DATED 17/1/2013
Buy NIIT Technologies Ltd (NIITT) For Target Rs.334NIITT's operating results for 3QFY13 were broadly in line with estimates. Organic revenues grew by 1.5% in CC terms, in a seasonally weak quarter, largely on the back of volumes. Growth was led by T&T vertical, which remains strong. In the backdrop of an uncertain macro, softness in BFSI continues. The insurance vertical has not seen any improvement in 3Q, we understand. Order bookings continue to remain encouraging at $83mn for 3Q ($93mn in 2Q), which provides comfort. EBIDTA margins were lower due to higher on-site content in new projects (Morris) as well as weak GIS / room solution businesses. Translation gains helped PAT growth. Growth in BFSI and India revenues needs to improve in future quarters. Our FY13E EPS stands 34.9 and FY14E EPS is at Rs.38.5 (37.5 earlier). Our DCF - based price is at Rs.334 (Rs.332). We maintain BUY. NIITT has been achieving decent revenue growth and margins over the past few quarters. The company will have net cash of about Rs.62 per share by FY14 end, as per our estimates.
Valuations and recommendation
* In our DCF model, we have incorporated a benign operating environment in our near term assumptions for the company.
* A WACC of 14% and terminal growth of 1% leads us to a fair value of Rs.334 for the stock, based on FY14 estimates.
* At those levels the stock will quote at about 8.7x FY14 earnings, which is reasonable, in our view.
* The stock has consolidated at the present levels outperformed the sector in recent past. We maintain BUY.
* Improvements in BFSI and scale up in transaction-based revenues of Morris will make us more positive on the stock.
* The company will have net cash of about Rs.62 per share by FY14 end, as per our estimates.
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Buy Sintex Industries For Target Rs.94Sintex Industries' 3QFY13 results are above our estimates. Revenue grew 23% YoY to INR14.3b (v/s est INR12b), EBITDA was up 9.6% YoY at INR2.2b (v/s est INR1.9b), and EBITDA margin at 15.4% (v/s 15.3% in 2QFY13).
* Reported PAT disappointed at INR533m (v/s est of INR715m) on higher forex loss (INR450m), tax rates. Adj PAT grew 43% YoY to INR986m (v/s est INR895m).
* 3QFY13 Monolithic revenue grew 40% YoY to INR3.3b (v/s est INR2.3b) given project completion method of revenue booking. Better operating leverage augmented margin to 19% (+3pp both YoY and QoQ).
* Prefab revenue grew 23% YoY to INR2.8b (v/s est INR2.3b), but margin was down at 17% (-3pp QoQ) due to revenue mix and some cost escalations. The segment has shown strong resilience due to Sintex's entry into (a) new market segment (retail), and (b) new geographies (Maharashtra and MP).
* Domestic composites revenue grew 15% YoY to INR2.6b (v/s est INR2.4b) on a low base owing to Maruti strike in 3QFY12. Overseas business, after 3 quarters of de-growth, posted sharp growth of 28% YoY to INR3.7b (v/s est INR2.8b). However, margin deteriorated to ~7% (v/s 9.5% in 2QFY13).
* The management has guided for redemption of old FCCBs by Mar-13. It targets to reduce net debt by ~INR3b in FY13 and augment RoCE by 3pp over next couple of years.
* We have upgraded FY13/14 Adj PAT by 5-6%. The stock trades at 5.1x FY14E and 4.4x FY15E EPS. Maintain Buy with a target price of INR94 (7x FY14E EPS).
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Buy Indiabulls Financial Services Ltd For Target Rs.266.00
ndiabulls Financial Services (IBFSL) is one of India's leading non-banking financial companies (NBFCs).
* The Indiabulls Financial Services is an integrated financial services
powerhouse providing Consumer Finance, Housing Finance, Commercial
Loans, Life Insurance, Asset Management and Advisory services.
* Indiabulls Housing Finance has tied up with YES BANK for its home loan product offerings.
* During the quarter, the company has reported Net Profit increased by 30.85% to Rs. 2991.40 million.
I* ndiabulls Group has entered into an agreement with Qatar's Doha Bank
for offering mortgage loans to Doha Banks NRI customers for acquiring
properties in India.
* Indiabulls adding 12 new branches in H1 FY 2012-13 and now has 192 branches spread across the country.
* The company funds raised through bonds has grown to Rs. 7,424 Cr in Sep 2012, up from Rs. 4,466 Cr in Sep 2011.
* Net Sales and PAT of the company are expected to grow at a CAGR of 35% and 29% over 2011 to 2014E respectively.
