Reduce Blue Star Ltd For Target Rs.190 

Blue Star's profits are lower than expectations as despite in-line revenues, EBITDA margins have remained weaker than expected and there has been an increase in interest expenses. That said, the profit miss does not come as a major surprise as in our recent interaction with the company, the management had highlighted continued paucity of profitable orders in the market.
The stock has corrected since our previous recommendation (Reduce at Rs 183). We maintain REDUCE rating given subdued outlook and premium nearterm valuations vis-à-vis Voltas.
Risks:
Higher than expected order accretion
Sharp improvement in margins

 Buy NIIT Ltd For Target Rs..45.5


Q3FY13 Result Highlights
* NIIT Q3FY13 performance was much below our expectations on all fronts. The lacklustre performance was largely due to more than expected decline in Individual Learning Solutions (ILS) segment IT courses enrolments.
* Net revenue on continuing basis decline 2.7% yoy to Rs.2,327mn (INSPL est: Rs2,395mn) v/s Rs.2,391 mn in Q3FY12. The key reason for sluggish revenue performance was 22.1% yoy decline in ILS segment, partially offset by 35.1% yoy and 14.1% yoy increase in School Learning Solutions (SLS) and Corporate Learning Solutions (CLS) segment. On a consolidated basis net revenue was down 6.9% yoy to Rs2,327 (v/s Rs.2,501mn in Q3FY12).
* EBITDA on continuing business basis went down by 68.1% yoy to Rs.78 mn (v/s Rs.245 mn in Q3FY12) due to ILS segment (reported EBITDA loss of Rs.34 mn in Q3FY13) performance. This was partially offset by 181%/34% yoy expansion in the EBITDA of SLS/CLS segments. ILS segment EBITDA was down due to lower enrolment, adverse revenue mix, and cost inflation, partially offset by cost management initiatives.
* SLS segment EBITDA margin grew by 397 bps yoy to 7.6% due to increasing share in premium margin private school business. CLS segment EBITDA margin went up 176 bps yoy to 12.0% due to high contribution from managed training solution (MTS) segment.
* On continuing basis, the company reported net profit of Rs.5 mn (v/s net loss of Rs.103mn in Q3FY12). During the quarter NIIT reported forex & others loss of Rs.42 mn (v/s Rs.379 mn in Q3FY12). Excluding forex & others loss, adjusted net profit was Rs.47 mn (v/s Rs.211 mn in Q3FY12).
* According to management, delayed IT sector hiring caused significant blow over NIIT’s revenue and profitability. However, improving client decision making and slight revival in the discretionary budget could trigger fresher hiring, as a result enrolments for NIIT in FY14.
Key Result Takeaways
ILS - IT slowdown affected ILS segment enrolments
* During the quarter, enrolment in ILS segment de-grew 20.8% yoy to 75,498 enrolments. As a result, ILS revenue went down by 22.1% yoy to Rs1,034 mn. However, China revenue (~15% of rev) was up 36% yoy followed by nearly 30% yoy revenue growth in non-IT courses (~7% of revenue). The recent MOU with China’s NDRC (National Development & Reforms Committee) should lead to international revenue growth further. The company has 12M executable order book of Rs.1,255 mn.
* Considering the lacklustre enrolments, we estimate de-growth in ILS segment on full year basis. During the quarter, ILS segment contributed 44% and 47% to the overall revenue and EBITDA. We believe the response for IT training courses is likely to remain muted in Q4FY13 but likely to see recovery from beginning of FY14. CLS - Six new clients win in MTS space
* During the quarter, CLS segment reported fresh orders intake of $22mn v/s $14mn in Q2FY13. As a result, despite timely execution its pending order book stood at $53 mn v/s $47mn in Q2FY13. Further, executable order book in next 12M grew by 2.4% qoq to $33mn v/s $31mn in Q2FY13, indicates robust FY13 & FY14 revenue outlook. The company had also closed six managed training solutions (MTS) deals during the quarter. Hence could see significant jump in fresh order intake in Q4FY13.
* CLS segment reported volume growth of 3.1% qoq on dollar terms. As a result, CLS rupee revenue grew by 5.0% qoq to Rs.792 mn v/s Rs754 mn in Q2FY13. During the quarter, CLS segment contributed 21% and 20% to the overall revenue and EBITDA.
Valuations
At CMP of Rs.27, the stock is trading at 13.2x FY13E and 6.6x FY14E earnings estimate. The set back in current quarter performance was due to IT slowdown, which significantly affected ILS segment performance. The outlook for this segment remains uncertain in the near-term; however expected to see revival at the beginning of FY14. Further, the company’s initiatives to diversify its business model from IT to
non-IT are yielding good result. The net cash positive balance sheet, deal wins in MTS space, and increasing presence in private school business looks positive. However, actual benefit of these developments is getting delay due to IT segment slowdown. As a result, we maintain our BUY rating with the target price to Rs45.5 on the stock.

