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VIKAS PARSHURAM SAMWATSARE

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 #Broking Firm Views Report VPS GROUP INVESTMENT 

NG Vysya Bank: 
CMP: Rs 526
Target: Rs 610
• ING Vysya Bank has shown consistent and steady performance over the past few quarters with strong hold on asset quality, operational efficiency and commendable NIMs.
• All these parameters has led to an improvement in the return ratios of the bank.
• Going forward, we believe that the banks financial and operational parameters will continue to improve with above industry credit growth along with focus on asset quality, improvement in CASA and stable NIMs
• We expect the bank’s profitability to grow at 28.8% CAGR over FY12-FY14E.  RoE is expected to improve to 15.4% in FY14E from 13.6% in FY12 and RoA is expected to improve to 1.3% in FY14 from 1.0% in FY12.
• At CMP, the stock is trading at 1.7x and 1.5x FY13E and FY14E Adj BVPS and 12.32x and 9.83x FY13E and FY14E EPS respectively.

Finolex Cables:
CMP: Rs 57
Target : Rs 75
•  FCL’s Electrical Cables business has been giving strong performances and is likely to continue with the same. The Communication Cables business also seems to be bottoming out and with the revival in optic fiber demand expected in the country this business is expected to do well in the future.
• The company has a strong brand image. It has a wide distribution network and backward integration which provides strong competitive advantages to FCL over its peers.
• FCL has formed JVs with J-Power Systems, Japan for manufacturing EHV cables and with Corning, USA for marketing optical fiber in India. These JVs will help the company enter new markets (EHV cables) where demand is high and will help strengthen the product portfolio of the company.
• The company over the years has closed down most of its derivative contracts and expects to get rid of all the loss making contracts by FY13. This will improve the bottom line going forward.
•  At CMP the stock trades at 6.4x & 5.3x its FY13E & FY14E EPS.
Gateway Distriparks Ltd:
CMP: Rs 139
Target : Rs 176
• Gateway Distriparks Ltd (GDL) is an integrated logistics player in the container movement space.
• Capacity constraints at JNPT port as well as drop in volumes in the Rail segment was partly offset by better volumes at Chennai and Vizag CFS in FY12
• While the company is facing pressure due to global slowdown but revival of international trade and addition of capacities at Faridabad (expected by March 2013) and JNPT should bode well for the company going forward.
•  In addition, the three month moving average of Indian non-oil foreign trade data is showing some signs of improvement which should augur well for GDL.
•  At CMP, the stock is trading at a P/E of 10.7x and 9.7x its FY13E and FY14E earnings.
Phillips Carbon Black
CMP: Rs 93
Target: Rs 138

•  Phillips Carbon Black (PCB) reported loss in Q2FY13 on account of lower realization and lower capacity utilization resulting from excessive dumping of carbon black from China which continued to put pressure on the company’s margins.
•  However, on the positive side; Imposition of safeguard duty and Decline in crude prices (leading to decline in prices of carbon black feed stock) have taken place which could bring a significant revival in the company’s business.
•  Going forward, we believe that the imposition of safeguard duty will lead to an improvement in the realization rate of carbon black as well the capacity utilization of the company. Moreover, power revenues will also witness an improvement which will lead to an increase in EBITDA margins.
•  As the tyre companies have already imported large quantities of carbon black in anticipation of safeguard duty, Q3FY13 results can remain under pressure. The benefit of positive development will be visible in Q4FY13E results only.
•  At CMP, the stock is trading at 2.8x its FY14E EPS
Sterlite Technologies:
CMP: Rs 31
Target : Rs 42

•  The company’s core business of conductor and optical fibre is likely to show improved performance in the coming period.
•  The increase in capacity of optical fibre from 12 mn km to 20 mn km with improving demand from both Indian and international markets will help company to report higher earnings.
• 3 large BOOM transmission line projects are under implementation with first one to commission from April 2013 and other two are on schedule to start in April 2014.
•  These 3 annuity projects once commissioned will add substantial value to the company.
•  At CMP, the stock is trading at 12.4x and 9.1x its FY13E and FY14E EPS respectively.
 