Outlook and Conclusion
At the current market price of Rs.235.00, the stock P/E ratio is at 5.57 x FY13E and 4.64 x FY14E
respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.42.22 and
Rs.50.70 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 35% and 29% over 2011 to 2014E
respectively.
On the basis of EV/EBITDA, the stock trades at 4.96 x for FY13E and 4.07 x for FY14E.
Price to Book Value of the stock is expected to be at 1.36 x and 1.24 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for
the next three years, will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.266.00 for Medium to Long term investment.
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Buy Cholamandalam Investment & Finance For Target Rs.298
Scaling new heights
Cholamandalam Investment & Finance Company (CIFC), a part of the southbased Murugappa Group, operates as a pure asset finance player (AFC) offering vehicle finance, home equity loans and business finance. It has a network of 484 branches across India with an AUM of Rs 15,631 cr as on September 2012. The company has built a scalable and sustainable business model with attractive NIMs, strong loan growth, control over asset quality and widespread reach.
Management aims to maintain growth but does not wish to compromise on the asset quality front for the sake of growth. Adopting a pro active approach management has avoided the gold loan portfolio considering lots of regulatory hurdles with RBI. Moreover, the company has been focusing more on the high yielding Used CVs and LCVs segment which will ensure that the company continues to witness the growth momentum going forward. With most of the branch network expansion in place, CIFC now intends to focus on improving the productivity of these branches which will lower the cost to income ratio.
We believe that the above initiatives with a revamped business model will lead 1to a sustainable and profitable growth in CIFC’s business. We expect earnings to grow at a CAGR of 46.7% over FY12-FY14E. We expect the company to report an improvement in its RoE from 14.0% in FY12 to 19.9% in FY14E and RoA (post tax) to improve from 1.5% in FY12 to 1.9% in FY14E. At CMP the stock is trading at 1.9x FY13E and 1.54x FY14E ABV and 11.08x FY13E and 8.22x FY14E EPS. Based on our estimated BV of Rs.149 per share for FY14E and P/ABV target multiple of 2.0x we arrive at a target price of Rs.298. We recommend BUY on the stock indicating a potential upside of 25.3%.
* CIFC is well positioned to deliver 30% CAGR growth in AUM over FY12-FY14E driven by the growth in vehicle finance segment. In the Vehicle Finance segment particularly the company’s strategy to target high growth business segments like Used CVs, less cyclical LCV segment and entering into new tractor financing will lead to sustainable growth going forward.
* We believe that CIFC will continue to maintain its growth momentum aided by the new products launched, increasing market share in high yielding segments and benefit of network expansion. We expect disbursements to witness a CAGR growth of 30.3% over FY12-FY14E.
* The significant branch expansion made by the company in the last 2-3 years will start yielding results and CIFC will witness improvement in overall productivity of the branches leading to lower cost to income ratio leading to improvement in the company’s bottom line. We expect C/I ratio to improve from 56.1% in FY12 to 51.5% in FY14E.
* CIFC has managed to reduce its gross NPA from historic high of 5.5% in FY10 resulting from its personal loan portfolio to nearly 0.8% in FY12 which suggest strong command of the management to keep a check on the rising concern over NPAs. Going forward although we expect NPA to slightly increase from current levels to 1.1% in FY13E it will still be well under control.
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Buy ONGC For Target Rs.350
Reforms on fast-track; favorable risk-reward
Set to witness production growth led by OVL
* ONGC has been fundamentally attractive for a long time now. However, irrational subsidy sharing and dipping production have been key negatives for the stock. Due to the same, company's RoE declined from ~28% in FY08 to 21% in FY12. We expect growth in the company to return due to (a) increase in ONGC group production (3.3% CAGR over FY12-15E and 4.7% CAGR if OVL acquisitions get approved); (b) gas price increase post March 31, 2014 and (c) recently-announced positive reforms to reduce under recoveries.
* The stock is trading at 1.5x P/BV (lowest in the past 10 years), 8.9x P/E of our FY14E and has an implied dividend yield of ~4%. Our SOTP-based target price for ONGC is INR350/share (implied P/E of 10.4x of FY15E EPS). Maintain Buy.
Growth issues finally being addressed; OVL acquisitions, best possible medium term cash utilization: After a flat production trend, we believe ONGC is again set for a growth phase and expect ONGC group to post production CAGR of 3.3% in FY12-15E, led by completion of IOR/EOR and marginal/new field development in next 2 years. OVL's recent strategy to aggressively acquire developed/producing assets is the best possible cash utilization in the medium term for ONGC, in our view, due to the (a) need to improve production in the medium term on account
of Syria/Sudan issues, (b) planned IOR/EOR projects nearing completion and (c) bulk of its NELP acreage is still in an exploration stage. If we assume the contribution from OVL's recently-announced acquisitions, then the ONGC group production CAGR rises from 3.3% to 4.7% in FY12-15E period.