Buy Munjal Showa Ltd For Target Rs.80


Slowdown impact visible
Munjal Showa Q2FY13 results reflected the overall slowdown in the auto industry with net sales declining significantly on QoQ basis and remaining flat on YoY basis. The company witnessed significant decline in sales on the passenger car segment as compared to two wheeler segment. EBITDA declined 24.4% YoY and 15.6% QoQ to Rs 22.2 cr with EBITDA margin at 5.9% vs 6.3% in Q1FY13 and 7.8% in Q2FY12. Lower interest expenses and lower tax rate provided some respite to the company’s bottom line. The company reported an exceptional item of Rs 6.1 cr during the quarter as the company has capitalized Rs 7.04 cr as land cost of enhancement of Manesar land and has charged Rs 6.14 cr as interest cost.
Overall Industry volume guidance for two wheelers has been revised downwards by the Society of Indian Automobile Manufacturers (SIAM) to 5%-6% from 10%-12% for FY13E. Consequently, we expect the sales of Munjal Showa to remain under pressure. Considering the weak result and slow down in the overall environment, we have revised our estimates downwards.
However, low gearing ratio, superior return ratios and support from the promoter group provides comfort at these levels for the stock. Moreover, with lower tax rate as the benefit from Haridwar plant increases and lower interest expenses resulting from debt repayment is likely to boost the bottom line performance of the company.
Going forward, we expect the company to witness some improvement in sales owing to the festive season. Hero Moto Corp is set to launch new products which are expected to drive the sales of Munjal Showa. With a recovery in the overall auto sector and particularly Hero Moto Corp, we expect growth to witness some uptick in 2HFY13. With some improvement in sales, we expect margin to recover in coming quarter.
At CMP, the stock is trading at P/E of 4.66x FY13E earnings and 0.84x FY13E Book Value with an EV/EBITDA of 2.64x and RoE of 18.8%. We maintain BUY on the stock with a target price of Rs 80 (an upside of 29% from current levels).
*  Sales were flat on YoY basis whereas sales declined 10.9% on QoQ basis. The company witnessed slowdown in sales in passenger cars segment and its key client Hero Moto Corp sales. Hero Moto Corp reported sales of Rs 5,187.5 cr in Q2FY13 (decline of 11% YoY and 17% QoQ).
*  Going forward, Management expects volume growth to be ~6-7% in FY13E. We have factored in 6.8% growth in net sales for FY13E compared to Hero Moto Corp’s net sales growth of 2.2% for FY13E.
* Raw material costs as a % of net sales increased from 73.3% in Q2FY12 to 74.6% in Q2FY13 whereas employee expenses increased 10.1% YoY leading to a decline in the EBITDA by 24.4% YoY and 15.6% QoQ to Rs 22.2 cr in Q2FY13.

