Buy JSW Energy, Exide, IOCL, Persistent Systems: Motilal Oswal

Motilal Oswal’s research report on JSW Energy target of Rs 84

JSW Energy (JSWE)’s results reflect the impact of lower merchant sales volumes due to subdued merchant prices. However, this was partly offset by operational efficiency measures. At the consolidated level, EBITDA was down 5% YoY at INR6.0b. n Debt reduction continues, with net debt (incl. acceptances) coming in at INR73.4b (v/s INR98.1b at the end of FY20). Interest cost has also decreased 27% YoY. Furthermore, FCF generation would remain strong given ~80% of JSWE’s capacity is tied up in long-term power purchase agreements (PPAs). Maintain Buy, with TP of INR84/sh.


We maintain Buy, raising our TP to INR84/sh (earlier INR73/sh), led by the higher value of its stake in JSW Steel and factoring in strong debt reduction.

Motilal Oswal’s research report on Exide target of Rs 233

Exide (EXID)’s 3QFY21 performance was driven by strong gross margins, partially offset by higher staff cost. We expect strength in the aftermarket to continue with the shift from the unorganized to the organized segment. n We upgrade our EPS by 9.4%/3.8% for FY21/FY22E, factoring in stronger revenues and gross margins. Maintain Buy, with TP of ~INR233/share.


The stock trades at 22.4x/18.3x FY22/FY23E S/A EPS. Maintain Buy, with TP of ~INR233 (~16x S/A Mar’23E EPS + INR25/share for the Life Insurance business).

Motilal Oswal’s research report on IOCL target of Rs 142

Better marketing and petchem margins, along with lower refining opex of USD2.5/bbl (v/s USD3.3–3.5 in 3QFY20–2QFY21), resulted in a beat on EBITDA. n Adjusted. (for inventory gains) EBITDA stood at INR70b (v/s our est. of INR60b). Notably, inventory gains were ~INR6.6b higher than estimates. n IOCL declared an interim dividend of ~INR7.5/share (resulting in dividend yield of ~8% on CMP). n Among the OMCs, we reiterate IOCL as our top pick, on the back of a diversified EBITDA mix (Marketing: 43%, Refining: 23%, others: 34% in FY19) – with the best free cash flow generation profile going forward. n The stock is trading at 6.5x FY23 EV/EBITDA and 0.8x FY23 PBV. Valuing it on 1.2x Sep’22, we recommend Buy, with Target Price of INR142.


Now that the company is out of its capex cycle, it is expected to report positive FCF yield of 15–18% over FY22–23 (despite heavy capex of INR260b in FY21). IOCL’s debt stands at INR724.5b (unchanged QoQ).

Motilal Oswal’s research report on Persistent Systems target of Rs 1800

Persistent (PSYS) reported better-than-expected USD revenue growth of 7.4% QoQ in 3QFY21, driven by seasonality in the Alliance business (+12% QoQ) and growth in the Technology Services business (TSU, +6% QoQ). The EBIT margin expanded 60bp QoQ to 12.7% despite the two-month impact of a wage hike (200bp) and c15% increase in the workforce during the quarter. n It also reported order bookings of USD302m, the highest in the recent past. Of this, USD175m (1.2x book-to-bill) came from new deal wins. n PSYS has delivered best-in-class growth in the TSU business, reporting 4.4% CQGR over 1QFY20–3QFY21, aided by improved operational focus. We expect the company to continue the momentum in the TSU vertical and deliver a 16%+ FY21–23E CAGR as new deal wins scale up. n Over and above TSU growth, PSYS’ management has guided for a strong rebound in its troubled Alliance business (flat revenues over the last six quarters) – as new deals and acceleration in the Cloud business with IBM should help improve performance. We see this as a key positive as it should help PSYS deliver strong 16.5% USD revenue growth in FY22, despite a high FY21 base effect (12.1% YoY estimated). n Strong revenue growth (including at Alliance) should help PSYS deliver 120bp margin improvement over FY21–23E, leading to 20% PAT growth over this period. n We upgrade our EPS estimates over FY21–23E by 6–8% as we gain further confidence on growth and margin momentum. We reiterate Persistent as our top Buy across our small-cap IT coverage.


The stock is currently trading at 19x FY23E EPS. Our Target Price is based on 22x FY23E EPS