DLF (CMP: Rs223,TP: Rs276)

* Non-core asset sales finally pick up: DLF’s much awaited non-core asset sale program has finally caught steam, with the sale of ‘Aman’ hotel chain at US$300m, following the sale of its Mumbai Land Parcel to Lodha at Rs27bn. The third large ticket asset sale is the windmill transaction which also seems to be nearing completion with the management confident of a closure by March 2013. The three transactions put together are likely to generate Rs50bn for DLF.

* High-end launches & equity issuance to further spur cash flows: The company plans to launch ~6m sq.ft of projects in Gurgaon valued at Rs100bn in Q4FY13, which is likely to generate strong cash flows being 80% gross margins projects. A further impetus to cash flows is expected from the likely fresh equity issuance to reduce promoter’s stake from the current 78.6% to the mandatory <75% stake by June 2013. The new launches could potentially result in annual cash flows of Rs20bn, while the equity issuance could generate cash of Rs17-20bn.

*  A new look to the balance sheet: The visibility to pare down debt, which at the end of Q2FY13 stood at Rs232bn (net debt), has increased substantially. DLF expects to bring down net debt to Rs185bn at the end of FY13, post the completion of the non-core asset sale target of Rs50bn as well as the launch of the ‘Magnolias’ & ‘Park Place 2’ and to Rs150bn, post the equity issuance and a couple of quarters into the launch of the projects. As per our estimates, we expect net debt to trim down to levels of Rs206.5bn by March FY13 and Rs159bn by FY14 which shall translate to a DER of 0.75 by FY13 and 0.56 by FY14 (Gross Debt: Equity).

*  Upgrading to ‘BUY’: The visibility on debt reduction has increased substantially with asset sales, forthcoming launches and fresh equity issuance. The stronger balance sheet, coupled with positive operational cash flows, is likely to provide an impetus to new launches and stabilize operations for the company. We are upgrading our recommendation from ‘Reduce’ to ‘BUY’. The company’s NAV stands at Rs368 to which we are attributing a 25% discount to arrive at our target price of Rs276.

Ranbaxy Laboratories (CMP: Rs507,TP: Rs579)

*   Ranbaxy Labs’ turnaround in business to drive core performance: Despite so many regulatory issues, Ranbaxy remains India's largest pharmaceutical company with presence in all the key regulated markets like US, Germany, UK, Japan and most of the large emerging markets. The company is gradually moving from uncertainty towards Certainty – Uncertainties related to USFDA issues, monetization of FTFs and forex hedges are behind

*  US business is back on track; FTFs to generate US$800m in PAT: Post signing the consent decree with the USFDA, the company is currently working with the USFDA to get all outstanding issues sorted out. The company is already clocking US$400m in annual core revenues in US. There are 15 products awaiting to be launches in US over next three years which will take the base business revenue to 710m and the clearance of Paonta and Dewas will add US$60m in CY15. Further, We believe that, these opportunities can contribute one-time profit of US$700m to the company. This is almost equivalent to current debt on the books.

*   Largest Pharma play in emerging markets: Ranbaxy remains the largest and best play on emerging pharma markets. Branded generics is the core factor that differentiates Ranbaxy from other Indian players. The company has its own distribution set up in over 40 countries. The company derived US$1bn from emerging markets in 2011. It has built a strong distribution network in most of the key emerging markets. Emerging markets will be key growth driver for Indian pharma companies, going forward, as the business economics remain very attractive The company has already established its marketing network in these countries unlike other Indian companies. Hence, the company has got a significant lead over them which will benefit the company.

*   Outlook and Valuations: At the current valuation of 23.5x CY13, though the stock looks fairly valued, we believe that, over CY14-CY15, the earnings will go up substantially led by revenue ramp-up in US and benefit of operating leverage. Further, the outstanding forex derivative hedges will be over in next two years, thereby, removing the overhang on earnings.