 Buy Lords Chemicals Ltd For Target Rs. 31.00


Lords Chemicals Ltd is leading Indian manufacturer of basic industrial chemicals like sodium Dichromate, Chromic Acid & Chrome Oxide  Green etc.
* The main consumer industries of these products are Iron & Steel Industry, Paints & Pigment Industry, Chromic Acid Plant, COG Plant,  Paper Industry, Acid extraction, Electroplating.
* Lords Chemicals Ltd has demonstrated the results during the quarter; its boisterous growth of Net Profit is steers by 1340.42% to Rs.  48.11 million.
* Lords Chemicals Ltd has recommended a dividend @ 5% on the paid up Share Capital of Rs.1,25,300,000 for the year ended March 31, 2012.
* The chemical is used in variety of applications like pigments, wood preservation, metal treatment, pharmaceuticals, etc.
* Profit before interest, depreciation and tax is Rs.53.00 millions as against Rs.9.02 millions in the corresponding period of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 41% and 28% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.27.40, the stock P/E ratio is at 22.07 x FY13E and 18.24 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.1.24 and Rs.1.50 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 41% and 28% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.32 x for FY13E and 5.69 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.42 x and 1.32 x respectively for FY13E and FY14E.
The second quarter witnesses a healthy increase in overall sales as well as profitability on account of powerful combination of exciting  products, an enhanced store network and robust infrastructural Support system. 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.31.00 for Medium to Long term investment.

 Buy Technofab Engineering Ltd. For Target Rs.182


Outlook
While the infrastructure sector is reeling under the pressure of high debt burden and a slowing economy, Technofab Engineering Ltd (TEL) with its large order book of over Rs 1,100 crore and low debt equity of ~0.3x is expected to outperform the industry. Owing to revenue visibility (2.7x FY12 revenues), we expect the revenues to grow at a CAGR of 22.5% to Rs 566.3 crore over the forecast period of FY13-14. At a CMP of Rs 123, TEL is trading at 3.5x and 2.7x its estimated earnings for FY13 and FY14 and we reiterate a BUY with the price target of Rs 182 (target 4.0x FY14 EPS) representing a potential upside of 48%.
Key Takeaways
• TEL recorded 17.2% YoY in Q2FY13 to Rs 109.9 crore as against Rs 93.8 crore in Q2FY12 led by timely execution of on-going projects. Power and Water segment continues to be the higher contributory to the top-line with 39% and 34% respectively, followed by Oil & Gas (16%), Industrials (10%) and Electricals (1%) segments.
• EBITDA of the company was lower by 3.8% YoY to Rs 12.8 crore in Q2FY13 from Rs 13.3 crore in Q2FY12 on account of ~78% YoY increase in input costs. Finance costs were higher during the quarter at Rs 1.6 crore (+13.8% YoY). Consequently, PAT was at Rs 7.2 crore in Q2FY13 as against Rs 7.6 crore (-5.0% YoY) owing to the decline in other income (Rs 0.07 crore v/s Rs 0.2 crore; -74.5% YoY) and rise in finance costs (+13.8 % YoY).
• EBITDA margins for the quarter contracted by 260 bps YoY to 11.6% from 14.2% in Q2FY12. It also contracted on sequential basis by 190 bps. PAT margin contracted by 150 bps YoY to 6.6% in Q2FY13 as against 8.1% in Q2FY12. The management attributed intense competition coupled with continued slowdown in domestic industry for the margin pressure. However, it is confident of improving the margins going ahead.
• The company has received order inflow of ~Rs 350 crore during H1FY13 which takes its order back log to Rs 1,100 crore (2.9x FY12 revenues). Moreover, the company has guided to achieve order book of ~Rs 950-1,000 crore in FY13. As of H1FY13, its mainstream order book comprises of Power (Thermal – 28%, Nuclear - 2%) and Water (29%) followed by Oil & Gas (9%), Industrials (13%) and Electrical distribution & rural electrification (13%)

 
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