BIG BOSS VIKAS PARSHURAM SAMWATSARE  AND PARSADAM STOCK MARKET TIPS

INVESTMENT SHORT TIME

Accumulate BGR Energy Systems For Target Rs.274

 

Revenue declined by 19% YoY for Q2FY13 due to lower execution seen during Q2FY13.
*  Operating margins witnessed an improvement during Q2FY13 and stood at 15.1% due to higher proportion of BOP project execution.
*  Net profit performance was impacted by decline in revenues and increase in interest outgo.
*  At current price of Rs 269, stock is trading at 10.3x and 10.8x P/E and 7.5x and 8.5x EV/EBITDA on FY13 and FY14 respectively. We tweak our FY13 and roll forward our target price on FY14 estimates and arrive at a revised price target of Rs 274 (Rs 325 earlier). We believe that order inflows from the power sector in the BoP and EPC space continued to remain lackluster and further delays have been witnessed in award of NTPC bulk tenders. Thus, we continue to maintain ACCUMULATE recommendation on the stock.
 
Valuation and recommendation
*  At current price of Rs 269, stock is trading at 10.3x and 10.8x P/E and 7.5x and 8.5x EV/EBITDA on FY13 and FY14 respectively.
*  We tweak our FY13 and roll forward our target price on FY14 estimates and arrive at a revised price target of Rs 274 (Rs 325 earlier).
*  We believe that order inflows from the power sector in the BoP and EPC space continued to remain lackluster and further delays have been witnessed in award of NTPC bulk tenders.
*  Thus, we continue to maintain ACCUMULATE recommendation on the stock.
   
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Accumulate Ge Shipping Company For Target Rs.286


GESCO has reported net profit of Rs 972 mn (+239% YoY) slightly below our expectation of Rs 1.02 bn. On the back of increased demand of crude and petroleum products, freight rates for crude tankers and product carriers remained firm throughout the quarter. This was also supported by slow steaming of vessels and increase in long haul shipments. But steady fleet growth capped any significant spurt in the freight rates. Chinese New Year holidays, weather related issues in key exporting ports of Brazil & Australia and increase in new building deliveries kept the bulk market weak. The offshore segment was strong in the quarter with crude prices firming in the quarter. The share of Greatship India Limited (GIL), the offshore subsidiary has increased to ~45% in the total revenues (from 35% QoQ). The company continues to be net seller of the ships in the market and currently has a small fleet of 33 vessels or 2.60 mn dwt. Consequently consolidated revenues have remained flat YoY amidst decreasing fleet size, stable tanker market and weak bulk segment. Profit was aided by profit on sale of ships of Rs 652 mn and reversing of Rs 294 mn from finance cost. Earnings for shipping companies' continue to be very volatile. We expect the cyclical weakness in the shipping market to continue for another two quarters. We expect the shipping segment of GESCO to report flattish/declining numbers YoY amidst declining fleet of the company as the company continues to discard old ships. However we expect the offshore subsidiary, GIL in which the parent is incurring heavy capex to show healthy growth of 20% CAGR over the next 2 years in revenues and profitability. Overall we expect the company to report 6% CAGR in revenues and 12% CAGR in profitability over FY12 to FY14E with subdued return ratios. We value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 with an ACCMULATE rating. We estimate the asset prices to remain stable in near term for shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade.
Valuation and recommendation:
We like GESCO's strategy of discarding old and single hull vessels judiciously which enabled it to realize substantially greater asset price, which multiplied its profit generating potential over years. The balance sheet position of the company is also very healthy with current net debt to equity at a comfortable 1.0 x. With oil price above $100 per barrel, the offshore segment (GIL) is expected to add significant value to the consolidated entity. Company is making significant capex of $210mn for GIL in FY13E.
Historically GESCO has traded at a discount of 30% to its Net Asset Value or Asset Replacement Cost. Using NAV (35% discount - assigning higher discount), we value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 per share. We re-iterate Accumulate rating on GESCO with a price target of Rs 286. We estimate the asset prices to remain stable in near term for
shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade
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Buy Greaves Cotton Ltd. For Target Rs.85


* GCL earnings were flat for the quarter given decline in 3W industry volumes. EBITDA margins were lower due to margin decline in core business
of engines as well as due to continued loss in infrastructure equipment division.
* Valuations are attractive for a company with high return ratios of ~ 20%. We maintain BUY with a revised target price of Rs 85 (Rs 84 earlier)
* Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise 3W LCV volumes which is the stronghold of GCL. We would remain
watchful about this emerging threat.
Valuation
GCL is currently trading at 12.0x and 11.2x FY13 and FY14 earnings respectively. While industry outlook remains weak, we believe valuations are reasonable at this price. Hence maintain BUY with an revised DCF based price target of Rs 85 (Rs 84 earlier).
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