Cyient (CYL IN, Neutral, FV Rs480.00) Margin outlook leads to low visibility


Cyient has outperformed the BSE IT index by c.12% in the past three months. This run-up in the stock price, we believe, was largely due to expectations of: 1) double-digit revenue growth; and 2) an uptick in margin in FY17, based on management guidance and the absence of headwinds seen in FY16. However, with Softential still not delivering the expected ramp up and a second round of wage hikes in Q2, the company has cut back their margin guidance for FY17. We believe that the market will take this sudden shift as negative as this adds to business uncertainty. Given that the stock is trading at 13.8x FY17 P/E on our revised estimates and continued visibility concerns, we do not expect upside from the current level and hence downgrade the stock from Buy to Neutral. We are cutting our FY17 EPS by 12% and reducing our FV to Rs. 480 from Rs. 575.

For PDF see link

LIC Housing results Q1FY17

Key highlights

  • Loan book came at Rs 1.27 trn, up 15% yoy; Individual Loan book growth at about 15% yoy; PAT growth for Q1FY17 was 7%, lower mainly owing to higher provisions (Extra provisioning of Rs 92 cr on account of developer book loans)
  • NIMs came in at 2.61%, improved by 20bps YoY & down 10bps QoQ
  • Gross NPA at 0.59% vs. 0.60% QoQ; Gross NPA for Individual loan at 0.35% vs. 0.36% QoQ


Our view

  • We see limited headwinds for NIMs for LIC Housing to improve further, given it has already improved significantly over the last 1 year.
  • Also we are not comfortable with the increase in proportion of non-Individual book, given its positioning as  a Defensive in a defensive sector.

o   Loan book mix has moved more towards LAP and developer book ( Individual: 88%, LAP: 9% and Developer 3%) compared to 93% individual book  as of FY15

o   Extra provisioning of Rs 92 cr on account of developer book loans

  • Thus maintain our NEUTRAL stance.


Hindustan Unilever Q1FY17 results expectations

  • We expect HUL to report a 7% YoY growth in revenues led by a 5-6% YoY growth in volumes (Q4 volume growth at 4%).
  • EBITDA margins are likely to improve by 70 bps YoY to 19.3% largely led by better gross margins (EBITDA growth of 11.2% YoY). A&P spends are likely to remain elevated at ~14% of sales (flattish YoY).
  • PAT is likely to grow 9.2% YoY to Rs 11.5 bn (we are in-line with consensus).
  • Key things to watch from the results and earnings call would be volume growth, commentary on demand outlook (specifically rural) and competitive intensity in the sector.
  • Stock trades at a PE of 44x/ 37x FY17/ FY18 earnings. We have a NEUTRAL rating with a Mar’ 17 FV of Rs 900


News: L&T to sell 15% stake in L&T technology services via IPO and raise Rs10bn(Link)

  • This is again in-line with L&T’s strategy to reduce non-core exposure.
  • We are valuing this subsidiary at INR62bn and hence the valuations as quoted by the news article is in-line.
  • We have a Neutral rating on the stock.


News: Maha-discom to pay 16,000 crore for power it will never need!; Few MLAs ask for scrapping PPAs (Link)

  • Mahadiscom has signed PPAs in excess of its requirements, so will have to pay capacity charge even if it does not take power.
  • The total back-down compared to total peak summer demand of 17000MW is – 6379MW in FY17, 8961MW in FY18, 7257MW in FY17
  • Few BJP leaders accusing previous government for this mis-calculation and are levelling charges of corruption on them. They want these PPAs to be scrapped.
  • If these are signs of things to come, private utilities will be negatively impacted. On the positive side, power prices may come down aiding demand.


Monsoon session of the Parliament starts today – Congress says that want to create a consensus on GST Bill; Positive for logistics companies (Link)

  • Congress said, they will support in running the house and support the bills which will be in the interest of the nation, people and growth
  • The GST tussle between Congress and BJP has been going on for long where Congress has objected to the proposed levy of 1% additional tax on inter-state sales and wanted states to not have the power to levy additional tax over 18%


  • We believe that GST implementation benefit is non-quantifiable and back-ended, hence we are not overly positive and believe the impact may take 3-4 years to be seen
  • One impact is definitive that the organized segment will start gaining market share from the unorganized segments.
  • We have

o   Buy rating on Concor – Domestic business Domestic business (20%) will get a boost due to increase in demand for multi-modal container terminals

o   Buy rating on Gateway Distriparks – Domestic CTO business (10% of CTO) will see higher volumes due to increase in containerzation led by consolidation of warehousing

o   Buy rating on VRL Logistics and Neutral on Blue Dart – GST will aid in shift in market share from unorganized to organized players and increase in lead distance due to warehouse consolidation


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