Buy TV18 Broadcast For Target Rs.40


TV18 Broadcast has reported strong 3QFY13 result - positive net subscription revenues, continued cost containment, stronger performance of new
channels, and higher profits in the motion pictures business have contributed to a positive earnings surprise. Drivers of the subscription revenue growth story for the company remain in place, with strong performance from Colors. While near-term financials are likely to be impacted by higher spends in ETV non-news channels, we believe a part of the same shall be offset by break-even/ lower losses from new channels. Maintain our rating (BUY) with a price target of Rs 40 (unchanged).

Valuation and recommendation
We maintain a positive stance on TV18 post the results. Although the company is set to register increased spends on ETV non-news channels, and employee expenses in general, over the next few quarters, we believe the same will be wellmatched by growth in subscription revenues, and reduction of losses in several new channels of the company. We believe that strong performance by Colors in the past quarter shall help advertising revenues in the fourth quarter. The fourth quarter is also a seasonally strong quarter for the business news channels (on account of the budget). Near-term earnings risks are, to that extent, contained. TV18 Broadcast continues to be our preferred play on DAS rollout. Maintain BUY with a price target of Rs 40.
  Buy Swaraj Engines Ltd. (SEL) For Target .612


SEL reported its Q3 FY13 numbers below street expectations. The company witnessed 7% YoY increase in the revenue to Rs 1.24 bn against street expectation of Rs 1.29 bn led by lower realization despite increase in volume. The company’s engines sales volume increased by 6.24% from last quarter to 15,288 units. Average realization stood at Rs. 80,776 in Q3FY13 vs. Rs. 83,877 in Q2FY13 and Rs 81,300 in Q3FY12. Net profit decreased by 2% YoY and 2% Q-o-Q to Rs 138 mn vs. consensus of Rs.159 mn. EBITDA margin slipped 76 bps y-o-y and 56 bps q-o-q to 14.8%.
Raw material prices came down (as a percentage of revenue) to 76.3% from 77.2% in Q3 FY12. Other expenses have increased (as a percentage of revenue) from 3.2% in Q3 FY12 to 4.3% in Q3FY13 while staff cost increased (as a percentage of revenue) from 4.1% Q3 FY12 to 4.6% in Q3FY13.
The PBT margin decreased 161 bps y-o-y to 15.9% due lower EBITDA and rise in depreciation. Depreciation grew by 108% to Rs 21 mn due to recent capacity expansion. PAT decreased 2% YoY and 2% Q-o-Q to Rs 138 mn. Other income increased by 26% y-o-y to Rs 36 mn.

Valuation
Domestic tractor market is showing some signs of weakness over the last couple of months on the back of slowdown in the rural sector. However, long term structural story remains intact with acceleration in the pace of mechanization of Indian agriculture. In addition to this, the increasing usage of tractors in non-agri related activities like passenger transportation and carrying material for industrial/ construction purposes would enhance the owner’s capital efficiency in non-farming seasons thereby increasing demand. Hence, we believe SEL is best poised to take the advantage of robust growth in tractor industry. At the CMP of Rs 493 SEL is trading at 11x FY13E EPS. We believe current valuation is too low for a company that has large cash on its book, zero debt, has consistently paid high dividend (dividend yield 2.5%). We maintain our buy rating on the stock with target price of Rs. 612.

Buy Kpit Cummins Infosystems For Target Rs.141


Our recent interaction with the company makes us believe that, KPIT has not witnessed any incremental demand slowdown in 3Q. Verticals  like Automotive and Energy & Utilities continue to witness order bookings, with some delays. SAP BU and Europe continue to be sluggish.  We understand that, the company has decent visibility on revenues, going ahead.
The preferential allotment of shares will lead to dilution of  about 7.3%. It may have a marginal impact of about 4% on FY14E earnings but, will also provide additional liquidity to pursue inorganic  initiatives. 3Q revenue growth may be lack-lustre because of seasonality and sluggish demand trends, as guided by the company earlier. We fine-tune FY13E EPS to Rs.11.3 and FY14E EPS to Rs.12.5. Our FY14E-based TP stands at Rs.141. At our TP, the stock will be valued at about 11.2x FY14E earnings. This is a suitable discount to larger peers. We remain positive on the long term prospects of KPIT and maintain BUY. However, the stocks may remain range-bound in the near term.Buy MindTree For Target Rs.870