Subsidy, a near term concern; policy initiatives signal rationalization over long term: With (a) petrol deregulation, (b) diesel break-even doubling in the past 7 years through price-hikes/duty changes, (c) capping of LPG cylinders and (c) targeted subsidy through direct cash transfer, we believe the government is nearing its vision of market-linked petro product prices. Subsidy rationalization would not only free capital for reinvestment (past 7-year subsidy of INR1.7t equals ONGC's capex in the same period) but could lead to stock's rerating.
Long term triggers intact; expect gas price hike in March 2014: Apart from rationalization of subsidy sharing, some of the long term triggers include (a) reserve accretion from its large NELP acreage, (b) gas price hike in March 2014 and (c) accretive acquisition by OVL. If gas prices were to be hiked to USD7/ mmbtu then our FY15E consolidated EPS would see 22% upside.
Valuation and view: Despite the harsh subsidy sharing, ONGC's PAT CAGR has been 8% over the past five years. ONGC offers attractive FY13E dividend yield of ~4%. The stock trades at 8.9x FY14E EPS and at ~40% discount to global peers on EV/BOE (1P) basis. Our SOTP-based target price for ONGC is INR350/share. Buy.
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Cholamandalam Investment & Finance Company (CIFC), a part of the southbased Murugappa Group, operates as a pure asset finance player (AFC) offering vehicle finance, home equity loans and business finance. It has a network of 484 branches across India with an AUM of Rs 15,631 cr as on September 2012. The company has built a scalable and sustainable business model with attractive NIMs, strong loan growth, control over asset quality and widespread reach.
Management aims to maintain growth but does not wish to compromise on the asset quality front for the sake of growth. Adopting a pro active approach management has avoided the gold loan portfolio considering lots of regulatory hurdles with RBI. Moreover, the company has been focusing more on the high yielding Used CVs and LCVs segment which will ensure that the company continues to witness the growth momentum going forward. With most of the branch network expansion in place, CIFC now intends to focus on improving the productivity of these branches which will lower the cost to income ratio.
We believe that the above initiatives with a revamped business model will lead 1to a sustainable and profitable growth in CIFC’s business. We expect earnings to grow at a CAGR of 46.7% over FY12-FY14E. We expect the company to report an improvement in its RoE from 14.0% in FY12 to 19.9% in FY14E and RoA (post tax) to improve from 1.5% in FY12 to 1.9% in FY14E. At CMP the stock is trading at 1.9x FY13E and 1.54x FY14E ABV and 11.08x FY13E and 8.22x FY14E EPS. Based on our estimated BV of Rs.149 per share for FY14E and P/ABV target multiple of 2.0x we arrive at a target price of Rs.298. We recommend BUY on the stock indicating a potential upside of 25.3%.
* CIFC is well positioned to deliver 30% CAGR growth in AUM over FY12-FY14E driven by the growth in vehicle finance segment. In the Vehicle Finance segment particularly the company’s strategy to target high growth business segments like Used CVs, less cyclical LCV segment and entering into new tractor financing will lead to sustainable growth going forward.
* We believe that CIFC will continue to maintain its growth momentum aided by the new products launched, increasing market share in high yielding segments and benefit of network expansion. We expect disbursements to witness a CAGR growth of 30.3% over FY12-FY14E.
* The significant branch expansion made by the company in the last 2-3 years will start yielding results and CIFC will witness improvement in overall productivity of the branches leading to lower cost to income ratio leading to improvement in the company’s bottom line. We expect C/I ratio to improve from 56.1% in FY12 to 51.5% in FY14E.
* CIFC has managed to reduce its gross NPA from historic high of 5.5% in FY10 resulting from its personal loan portfolio to nearly 0.8% in FY12 which suggest strong command of the management to keep a check on the rising concern over NPAs. Going forward although we expect NPA to slightly increase from current levels to 1.1% in FY13E it will still be well under control.
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Buy ONGC For Target Rs.350Reforms on fast-track; favorable risk-reward
Set to witness production growth led by OVL
* ONGC has been fundamentally attractive for a long time now. However, irrational subsidy sharing and dipping production have been key negatives for the stock. Due to the same, company's RoE declined from ~28% in FY08 to 21% in FY12. We expect growth in the company to return due to (a) increase in ONGC group production (3.3% CAGR over FY12-15E and 4.7% CAGR if OVL acquisitions get approved); (b) gas price increase post March 31, 2014 and (c) recently-announced positive reforms to reduce under recoveries.
* The stock is trading at 1.5x P/BV (lowest in the past 10 years), 8.9x P/E of our FY14E and has an implied dividend yield of ~4%. Our SOTP-based target price for ONGC is INR350/share (implied P/E of 10.4x of FY15E EPS). Maintain Buy.
Growth issues finally being addressed; OVL acquisitions, best possible medium term cash utilization: After a flat production trend, we believe ONGC is again set for a growth phase and expect ONGC group to post production CAGR of 3.3% in FY12-15E, led by completion of IOR/EOR and marginal/new field development in next 2 years. OVL's recent strategy to aggressively acquire developed/producing assets is the best possible cash utilization in the medium term for ONGC, in our view, due to the (a) need to improve production in the medium term on account
of Syria/Sudan issues, (b) planned IOR/EOR projects nearing completion and (c) bulk of its NELP acreage is still in an exploration stage. If we assume the contribution from OVL's recently-announced acquisitions, then the ONGC group production CAGR rises from 3.3% to 4.7% in FY12-15E period.
Subsidy, a near term concern; policy initiatives signal rationalization over long term: With (a) petrol deregulation, (b) diesel break-even doubling in the past 7 years through price-hikes/duty changes, (c) capping of LPG cylinders and (c) targeted subsidy through direct cash transfer, we believe the government is nearing its vision of market-linked petro product prices. Subsidy rationalization would not only free capital for reinvestment (past 7-year subsidy of INR1.7t equals ONGC's capex in the same period) but could lead to stock's rerating.
Long term triggers intact; expect gas price hike in March 2014: Apart from rationalization of subsidy sharing, some of the long term triggers include (a) reserve accretion from its large NELP acreage, (b) gas price hike in March 2014 and (c) accretive acquisition by OVL. If gas prices were to be hiked to USD7/ mmbtu then our FY15E consolidated EPS would see 22% upside.
Valuation and view: Despite the harsh subsidy sharing, ONGC's PAT CAGR has been 8% over the past five years. ONGC offers attractive FY13E dividend yield of ~4%. The stock trades at 8.9x FY14E EPS and at ~40% discount to global peers on EV/BOE (1P) basis. Our SOTP-based target price for ONGC is INR350/share. Buy.
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Buy TBZ Ltd. For Target Rs.330We recommend to BUY Tribhovandas Bhimji Zaveri Limited (TBZ) with a price target of `330.
INVESTMENT ARGUMENTS:
India - the largest jewellery market, highly unorganized, huge potential to organize: India is the largest consumer of gold in the world. According to a CARE Report, the Indian domestic gems and jewellery industry has the potential to grow from an ~ `2,20,000Cr (Gold Jewellery share ~80%) in FY12 to ~`3,00,000 Cr by FY14,which implies a CAGR of 14% with the organized sector expected to grow by ~30% during the same period. Currently market is fragmented across the value chain. There are ~ 450,000 unorganised players across the gems and jewellery sector. The Organized National Jewellers and Large Regional Jewellers account for ~ 6% and ~10% of this market respectively. Changing demographics, fast urbanization, more women in work force and reliable quality of gold will lead to sustained increase in the share of organized market. We believe, companies such as TBZ will be a natural beneficiary of this change. (Data Source: CRISIL and CARE)
Strong brand, huge expansion to drive profit growth:
TBZ is a 148 year old brand in premium and wedding jewellery. Promoters are in the business of jewellery for the last 4 generations. Jewellery is a business of customer's trust and therefore vintage with a credible track record gives jewellers immense competitive edge and moat. The company makes money primarily by making charges and mark up it levies on the gold and diamond. TBZ raised `200 crore from the IPO in year 2012 and plans to use funds for expanding its retail presence to 57 stores spread across 43 cities by FY2015 from 19 stores currently. High brand recall for wedding and fashion jewellery along with aggressive expansion will drive net profit growth during the years to come.
Valuations & View:
TBZ has delivered 65% CAGR in net profit during FY08-FY12. We expect profit CAGR of 40-45% over FY12- FY16E on the back of huge expansion in retail presence. Stock currently trades at PE and EV/EBIDTA of 13.5x and 9x FY14E, which looks reasonable considering the growth potential. Listed peer like Titan trades at ~27xFY14E. We believe, high double digit growth, high RoE(25%+) and good and visible brand will lead to rerating of the stock valuation over time. Recommend BUY with a target of `330 (19xFY14E EPS and 12xFY14E EV/EBIDTA)
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