Mahindra Holidays & Resorts India (CMP: Rs343,TP: Rs366)

*  Strong expansion underway, member addition to follow: MHRL has nearly doubled its room capacity to 2049 in the FY09-12 period, with 425 rooms added in FY12 and another 227 rooms added in H1FY13. The company’s target for FY13 stands at 700 rooms. Besides increasing availability to the existing members, the plan is to aggressively increase its member base which stood at~143K as of March 2012 & 151K as of September 2013. Members have increased at 15.6% CAGR over FY09-12 which is expected to increase to 16.7% between FY12-14.

*  Addressing complaints to drive new sales: In order to live up to its ‘Mahindra’ brand, the management’s focus is to address the key complaint of nonavailability of rooms. The three-pronged strategy to increase inventory ahead of member additions, restrict giving out rooms to non-members and to setting up a transparent online booking system is already helping in reviving referral sales.

*  Robust model ensures capex funding from internal sources: MHRL has maintained a debt-free model as resort running expenses and majority of the corporate expenses are funded from recurring income streams. Therefore membership fees needs to fund only the member acquisition costs and a small part of running expenditure leaving a large chunk for capex requirements. EBITDA Margins to strengthen with the withdrawal of the ‘white goods’ strategy: The company has withdrawn the strategy of gifting ‘white goods’ like TV’s along with the membership in order to bring down is cost of acquiring members. This is likely to strengthen EBITDA margins, a part of which was reflected in Q2FY13. The full impact of this strategy is likely to take effect from H2FY13 onwards.

*   Valuations: We have valued MHRL on an ‘Average of DCF and PER’. At present, on account of capex, FCF generation is negligible. However, at the end of 25 years when the rooms are re-sold to new members, FCF generation shall accelerate. The DCF value stands at Rs359. Although MHRL has a much stronger growth & return profile, it trades at a PER of 14.9x FY14 as compared to 17x for its peers. At 17x FY14, the value stands at Rs372. Our target price, Rs366 is based on an average of the two values. We rate the stock ‘BUY’.

 

Year 2012 was the bullish year for all the indices globally were main indices gained by 7% to 29%. India outperformed the world’s most indices. Nifty has appreciated by about 27% in year 2012 in the hope of awaited policy reforms, which were finally announced by the government in the second half of 2012 . The recent measures to boost economy by government should continue in 2013 also, as suggested by the aggressive mood of government.

If we look at the weekly chart of the Nifty, it clearly indicates that the trend is up.The Index has been in an uptrend in a rising channel pattern since December 2011 forming a series of higher highs and lows after Oscillator RSI given positive divergence in weekly chart, which is a positive sign.

The weekly price chart shows that prices are witnessing strong support of the 20 week simple moving average place near 5650 level, whereas,  lower line of rising channel is placed near 5400. The RSI indicator has given a positive crossover in quarterly chart and currently advancing indicating bullish momentum in the index. MACD is in urge of positive crossover in quarterly chart, which indicates the bullish bias in the index and possibility to make a new high.

Broadly we are expecting the Nifty to remain in a range of 5400 on the down side and 6350 on the higher side. And sustenance above 6350 level will open the door for 6800 level.

We have positive bias on the Nifty. Thus, our advice is to hold the long positions and add more on dips and book some profit near 6300 level. Investors should be confident to buy near 5400-5500 level without any hesitation in frontline stocks.

Reliance Capital Limited  :- Target 555/580
JSW Energy :- Target 87/100
Bank Of India :- Target 408/440
Punjab National Bank :- Target 1080/1205
Adiyta Birla Nuvo  : - Target 1400/1600
Pantaloon Reail : - Target 310/345
Hindalco Industries : - Target 164/182
Steel Authority of India Limited :- Target 123/143
NCC Limited :- Target 123/191
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COPY RIGHT  VIKAS P SAMWATSARE 2013 JAN 

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