!! OM SAI RAM !!
             BIG BOSS 
VIKAS PARSHURAM SAMWATSARE

 DEC 3/12/12


 
Medium to Long term investment.
Buy RCF- Good Bet In Urea Segment For Target Rs.62.00




Rashtriya Chemicals and Fertilizers Ltd (RCF) is a leading urea player in the fertilizer industry. Urea alone contributes 46% of the top line. The company also manufactures and markets other fertilizers such as Complex Fertilizers, DAP, MOP, and SSP as well as industrial chemicals such as Methanol, Ammonia, Ammonium Nitrate Melt, Methylamines, and Ammonium bi-carbonate. Rubber, chemical, pharmaceutical, dyes, leather and real estate industries are the key customers for the industrial products.
Investment Rationale
* Capacity expansion to boost top-line growth- The ammonia and urea capacity expansion in Q1FY13 is likely to boost the company’s top-line growth FY13 onwards. In addition to that, RCF has huge capacity expansion plans in urea, ammonia, nitric acid, SSP, ammonium nitrate at Thal and Talcher, which will be funded with the combination of debt and equity.
* Government divestment is likely to improve performance as well as liquidity in the stock.
* RCF is planning to do long term contract for one of the key raw material named rock phosphate to ensure uninterrupted supply, which is likely to improve margins.
*  The expected urea investment policy is likely to encourage capital investment in the urea segment. This could reduce dependency on import that may decrease Govt expenditure too some extent.
* RCF has entered into Joint Venture with FACT in FY13 for manufacturing of plaster wall and panel which are sold mainly to the builders.
Valuation
At the CMP of `52.4, the stock discounts it’s FY13E and FY14E EPS of `5.43 and `6.92 by 9.65x and 7.57x. Due to the expected urea investment policy, Govt divestment, capacity expansion plans and looking out for long term raw material contract, we are bullish on the company, but being a PSU company and its presence in the Govt regulated industry, the implementation of projects might get delayed. Hence, keeping in view the above factors, we have assigned a P/E multiple of 11.42x to arrive at the target price of `62 for the stock. Any positive move in divestment and urea policy may change our target price in the upward direction.
Risk
* Volatility in the price of Rock Phosphate, Muriate of Potash, Mono-ammonium phosphate and natural gas and foreign currency fluctuation may impact profitability
*  Irregularity of monsoon is likely to impact the top-line of the company.
* The highly regulated industry may face risk in policy front and its implementation.



  Buy Apollo Hospitals Enterprise Ltd. For Target Rs.945.00



* Apollo Hospitals Enterprise Ltd. is the leading private sector healthcare provider which owns & manages specialty hospitals, clinics,
pharmacy retail outlets
* During the Second quarter ended the robust growth in the Net Profit of the company and it is rose by 49.28% to Rs. 832.40 million.
* Apollo has introduced India’s first 320-slice CT scanner.
* The company is planning to add 15 new hospitals and 3,140 owned beds by the end of the financial year 2015.
* Apollo has entered into partnership with healthcare division of Philips offer MRI guided high intensity focused ultrasound solution.
* Apollo entered into agreement with Cytori Therapeutics to offer Celution R system in India, to provide the best-in class regenerative medicine technology.
* The company signed an agreement with Govt of Tanzania to start 250-bed super-specialty hospital offers world class healthcare services.
* Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively.
 
Outlook and Conclusion
* At the current market price of Rs.844.00, the stock P/E ratio is at 38.85 x FY13E and 32.50 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.21.73 and Rs.25.97 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 19.94 x for 17.41 x respectively for FY13E and FY14E.
* Price to Book Value of the stock is expected to be at 4.36 x and 3.90 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.945.00 for Medium to Long term investment.



 Buy Redington India Ltd. For Target Rs.98



Results were in line with expectations. H2FY13 expected to be better.
Revenues grew 7.8% YoY to Rs.5860 crore on the back of good traction in the overseas revenues which grew by 21% YoY. India revenues were down 4% YoY but up 5.6% QoQ EBIDTA margins were flat YoY. PAT after minority grew 19% YoY on the back of lower tax rate.
India Operations – High Valued Products aided the growth
India business in the H1FY13 was quite subdued due to lower government spending. In the current quarter, India business de-grew 4% YoY mainly on the back of significant drop in the Blackberry sales which were down by 40% YoY.  However, Blackberry sales have picked up in the current quarter and the management expects the non-IT segment of the India business to do well in the H2FY13 on the back of launch of iPhone-5 in India. Consequently, the IT business in India is also picking up with the company bagging a large UIDAI project during the quarter.
Company has reiterated a growth of 14-16% in the India business in FY13E.
Overseas Operations – Arena improving; African operations growing
Overseas sales saw good growth of 21% YoY on the back of good sales in Lenova, Acer and Toshiba. Company had discontinued contract with Nokia due to want of exclusivity and added Samsung in the African markets. Though Samsung’s share is slowly growing in the African market, management cites 6-8 quarters before reaching sales equal to earlier Nokia sales. In addition, Arena EBIDTA and PAT have grown well in the quarter on the back of stable Turkish currency.
Guidance
Company has given a guidance of 14-15% growth both for India as well as the Overseas business.
Valuation & Recommendation
Management has given a positive commentary for the business in H2FY13. Mismatch in the loss of Nokia revenues and gain of Samsung market share would be very well bridged by taking in more contracts in the African markets (with no exclusivity clause in Samsung contract). Moreover, India business is also growing well against the subdued growth in the past few quarters. We are rolling over our target price to Rs.98 based on the FY14E projections which is 20% return from the current levels. At CMP, the stock is trading at a P/E of 10.4x and 8.9x of its FY13E and FY14E earnings respectively. We are positive about the outlook of the company and recommend BUY at current levels.


 Buy R S Software India Ltd For Target Rs.191.00





R S Software India Ltd is engaged with the world’s largest payment card association/ network & working for leading payment processor in US & UK.
* During the first quarter ended the robust growth in the Net Profit of the company and it is rose by 50.48% to Rs. 94.80 million.
* CARE has upgraded RS Software's credit rating from CARE A- to CARE A for shortterm facilities.
* The company allotted 15,50,000 Convertible Warrants on preferential basis to the Promoter @ Rs.51.86 per warrant to be converted into equity shares @ 10/- each at the ratio of 1:1, 3, 90,000 convertible warrants were converted into equity shares.
* R S Software has added 2 clients around long-term contracts with Y-O-Y price escalation clause.
* Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 27% over 2011 to 2014E respectively.
 
Outlook and Conclusion  
* At the current market price of Rs.169.00, the stock P/E ratio is at 5.33 x FY13E and 4.26 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.31.69 and Rs.39.68 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 27% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 1.82 x for FY13E and 1.42 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.56 x and 1.14 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.191.00 for Medium to Long term investment.
  


Buy PI Industries Ltd. For Target Rs.605



Results below expectations; Agri Inputs surprises!

PI Industries (PIIL) reported Revenues of Rs 298.4 cr for the quarter, a growth of 21.7% yoy led by strong 28% yoy growth in the domestic Agri Inputs business (mainly on volume growth) as sales picked up with late showers in August- September. Custom Synthesis Manufacturing (CSM) growth slowed to 12% yoy on high base effect.

While the Management believes its revenue guidance of 30% for FY13 is achievable on the back of better performance of CSM business in H2FY13, we believe this sort of a growth would be achievable only if the rabi season turns out to be favorable. PIIL revenues have grown 19% yoy in H1FY13. Low base of Agri Inputs business in last year can help achieve the targeted growth. Hence, a good rabi season holds the key to the guidance.

Key Highlights

*  EBITDA grew 16.1% yoy on account of lower other expenses but declined 11.5% qoq on higher raw materials cost and high employee costs. EBITDA margin for the quarter was lower at 14.6% as compared to 15.3% in Q2FY12 and 20.6% in Q1FY13 on account of change in product mix (higher domestic sales). EBITDA margin should improve with higher share of CSM going forward

*  Forex gain of Rs 2.13 cr during the quarter (loss of Rs 1.27 cr in Q2FY12) aided 33.1% yoy PAT growth

*  Jambusar SEZ plant commissioning has been delayed to Q3FY13. The plant is expected to contribute about Rs 35-40 cr for the remaining fiscal year

*  The CSM order book stands at ~$305 mn. Management expects 40% yoy growth in CSM revenues in FY13. We expect H2FY13  performance to be better with some big contracts currently being under discussion

*  The outlook for the domestic business is also positive based on expectations of good rabi on higher acreages due to good rains








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