sonata posted better-than-expected growth in the IT services business (IITS), led by strong growth in Microsoft (NASDAQ:MSFT) portfolio (+10.2% QoQ) and recovery in Travel (+9.0% QoQ). Revenue from Microsoft related services (product engineering + dynamics implementation and upgrade) is now ~50% of IITS and is expected to deliver high teens growth. The Microsoft Dynamics modernisation program is a multi-year opportunity and Sonata is constantly investing in this segment. Travel has recovered but TUI will accelerate when leisure travel resumes in Europe (expected in 2Q). The IITS EBITDA margin contracted 543bps QoQ due to a wage hike, which was higher than the historical average. The company has stepped up hiring; offshore and utilisation (89%) are at peak levels, while the target margin range for IITS is ~22-24%. DPS growth was impressive (+26% YoY), driven by higher cloud adoption (~75% of DPS is cloud) and annuity revenue. Sonata’s growth profile is improving, led by the Microsoft ecosystem, recovery in Travel, and traction in DPS business. We increase our EPS estimates by +3.6/3.7% for FY22/23E and multiple to 18x (earlier 16x). Our target price of INR 685 is based on 18x FY23E EPS. Maintain BUY. The stock trades at a P/E of 18.8/15.4x FY22/23E.
Kalpataru Power (NS:KAPT) Transmission: Kalpataru Power (KPTL) reported in-line revenue/EBITDA at Rs 23.3/2.4bn. However, APAT missed our estimates by 12% on higher than expected interest cost and taxes. The impact of CTC provision of Rs 1.4bn, to account for higher commodity prices, was negated by the reversal of earlier provisions. It received orders of Rs 84bn during FY21, taking the order book (OB) to Rs 139bn. Management has guided for 10-15% top-line growth in FY22. However, margins could come under pressure on sustained higher commodity prices as 60% of OB is fixed price. KPTL remains on track to achieve net-zero debt status by 1HFY22, with (1) divestment of transmission assets coming to an end, (2) Indore real estate monetisation picking up pace and, (3) Shubham Logistics operation performance improving. We maintain BUY on KPTL and increased the target price to Rs 560 (vs Rs 553 earlier), to account for higher EPS from JMC Projects.
Mahindra Lifespace Developers Ltd. (NS:MALD): Mahindra Lifespaces Developers Ltd (MLDL) reported an operationally strong quarter with pre-sales value/volume growing 77%/67% sequentially to Rs 3.5bn, driven by four new launches. For FY21, MLDL registered de-growth in pre-sales value/volume of 15%/25% as 1HFY21 was impacted due to COVID-19. Labour availability has reduced to 60% and is expected to ramp up by 1QFY22 end as COVID-19 impact reduces. Over the last 9M, MLDL has added 3 land parcels with ~Rs 15bn presales potential and is in advance stages of negotiation on land parcels with the presales potential of Rs 45bn. Residential presales/IC business leasing guidance of ~Rs 25/5bn annually by FY25 remains intact. Given a strong growth trajectory, robust balance sheet, trustworthy brand and tailwinds for organized players, we remain constructive on MLDL. We maintain BUY with an SOTP valuation of Rs 773/sh.
Read the full article here: