!! SAI PARSADAM!!

VIKAS PARSHURAM SAMWATSARE

VPS GROUP'S #Broking Firm Views Report

 Source:- PARSADAM AND VIKAS P SAMWATSARE

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STOCK SELECTION:
We have identified 10 scrips for investment in 2013.
LARGE CAP IDEAS
1. Bajaj Auto (Present price: 2131)
High focus on exports, new launches going forward, diversified product profile should help Bajaj Auto perform relatively well in the domestic  -w (2-wheeler) segment, where Honda Motors is growing at the cost of ‘India-focused’ players.
The company’s focus on doubling exports by FY’16E (currently contributing 35 per cent to net sales), leadership status in certain key  segments in geographies like Egypt, new model launches in the near-term should help the company navigate through the present  slowdown in the automobile segment.
2. Financial Technologies (Present price: Rs.1129)
It’s a classic play on the robust growth of the exchanges in the country. The company’s 26 per cent stake in MCX should also reap rich  returns for the investors considering the superior technology platform, robust initial response in the form of new members.
3. HDFC Bank (Present price:Rs.679 )
HDFC Bank could very well be regarded as the best managed bank in the country. The premium valuations very well justifies the  consistency which it has been reporting over for quite some years now. The Bank has grown its net profit consistently at a CAGR of +30%  over the last several years.  More commendable is the fact that this growth has been achieved along with consistent improvement in asset  quality. The Bank’s loan book is equally divided between the retail and the corporate segments. In the corporate segment, HDFC Bank  finances mostly working capital loans in case of corporates.
The Bank has a strong liability franchisee with CASA ratio quoting at 45.9 per cent of the total deposits. A high CASA ratio leading to  effectively lower cost of funds has helped the Bank clock the highest NIMs (next only to Kotak Bank) in the banking space. We feel that the  best for HDFC Bank is yet to come.
4. Lupin (Present price: Rs.613)
As mentioned in the outlook for the market above, we expect significant buoyancy in the markets during the initial part of the calendar year.  Post this, the market is expected to take cues from the economic growth parameters. To safeguard the portfolio in case of significant  declines, if any, during the later part of the year, we have chosen Lupin from the pharma sector.
In H1FY’13, the company posted a net profit of Rs.570 crore (an increase of 20 per cent) on net sales of Rs.4458.4 crore (an increase of  35.7 per cent y-o-y). The company has seen a few launches in the US market over the last couple of months and we expect them to start  contributing from Q3FY’13 onwards. We expect an improvement in overall margins on the back of pick-up in the US business and stable  growth from India and rest of the world.
5. Apollo Tyres (Present price: Rs.89)
We believe Apollo Tyres is the only Indian company capable of emerging as a global-tyre manufacturer (presently exports to about 115  countries across the globe). The prices of key input in the tyre industry - natural rubber - has corrected between 16-18 per cent over the last  one year. This, should lead to an improvement in operating profit margins considering the fact that raw material prices (of which, natural  rubber is a major component) stood at 63 per cent of net sales in FY’12.
We agree to the fact that there is weakness in the overall automobile OEM sales but as far as the replacement market is concerned, the  same is expected to compensate for the same to a large extent.

MIDCAP IDEAS
6. Delta Corp (Present price: Rs.73)
After touching a high of more than Rs.130 in November 2010, the share price of Delta Corp has retraced back significantly. Over the last 12  months, the share has consolidated in the range of Rs.55 and Rs.87.
We believe that the share price would take cues from the numbers which the company is going to report going forward. Considering the four  ajor developments taking place in terms of setting up a hotel and a floatel (floating hotel) in Goa, gaming facility at Daman and a new  vessel at Goa(Horseshoe), we expect an exponential growth in the earnings from FY’14E onwards. In short, Delta Corp is a company where  the numbers can only keep on improving every passing year because of ‘consumption’ play.
7. Hi-Tech Gears (Present price: Rs.85)
Hi-Tech Gears Limited manufactures automotive gears and shafts at Bhiwadi, Rajasthan, mainly for 2- wheelers like Hero Honda, Escorts,  among others. The company has an in-house forging unit and derives close to 20 per cent of its revenues from exports. The company has  set up another plant near its mother plant for manufacturing of transmission auto components for CVs and passenger vehicles.
The company posted an EPS of Rs.22.4 in FY’12 compared to Rs.18.7 during the previous year. The company has a policy of distributing  more than 20 per cent of the earnings in the form of dividends. The results for H1FY’13 were weak on the back of the present fortune of the  industry. We believe that the suppressed valuations of the share price have factored all the negatives associated with the sector as well as  the company.
8. IFB Industries (Present price: Rs.103)
A consumer durables company available at attractive valuations. The company is the leader in the
top-door washing machine segment and being the first entrant in the dish-washers segment should
augur well for the company, going forward. IFB Industries has a clean Balance Sheet with net cash
and cash equivalent totaling up to Rs.88.1 crore, equivalent to more than 20 per cent of the present
market-cap of the company. With the rupee showing signs of stability, consumer durable companies
like IFB Industries, being net importers, should be benefitted. This, coupled with reduction in
interest rates by 100-150 bps should augur well for the sector as a whole, IFB Industries included.
9. India Cements (Present price: Rs.91)
We expect the buoyancy in cement segment to continue in this calendar year also. With major cement stocks outperforming the broader  indices, the upside potential in large cap stocks appears limited. Despite the fact that India Cements is not in the best shape and does not  have the best of profitability and RoE, we believe that the present share price underperformance captures all these negatives.
Management’s efforts to ramp up the captive power generation (from the present 50MW to 100MW) making the company self-reliant in  power, coupled with efforts to ramp up mining should reduce the overall cost structure for the company. The company’s improved operating  performance on the back of these measures should result in significant growth in profitability going forward. At the present price, the stock  has a decent dividend-yield of ~3 per cent.
10. IndusInd Bank (Present price: Rs.416)
Under the able leadership of Mr. Romesh Sobti and his team, the Bank has grown its net profit 10- fold over the last four years from Rs.80  crore in FY’08 to Rs.810 crore in FY’12. This growth has come despite two bad years for the global economy. The asset quality of the Bank  continues to be robust. With high focus on the consumer lending sector on the asset side and improvement in liability franchisee (scaling  up the CASA from the present ~28 per cent to 34 per cent over the next two years, already moved from ~14 per cent in FY’08) should help  improve the profitability of the Bank.

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COPY RIGHT 2013
RESEARCH DIVISION 
VPS GROUP'S
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VIKAS PARSHURAM SAMWATSARE