Buy Havells India For Target Rs. 860Standalone performance better than expected: Standalone revenue grew 18% (in line with our estimate), EBITDA grew 12% (5% ahead of our estimate) and adjusted PAT grew 17.6% to INR804m (8.2% higher than our estimate). The key highlight for the quarter was 86bp QoQ expansion in EBITDA margin to 13.2% despite higher ad spend (3.5% of sales in 3QFY13 v/s 2.9% in 3QFY12) and Consumer Appliances contributing INR750m to 3QFY13 revenue (v/s INR840m in FY12 and INR627m in 1HFY13).
* Sylvania's European region profitability rebounds;
growth moderates in Americas: For Sylvania, reported revenues declined 3.7% YoY (v/s our estimate of 2% decline). EBITDA margin was 6.4% (higher than our estimate of 5.1%, up 310bp QoQ). Sylvania's sales have been impacted by muted 2.8% growth in the Americas (up 9.5% YoY in 1HFY13) and continued de-growth in Europe (down 7.5% after 9% decline in 1HFY13). Sylvania's European operations reported EBITDA margin of 5% v/s 0.8% in 2QFY13 (given price increases/ operating leverage).
* LatAm growth story intact; muted growth an aberration:
We believe that muted revenue growth in the Americas is an aberration and growth in FY14 would improve to ~10%. This would be driven by the commissioning of the lighting fixtures plant in Rajasthan in 2QFY13, which will enable a much sharper play in the Americas, where fixtures contribute just 20% of revenue (v/s 50% in Europe).
Valuation and view:
We have upgraded our consolidated earnings estimate for FY13 by 7% to factor in the improvement in profitability at Sylvania, but maintain our FY14/FY15 estimates. Our consolidated EPS estimates now stand at INR33 (down 3%) for FY13, INR40.7 (up 23%) for FY14 and INR48.1 (up 18.2%) for FY15. The stock trades at 20x FY13E, 16x FY14E and 14x FY15E consolidated EPS. We maintain Buy with a revised target price of INR860.
Buy Greaves Cotton Ltd. For Target Rs.85GCL earnings were flat for the quarter given decline in 3W industry volumes. EBITDA margins were lower due to margin decline in core business
of engines as well as due to continued loss in infrastructure equipment division.
* Valuations are attractive for a company with high return ratios of ~ 20%. We maintain BUY with a revised target price of Rs 85 (Rs 84 earlier)
* Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise 3W LCV volumes which is the stronghold of GCL. We would remain
watchful about this emerging threat.
Valuation
GCL is currently trading at 12.0x and 11.2x FY13 and FY14 earnings respectively. While industry outlook remains weak, we believe valuations are reasonable at this price. Hence maintain BUY with an revised DCF based price target of Rs 85 (Rs 84 earlier).
Buy Bajaj Finance Limited For Target Rs.1,638Strong operational performance
Bajaj Finance (BFL) reported net profit of Rs 160 cr (+33.4% YoY) in Q3FY13 driven by growth across consumer and SME business. Management continues with its cautious approach towards infra and construction lending leading to a de growth in the commercial book. The company provided one time provision of Rs 7.5 cr on an infra loan which led to an increase in overall provisions of the company. The asset quality remained fairly stable during the quarter with gross NPA at 1.0% and net NPA at 0.2%. Other operating income witnessed some sort of pressure in this quarter. However, control over marketing and recovery costs led to a remarkable decline in cost to income ratio of the company. We like the company’s mantra of “Aiding growth instead of creating growth” which hasled a sustainable growth in the company’s loan book. The company has been able to grow in a scenario where the consumer discretionary was soft, autosector performance was flat and consumer durables industry grew 6-8% on an overall basis. However, Management believes that once the economy recovers leading to an improvement in consumer discretionary spending, Bajaj Finance would be in a position to outperform the broader market. Going forward, we believe that Bajaj Finance will continue to show a strong growth trajectory. With control over NPAs, wider access and strong growth in the book, Bajaj Finance will continue to strengthen its position as a retail finance company.
At CMP the stock is trading at 2.09x FY13E and 1.77x FY14E ABV and 10.37x FY13E and 9.64x FY14E EPS. We arrive at a target price of Rs 1,638 (P/ABV multiple of 2.1x) indicating further potential upside of 18% from current levels and recommend to BUY the stock.
Key development
The company in on track to capitalize itself sufficiently to adhere to the Usha Thorat Committee recommendations regarding higher capital requirements. The board has approved to raise capital via rights issue of Rs 743 cr at Rs 1,100 per share, leading to 16% equity dilution. We have factored in the dilution in our FY13E estimates.