Mindtree's (MTCL IN) 3QFY13 results were operationally in line, while the company's bullish outlook on growth expectations in FY14 was a key highlight. Its early conversations with clients imply growth acceleration in FY14 and much improved performance in the troubled PES segment.
 * Revenues in 3Q grew by 2.5% QoQ to USD109.9m, v/s estimate of USD109.4m. Volumes declined 0.7% QoQ (v/s estimate of 1.3% growth), which was offset by realization improvement of 3.4%. However, declining volumes was not a concern as adjusting for seasonality, volumes would have grown 1.8% QoQ. The 2.5pp impact on volumes came from lower working days (1.4pp impact) along with leaves and customer shutdowns (1.1pp impact). Better productivity during the quarter was a function of driving greater efficiencies in fixed price contracts, revenue contribution from which increased by 350pp QoQ to 42.3%.
* EBITDA margin at 20.4% declined 170bp QoQ, in line with our estimate. While productivity was a tailwind during the quarter, it was offset by 140bp QoQ increase in SGA, with the company ramping up its hunting resources to prepare for growth. PAT at INR988m was above our estimate of INR868m, driven by forex gains of INR141m during the quarter.
* Our estimates are changed only marginally to reflect higher realization base and guidance of slightly higher tax rate. EPS estimates are up by 0.9%/2.2% for FY14E/15E. Mindtree's recovery has been impressive following the organization restructuring and significant changes in  leadership. However, continued execution on client mining remains crucial to the company's growth. Early indicators from dialogues with clients bode well for the company on that front. Maintain Buy.

Valuation and View
We expect Mindtree to grow its USD revenues at a CAGR of 12.4% over FY13-15E and an EPS CAGR of 6.5% during this period. Lower EPS CAGR is a function of our moderation in EBIT margin outlook, driven largely by currency and impact from wage hikes which do not get fully absorbed at low double digit growth rates in our view.
Mindtree trades at 8.5x FY14E and 7.9x FY15E EPS. The company's recovery has been impressive following the organization restructuring and significant changes in leadership, followed by a slowdown in FY13 as PES segment remained sluggish. Continued execution on client mining remains crucial to growth at Mindtree. Early indicators from dialogues with clients bode well for the company on that front. Maintain Buy.
  Buy Hindustan Zinc For Target Rs.157


Strong Performance To Continue; Retain Buy
Hindustan Zinc (HZL) organised a conference call for analysts today regarding its 3QFY13 performance. We have fine tuned our volume estimates for FY13 and FY14 post guidance by the management, while we have also revised our London Metal Exchange (LME) price assumption considering the recent strength. The above factors resulted in 4%/0.4% drop in EBITDA/PAT estimates, respectively, for FY13E.
On the other hand, FY14E’s EBITDA/PAT stand revised upwards by 1%/7%, respectively. We have also revised our other income assumption and tax assumption post the management’s guidance for FY13 and FY14. We have retained our Buy recommendation on the stock, keeping the target price unchanged at Rs157 (5.0x FY14E EV/EBITDA).

Following are the other takeaways:
* The company has indicated mined metal output of 260,000-270,000tn in 4QFY13E as compared to 223,000tn in 4QFY12, which would take FY13E output to 870,000tn compared to 830,086tn in FY12. It has targeted 1.00mt of zinc-lead concentrate production in FY14E, while we have estimated an output of 0.93mt.
* The company is likely to sell zinc concentrate in 4QFY13 as it is sitting on around 60,000tn of concentrate inventory, while concentrate  production is likely to be higher than refined production in 4QFY13 as well. It plans to sell over 700,000tn of refined zinc and concentrate in FY13E.
* Refined zinc and lead output is expected at 190,000tn and 35,000tn in 4QFY13E, in line with the company’s expectation. The management plans to achieve 1.00mt of refined zinc-lead production in FY14E, while we have estimated 0.91mt of production.
* Integrated silver production is likely to be around 100tn in 4QFY13E, while the company has given guidance of 400tn of integrated silver  production in FY14E. We have assumed 382tn of integrated silver production in FY14E.
* The company was expecting around 16-18% drop in costs/tn in 2HFY13E at the 2QFY13 post-result conference call. However, the decline was only 4% due to lower refined zinc production and a sharp correction in sulphuric acid prices. The diesel price hike of Rs10/litre will push up costs to around US$20/tn (2.4% increase in costs).
* Considering the high gestation period involved in mining expansion, HZL would go for refining capacity expansion. Beyond the mining project capex of US$250mn/year, the company is looking a sustaining a capex of US$40mn-US$50mn each year.
* The company has indicated an investment yield of 8.5% post tax after considering the softness in government bond yields in the past few weeks.

  Buy Atul Ltd For Target Rs.409.00


Atul Ltd is a member of Lalbhai Group, one of the oldest business houses of India, with interests mainly in textiles and chemicals.
Atul Ltd operates in six business division namely Agrochemicals. Aromatics, Bulk Chemicals & intermediates, Pharmaceuticals Color, & Intermediates and Polymers.
During the quarter, the Life Science Chemicals segment of the company generated 16% growth of revenue to Rs. 1787.00 millions as compared to Rs. 1537.80 millions in corresponding quarter of previous year.
During the quarter, the robust growth in the Net Profit of the company, increased by 8.31% to Rs. 279.00 million.
Gujarat Pollution Control Board has permitted to restart manufacturing operations at Valsad site.
Atul Ltd owns Subsidiary marketing companies in Brazil, China, Germany, the UK and the USA.
Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 22% over 2011 to 2014E respectively.

