15/02/13


Buy KPIT Cummins For Target Rs.139

KPIT's 3QFY13 results were marginally lower than estimates on the operational front. While USD revenues remained flat in line with expectations, EBIDTA margins were marginally lower. The results contained one-off provisions of about Rs.95mn, which impacted PAT growth. Management commentary echoes the optimism sounded by other leading peers about the continuing traction in automotive, manufacturing and hitech verticals, the mainstay of KPIT. However, we note that, the company has faced constraints with some clients and we will be watchful of this trend. We fine-tune FY13E EPS to Rs.10.6 and FY14E EPS to Rs.12.4. We have incorporated the proposed equity dilution of about 7.3%. Our FY14E-based TP stands at Rs.139 (Rs.146 earlier). At our TP, the stock will be valued at about 11.2x FY14E earnings. This is a suitable discount to larger peers. Looking at the 20% upside, we maintain BUY. We remain positive on the long term prospects of KPIT.

Valuations and recommendation
* The stock has been range-bound in the past few weeks in the backdrop of an uncertain macro.
* We have accorded KPIT valuations higher than comparable peers, based on its positioning on the value-chain, relatively higher revenue growth and potential  upsides to margins. The valuations are at a suitable discount to larger peers, though.
* Our PT is at Rs.139. At our target price, KPIT's FY14E earnings will be discounted 11.2x.
* We maintain our positive bias on the stock. Looking at the potential upside, we upgrade the stock to BUY.
 

 Buy UltraTech Cement Ltd For Target Rs.2145.00


UltraTech Cement Ltd an Aditya Birla Group cement major, is among the top 10 producers of cement in the world and the largest in India.
* UltraTech Cement has more than 200 sales offices across the country, which handles a combined load of around 14,000 orders per day.
* During the quarter, the robust growth of Net Profit is increased by 97.21% to Rs. 5500.30 million.
* UltraTech Cement has entered into a Share Purchase Agreement with the shareholders of Gotan Limestone Khanij Udyog Pvt. Ltd (GKU) and has acquired GKU’s entire equity stake.
* UltraTech Cement is planning to set up additional clinkerisation plants at Chhattisgarh & Karnataka are progressing on schedule & these are expected to be operational from early FY14.
* During the quarter ended, the combined cement and clinker sales was 9.06 MnT (8.94 MnT) while it was 2.39 LmT (2.11 LmT) for white cement and wall care putty.
* Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 42% over 2011 to 2014E respectively.

Outlook and Conclusion
Cement demand is likely to grow over 8% linked to the Government focus on infrastructure development. The surplus scenario is expected to continue over the next 3 years. Any rise in input costs will impact margins.
* At the current market price of Rs.1915.00, the stock P/E ratio is at 15.74 x FY13E and 12.99 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.121.67 and Rs.147.37 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 42% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 10.28 x for FY13E and 8.78 x for FY14E.
* Price to Book Value of the stock is expected to be at 3.24 x and 2.59 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.2145.00 for Medium to Long term investment.
  Buy Marico Ltd For Target Rs.248

Marico has announced a restructuring of operations, which involves demerger of Kaya into a separate entity, Marico Kaya Enterprises (MaKE). Marico's Consumer Products Business and International Business Group shall form a unified FMCG business. The company has said that initially, MaKE shall be a 100% subsidiary of Marico Ltd. Eventually (record date expected to be in June/ July), Marico shareholders shall be issued shares of MaKE. One fully paid up equity share of Rs 10 each of MaKE shall be issued and allotted at a premium of Rs 200/ share for every fifty shares held in Marico Ltd. Shares of MaKE shall be listed on BSE&NSE. The appointed date of the demerger is April 1, 2013.
* The prime motivations for the above, as per management, are: 1/ greater convergence of the CPB and the IBG businesses, and the synergies therein, 2/ scale - up in the international business as well as the Kaya business has enabled the decision, 3/ Kaya and Marico's FMCG businesses are different businesses and require different approach.
* Following the demerger, the two companies shall operate with an independent leadership and different board of directors. The shareholding structure of MaKE will mirror that of Marico immediately after the demerger.
* There will be no impact on Marico's P&L account from the demerger in FY13. Going forward, we expect the company to report improving margins (and broadly similar profits, in the near-term),as Kaya had reported PBIT losses of Rs 325mn, on revenues of Rs 2.79Bn in FY12. The company's release notes that investments of Marico in Kaya will be adjusted against the securities premium account. Marico's exposure to Kaya at the end of 1HFY13 was Rs 1.81Bn (this may undergo a change from now to April 1, 2013), which includes an interest - free loan of Rs 1.07Bn. Separately from the loan provided by Marico, the Kaya entities would have, under their two subsidiaries, debt of c.$28mn.
* The management has said that it would like to, post-restructuring, put Kaya in a debt-free position. As of now, MaKE's capital requirements are not expected to be very large. However, the management has said that the demerger may, at some point of time, also provide an opportunity for MaKE to issue fresh capital should the need arise.
* The change to Marico's (FMCG) business and its management shall be: 1/the leadership: henceforth, the CPB and IBG shall report to a single leadership. This may, as per management, improve the quality of decision-making (unification of approach to portfolio), and also save some people related costs (to the extent that there may be duplication), 2/ Benefits in terms of supply chain management. From management comments, we infer that these benefits are unlikely to be significant.
* The key benefit from this exercise, we believe, shall be the ability to place greater focus on Marico's FMCG businesses and the ability to have greater flexibility in choosing the growth trajectory for MaKE. Moreover, since valuation of FMCG companies tends to focus on profits, we believe it is likely that the restructuring will improve value perception of Marico. We agree with the spirit of the demerger, and maintain a positive stance on Marico.
 Buy Prestige Estates Ltd. For Target Rs.195