* Net Interest Income increased 35.5% YoY to Rs 471 cr in Q3FY13 resulting from growth in disbursements on YoY basis and lower cost of funds.
* The growth in disbursements stood at 20.0% YoY to Rs 5,200 cr in Q3FY13. Management expects the overall loan book to witness strong growth for FY13E with more focus on secured businesses.
* Asset under management (AUM) grew by 41.3% YoY and 9.6% on QoQ basis at Rs 16,844 cr. Management expects AUM to reach around Rs 17,500 cr by FY13E.
* Asset quality remained fairly stable in Q3FY13. Construction Equipment book’s receivables portfolio deteriorated sharply in line with sharp
deterioration in industry performance.
Buy Gujarat Pipavav Port Ltd. For Target Rs.70 Decline in dry bulk volumes affects revenue
In Q3CY12, GPPL reported of 7% Y-o-Y in drop in total revenues to `865 mn as compared to `925 mn in Q3CY11, which was the result of lower volumes. Revenue contains `27 mn of entitlement from SFIS (Served for India Scheme). Container volumes for the Q3CY12 dropped by 25% Y-o-Y to 125,945 TEUs as compared to 168,983 TEUs in Q3CY11, apart from that on sequential basis there was increase of 3%. Dry-bulk Volumes witnessed 4% slide Y-o-Y and stood at 0.75 mn tonnes as compared to 0.78 mn tonnes in Q3CY11, in addition to that on sequential basis it was down by 14%.
On cost front the company witnessed 15% Y-o-Y growth in total operating expenses to `607 mn in Q3CY12. There were some onetime expenses such as double payment of handling charges and refurbishment of cranes, which inflated total operating expenses by `60 million and the end result was lower EBITDA margins at 36% vs 46% in Q3CY13. Interest Cost declined by 16% Y-o-Y as the company paid off its Indian Rupee Debt of `3,500 mn from the amount which is collected via QIP and promoters funding. The company had to pay charges on pre-payment of loans, else Interest cost would have been further lower by `56 mn. And the resultant PAT was down by 38% Y-o-Y to `82 mn.
Outlook & Valuation
Though, GPPL has witnessed drop in volumes since last two quarters, we believe that things will improve from hereon rather than going opposite. The slew of fiscal reforms which the government has announced will play out to be positive for overall economy. We maintain our
BUY rating and Price Target of `70.
Buy HT Media For Target Rs.111Diversified portfolio
Despite undemanding valuations at ~14x FY14E P/E, we maintain Neutral on HT Media with a target price of INR111 based on 13.5x one-year forward EPS (25% discount to target P/E of 18x for DB/Jagran). We expect EPS CAGR of 13% over FY13E-15E driven by 10% revenue CAGR. Company has several businesses in the investment phase (HT-Mumbai, Mint and Hindustan-UP), which would require significant improvement in the macro environment to start contributing to the bottom line. While balance sheet is strong with net cash and investment of ~INR25/sh, adverse macro environment, low dividend payout and diversification beyond core areas has depressed RoE to single-digit levels. HT Media has the highest earnings sensitivity to change in ad growth/newsprint prices.
Diversified portfolio with exposure to English print, Hindi print, radio and online:
'Hindustan Times' (English daily) and 'Hindustan' (Hindi daily) are leading brands ranked 2nd and 3rd respectively on a pan-India basis in their respective genres, with a combined readership base of 16m. 'Mint' is the second-most read business daily in India. Radio business is concentrated in four metros. Company's online portfolio is focused on news, networking, jobs and education space and could continue incurring operating loss.
Strong franchise in Delhi and Bihar markets:
HT has a strong franchise in Delhi (Rs15b+ market) and Bihar (one of the fastest growing markets), with ~50% readership share in both these markets. Dominant position in these markets gives stability to its business model, thus providing good mix of mature and emerging businesses.
FY13E ad revenues to remain flat YoY; we estimate 10% CAGR over FY13-15E:
HT
has been one of the worst hit from current ad slowdown in FY13, with expected ~3% YoY decline in English segment, though Hindi ad growth is expected to remain relatively better at ~8% YoY. We model ad revenue CAGR of 10% over FY13-15E based on expected recovery to 9% CAGR in English and 13% CAGR in Hindi.