Outlook and Conclusion
At the current market price of Rs.361.50, the stock P/E ratio is at 7.34 x FY13E and 6.62 x FY14E respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.49.28 and Rs.54.57 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 22% over 2011 to 2014E respectively.
On the basis of EV/EBITDA, the stock trades at 4.91 x for FY13E and 4.49 x for FY14E.
Price to Book Value of the stock is expected to be at 1.36 x and 1.13 x respectively for FY13E and FY14E.
The Third Quarter witnesses a healthy increase in overall sales as well as profitability on account of Innovative products,. We expect that the company surplus scenario is likely to continue for the next three years with new New Business like Commercialization of 6 formulations in Crop Protection, Introduction of 3 products in Pharma & Inters, Launch of 23 products and (or) formulations in Polymers, Purchase and integration of Polygrip brand and sales, Exclusive distributorship of WD-40 for India, So, the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.409.00 for Medium to Long term investment.
  Buy Bata India For Target Rs.920


BATA INDIA (BATA IS EQUITY) – WEEKLY
Given below is the weekly chart of BATA INDIA. The stock has been in a long term uptrend but after making a high of Rs 989.5 in October 2012 it  has been consolidating with a negative bias. Currently the stock is near the weekly trend line support formed by joining the lows of February 2010 and February 2011 which coincides with the 38.2% retracement level of the entire rise from January 2012 to October 2012. BATA INDIA can be accumulated around Rs 809 – Rs 818 which is expected to provide strong support to the stock.
In the previous uptrend the weekly RSI broke above the 60 levels establishing a Bullish Range therefore the current RSI level of 40 should also act  as a support.
We initiate a Buy call on BATA INDIA with a Target of Rs 920. Traders can keep a stop loss at Rs 785 on a closing basis.



Buy ICICI Bank For Target Rs.1,400

Set for the next leap
Expect earnings CAGR of 23%+; Rising RoEs to drive more re-rating
* ICICI Bank (ICICIBC) is expected to deliver EPS CAGR of 23%+ over FY12-15E, on a higher base of 25%+ over FY10-12, driving up the core RoE from ~10% in FY10 to 17%+ in  FY15E. Importantly, the Tier 1 would remain strong at 10%+ at end-FY15.
* With a market share of 4.2% in the domestic loans and largest branch network in the private financials, above industry growth and favorable margins will drive earnings.
* ICICIBC has managed the asset quality well during the last 18 months of pain in the Indian economy. While FY14 will be critical to see the fate of few large exposures, the bank is confident of tiding over this without any dent on its profitability. Recovery in Indian economy / corporate capex will be viewed positive for ICICIBC.
* Valuations for ICICIBC will evolve as it delivers RoE improvement over the next 2 years (to come at the near sector averages). Importantly, it will have scope to further boost its leverage as capital may get boost from return of capital by key subsidiaries.
Subsidiaries transform from being guzzlers to capital providers to parent
ICICIBC has not infused any capital in its subsidiaries for the past three years. Corrective measures and consolidation has led to significant CRAR improvement for ICICI UK and ICICI Canada. Presently, most of the bank's subsidiaries have become self-sufficient. In the medium term, listing of life insurance business [capital support of INR49b (our estimate) under Basel III] and repatriation of capital from international subsidiaries will reduce capital charge ensuring dilution-free growth.
Core operations improve decisively, core RoE to reach 17%+ by FY15E
ICICIBC's risk adjusted margins (RAM) have improved sharply from a low of 1% in FY10 to 2.2% in FY12, led by a 95bp fall in credit cost and 25bp by margins improvement. Despite lower growth in fee income, continuous margin improvement (~50bp over FY12-15) and strong asset quality performance will translate into strong RoA's of ~1.7% and core RoE is expected to improve to 17%+.
Significant improvement in asset quality in challenging times
Even in challenging times, ICICIBC exhibited strong performance in asset quality, with GNPA percentage declining over the past 10 quarters and provision coverage ratio increasing from 53% in FY09 to 79% in 1HFY13. With retail delinquencies at its historic lows credit cost estimates of average 70bp over FY13E-15E, compared to 40bp in FY12, is conservative and factors the higher stress in corporate portfolio
leaving lower downside risk to our estimates.
Structural changes to ensure higher return ratios; valuation attractive
Return ratios are on an upward trajectory and structurally core operations of ICICIBC has improved significantly, which would enable it to sustain the ratios. Further unlocking of value from subsidiaries could lead to re-rating of the stock. ICICIBC trades at near five-year average valuation, which is unwarranted considering expected improvement in growth and RoE. Maintain Buy.

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