We met Prestige Estates Projects’ (PEPL) management and visited key sites to get updates on the business and outlook of Bangalore real estate market. The key takeaways are:
*  Despite moderation in the launch plan over 2HFY13, PEPL is comfortably poised to beat FY13 sales guidance of ~INR25b by almost 20%. 8MFY13 sales stood at ~INR22.5b.
*  Execution progress steady in most annuity assets. We estimate annualized rental income to post ~35% CAGR over FY12-15E to  ~INR4.6b.
*  Progress in development projects are on track to meet guidance of 2-2.5x scale-up in quarterly revenue run-rate. We expect an uptick in collections run-rate to INR6b/Q.
*  Upgrading our NAV-based target price by ~9% to INR195 and FY13E/14E EPS estimates by 4-8%. While the stock has already been  re-rated in line with expectation, further upside hinges on strengthening of P&L and cash flow hereon. Maintain Buy.
 Key annuity assets witness healthy progress
Cessna Business Park: Cessna Block 7 is likely to be handed for fit-outs in December 2012, post which it will have 3 months of rent-free period. Thus, it is unlikely to contribute to FY13 rentals. Cessna Block 8 is at G+1 level of construction progress. PEPL has slowed down construction in Block 8, as Cisco is yet to give the mandate for the same, which it expects to get by January 2013 and subsequently  complete the construction by June 2013. Block 7 is likely to contribute rental income of INR223m (83% is PEPL share), thus taking the total annualized rental income from Cessna to ~INR993m.
Exora Business Park:
Exora Block 3 is completed and fit-out work is in progress among key tenants like Verizon, QBE etc. The block is likely to yield rent from  January 2013. Block 2 would be completed by May 2013, while another ~0.2msf of commercial block is under-construction and shall be ready by August 2013. We estimate FY13E exit rental run-rate from Exora at ~INR240m
 Buy Anik Industries Limited For Target Rs.40.00



We initiated coverage of Anik Industries Ltd and set a target price of Rs. 40.00 for Medium term Investment.
* ANIK is primarily engaged in the business of processing of Milk & Milk Products, Trading of Agri- Commodities & coal and Wind power  Generation.
* During the quarter, the robust growth of Net Profit is increased by 99.68% to Rs. 18.81 million.
* The Company is planning to setup a new dairy plant at Etah for better quality of milk powder to cater northern and north-east part of the country.
* The Company is enthusiastic to set up mineral based industry in Madhya Pradesh to process minerals to be explored from its own mines.
* Company is keen to set up an IT project under one of its sole proprietary concern M/s Ruchi Infosystems in West Bengal.
* Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 17% over 2011 to 2014E respectively.

Investment Highlights
Results updates- Q2 FY13,
ANIK has made a benchmark in its dairy products all over India and in order to keep ahead and make its presence felt globally and in other fields too, reported its financial results for the quarter ended 30 September, 2012. The company is exploring business opportunities for implementing the expansion plans of the existing businesses and few years back has diversified in mining and mineral based new projects.
The company’s net profit jumps to Rs.18.81 million against Rs.9.42 million in the corresponding quarter ending of previous year, an increase of 99.68%. Revenue for the quarter decreased 8.24% to Rs.3017.05 million from Rs.3287.89 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.0.68 a share during the quarter, registering 99.68% increase over previous year period. Profit before interest, depreciation and tax is Rs.192.23 millions as against Rs.106.65 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.36.00, the stock P/E ratio is at 6.38 x FY13E and 5.50 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.5.64 and Rs.6.55 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 17% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 1.08 x for FY13E and 0.96 x for FY14E.
* Price to Book Value of the stock is expected to be at 0.41 x and 0.38 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.40.00 for Medium to Long term investment.
  Buy Jammu & Kashmir Bank For Target Rs.1403



Snapshot
Jammu & Kashmir Bank has emerged as one of the handful (quasi) Government Banks to have registered consistent growth in earnings while maintaining the asset quality. We expect this to lead to a re-rating in the stock price.
Investment Rationale
Strong performance to lead to re-rating: The Bank has reported a consistent growth in financial performance with Net Interest Income and
PAT registering a growth of 19.1 per cent and 24 per cent respectively during FY’07-12 period. The Bank has strong return ratios with a RoE in excess of 20 per cent and RoA in excess of 1.5 per cent.
Play on the economy of J&K: Being a dominant player in the state of Jammu & Kashmir, the Bank should mirror the performance of the state’s economy, which is showing signs of stability.
Adequately funded to pursue future growth opportunities: Jammu & Kashmir Bank is adequately funded to pursue future growth opportunities over the next 2-3 years.
Consistent dividend pay-out ratio: The Bank has a consistent dividend pay-out policy. J&K Bank distributes ~20 per cent of the earnings as
dividends. Extrapolating this trend, we expect the dividend to be minimum Rs.40 for FY’13E and Rs.48 for FY’14E.
Valuation & Recommendation
Jammu & Kashmir Bank posted Net Interest Income of Rs.1089 crore compared to Rs.871 crore, an increase of 25 per cent y-o-y. The Bank
registered a pre-provisioning profit of Rs.837.8 crore compared to Rs.629.1 crore, an increase of 33.2 per cent y-o-y. Profit after tax for H1FY’13 stood at Rs.515.6 crore. EPS for the half-year stood at Rs.106.4.
Considering the improving prospects, consistent growth in earnings, we expect a strong re-rating in terms of valuation. We value J&K Bank  at 1.45x FY’14E adj. book value to arrive at a price target of Rs.1710 over the next nine months (an upside potential of 22 per cent).