Margin performance expected to bottom out:
EBITDA margin declined ~300bp YoY to ~11% in 2QFY13 due to lack of operating leverage. We expect margin performance to bottom out at 13% in FY13E, compared to FY10 margin of 19.5%. We estimate 140bp margin improvement in FY14E followed by ~90bp contraction in FY15E, leading to an EBITDA CAGR of 13%. Newsprint cost would constitute ~29% of revenues for in FY13 and is expected to decline to 28%, going forward.
Buy Blue Dart Express Ltd For Target Rs. 2305.00Blue Dart, South Asia's premier courier integrated express package distribution and Logistics Company, offers secure and reliable delivery of consignments to over 27050 locations in India.
* During the quarter, the robust growth of Net Profit is increased by 8.24% to Rs. 322.00 million.
* Net Sales for Q3 CY12 stood at Rs. 4180.80 millions an increase of 7.32% over the corresponding quarter of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 23% over 2010 to 2013E respectively.
* Blue Dart Express Ltd. inaugurated 4 new Blue Dart - DHL ONE RETAIL stores across Mumbai which leads to 419 stores across
India.
* Company was voted a Superbrand, sixth time in row and for the sixth consecutive year & became recipient of the reader’s Digest most Trusted Brand Gold Award.
* TDHL and Blue Dart have launched Smart Truck technology in Bengaluru, India as the first deployment logistics innovation outside Germany.
Investment Highlights
Results updates- Q3 CY12,
The company’s net profit jumps to Rs. 322.00 million against Rs. 297.50 million in the corresponding quarter ending of previous year, an increase of 8.24%. Revenue for the quarter rose 7.49% to Rs.4180.80 million from Rs.3889.40 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.13.57 a share during the quarter, registering 8.24% increase over previous year period. Profit before interest, depreciation and tax is Rs. 529.10 millions as against Rs. 497.10 millions in the corresponding period of
the previous year.
Outlook and Conclusion
* At the current market price of Rs.2077.00, the stock P/E ratio is at 33.24 x CY12E and 28.24 x CY13E respectively.
* Earning per share (EPS) of the company for the earnings for CY12E and CY13 is seen at Rs.62.48 and Rs.73.55 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 23% over 2010 to 2013E respectively.
* On the basis of EV/EBITDA, the stock trades at 20.79 x for CY12E and 17.78 x for CY13E.
* Price to Book Value of the stock is expected to be at 6.11 x and 5.02 x respectively for CY12E and CY13E.
* 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.2305.00 for Medium to Long term investment.
Buy Technofab Engineering Ltd For Target Rs.172Valuations & Recommendations
Technofab Eng is trading at P/E of 4.4x of its FY13E Eps of Rs 28.82 and 0.71x of its TTM book value. Further, despite a slowdown down in our economy we expect the infrastructure sector is likely to keep the momentum especially after rates cuts by RBI & Govt funding for infra sector in budget for FY14. With current order book size 2.5x of its revenue and further looking to secure more order across the segments the revenue visibility of the company is quite encouraging. However,owing to slow down in our economy the company isalso looking to acquire more order from internatuonal markets,which will help to maintain its top line and bottom line in longer term. Hence, with the long-term point of view, we recomment to buy the stock for the target price of Rs.172.
Hold Cummins India Ltd For Target Rs.520.00Cummins India Ltd is a group of complementary businesses that design, manufacture, distribute and service engines, generators and related technologies.
* Cummins India Ltd plans to set up an India Office Campus (IOC) at an investment of Rs. 730 crore.
* During the quarter, the company has reported Net Profit is increased by 25.17% to Rs. 1609.40 million.
* Cummins India Ltd plans to invest around $150 million to upgrade the Cummins technology centre in Pune & merging with the existing CRTI to form the India Tech Centre.
* The Company’s Phaltan site is estimated to require an investment of $500 million (around Rs. 2,750 crore) over the next few years.
* Cummins has also formed a joint venture with Delhi-based dealer, SVAM Power Plants Pvt. Ltd.
* Cummins India Ltd Power Generation Business Unit is planning to manufacture generator sets & generator drive engines in the low & medium horse power range for export markets.
* Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 6% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.460.00, the stock P/E ratio is at 19.82 x FY13E and 18.31 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.23.21 and Rs.25.12 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 6% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 13.34 x for FY13E and 12.54 x for FY14E.
* Price to Book Value of the stock is expected to be at 4.75 x and 3.77 x respectively for FY13E and FY14E.
The Company Phaltan site is estimated to require an investment of $500 million (around Rs. 2,750 crore) over the next few years. This factory will begin production from mid-2013 and make high horsepower engines. “These engines, from the power generation business unit, will be made by Cummins Technologies India Ltd (CTIL). This facility is being set up in the MIDC Special Economic Zone.
The first quarter witness 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.520.00 for Medium to Long term investment.
Hold Zensar Technologies Ltd For Target Rs.297.00Zensar Technologies Ltd (Zensar) is a globally renowned software services company that specializes in providing a complete range of Software Services and Solutions.
* During this quarter, Zensar has reported 18 wins across its focus verticals, some of which are large annuity contracts in core areas of application development and infrastructure management.
* Zensar Technologies Ltd has recommended payment of Interim Dividend at the rate of Rs. 3.5 per Equity Share (35%) of the Company for the financial year 2012-13.
* During the quarter, the robust growth of Net Sales is increased by 5.04% to Rs. 5255.40 million.
* The Company has signed multiple deals in the real estate, media, travel and transportation.
* The company’s core verticals Insurance business recently won a 24 Million USD deal with leading US health insurance provider as part of the 5 year deal.
* Zensar has signed up a 5 year deal with large progressive African wealth management group providing managed services and application support.
* Net Sales & PAT of the company are expected to grow at a CAGR of 28% & 13% over 2011 to 2014E respectively.
Results updates- Q3 FY13
The company’s net profit decreased to Rs.487.00 million against Rs.522.90 million in the corresponding quarter ending of previous year, a decrease of 6.87%. Revenue for the quarter rose 5.04% to Rs.5255.40 million from Rs.5003.20 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.11.18 a share during the quarter. Profit before interest, depreciation and tax is Rs.812.10 millions as against Rs.900.00 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current mar ket price of Rs.264.00, the stock P/E ratio is at 6.52 x FY13E and 5.97 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.40.47 and Rs.44.21 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 28% and 13% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 3.57 x for FY13E and 3.07 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.53 x and 1.22 x respectively for FY13E and FY14E.
* We recommend ‘HOLD’ in this particular scrip with a target price of Rs.297.00 for Medium to Long term investment.
Accumulate Ge Shipping Company For Target Rs.286Earnings buoyed by offshore market and prudent sale of assets
GESCO has reported net profit of Rs 972 mn (+239% YoY) slightly below our expectation of Rs 1.02 bn. On the back of increased demand of crude and petroleum products, freight rates for crude tankers and product carriers remained firm throughout the quarter. This was also supported by slow steaming of vessels and increase in long haul shipments. But steady fleet growth capped any significant spurt in the freight rates. Chinese New Year holidays, weather related issues in key exporting ports of Brazil & Australia and increase in new building deliveries kept the bulk market weak. The offshore segment was strong in the quarter with crude prices firming in the quarter. The share of Greatship India Limited (GIL), the offshore subsidiary has increased to ~45% in the total revenues (from 35% QoQ). The company continues to be net seller of the ships in the market and currently has a small fleet of 33 vessels or 2.60 mn dwt. Consequently consolidated revenues have remained flat YoY amidst decreasing fleet size, stable tanker market and weak bulk segment. Profit was aided by profit on sale of ships of Rs 652 mn and reversing of Rs 294 mn from finance cost. Earnings for shipping companies' continue to be very volatile. We expect the cyclical weakness in the shipping market to continue for another two quarters. We expect the shipping segment of GESCO to report flattish/declining numbers YoY amidst declining fleet of the company as the company continues to discard old ships. However we expect the offshore subsidiary, GIL in which the parent is incurring heavy capex to show healthy growth of 20% CAGR over the next 2 years in revenues and profitability. Overall we expect the company to report 6% CAGR in revenues and 12% CAGR in profitability over FY12 to FY14E with subdued return ratios. We value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 with an ACCMULATE rating. We estimate the asset prices to remain stable in near term for shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade.
Valuation and recommendation:
We like GESCO's strategy of discarding old and single hull vessels judiciously which enabled it to realize substantially greater asset price, which multiplied its profit generating potential over years. The balance sheet position of the company is also very healthy with current net debt to equity at a comfortable 1.0 x. With oil price above $100 per barrel, the offshore segment (GIL) is expected to add significant value to the consolidated entity. Company is making significant capex of $210mn for GIL in FY13E.
Historically GESCO has traded at a discount of 30% to its Net Asset Value or Asset Replacement Cost. Using NAV (35% discount - assigning higher discount), we value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 per share. We re-iterate Accumulate rating on GESCO with a price target of Rs 286. We estimate the asset prices to remain stable in near term for
shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade
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