19/02/2013

Buy Adani Port & SEZ For Target Rs.165


Adjusting for SEZ revenues, results were in‐line with expectations: The company’s standalone revenues for the quarter stood at Rs8.9bn, of which, Rs1.2bn was on account of SEZ land sales. Adjusting for the same, revenues stood at Rs7.7bn, in line with expectations, registering a growth of 21% YoY and flat QoQ. EBITDA margins stood at 74.6%, while adjusting for port income, they were at 72% on a standalone basis. Standalone PAT stood at Rs4.2bn, 34% YoY growth and 3% sequential decline. However, this accounts for a derivative loss of Rs0.46bn. On a consolidated basis, revenues stood at Rs13.5bn, 49% YoY & 29% QoQ growth. EBITDA margins stood at 68%, while PAT stood at Rs3.6bn, growth of 13% YoY and 31% QoQ; this takes into account a derivative loss of Rs0.57bn.
* Volume break‐up: At Mundra port, volumes for the quarter stood at 21.38mt, growth of 29% YoY and 5% QoQ. Crude volumes improved substantially to 3.8mt, 103% YoY growth and 5% QoQ growth as HMEL’s contribution increased. Bulk volumes remained flat sequentially, while POL and container declined. Contribution from Adani & Tata power has witnessed an increase from an average quarterly volume of ~2.5mt to~4.5mt. On a consolidated basis, volumes stood at 28.32mt, an increase of 10% on a sequential basis. Volumes at Dahej increased by 52% QoQ to 2.6mt, while Abbot Point volumes increased by 17% in the same period.
* Dahej shows strong performance: The volume traction at Dahej has been above expectations and hence, the ports’ financial have followed suit. Revenues at Dahej stood at Rs890m, margins at 62% and PAT at Rs165m.
 Hold V Guard Industries Ltd. For Target Rs. 535


Time to breathe for a long journey again…
V Guard posted a steady quarter in terms of Net Sales/EBITDA/PAT growing 42.7%/13.6%/23.3% YoY respectively. The EBITDA margin declined by  150bps YoY to 7.4% and by 220bps QoQ. The margin declined on account of jump in Other expenses as a % of sales and significant decline in EBIT margin in all the business segments except Electrical. The EBIT margin in Electronics was 8.4% in Q3FY13, decline by 50bps YoY and EBIT margin in Others was 10.9%, down by 1240bps YoY. Expansion of warehousing facilities/sales offices and accelerated investments in new product development led to margins dipping. In order to reap the benefit of festive demand, the advertisement expenditure was increased to 4.5% of revenue in Q3FY13 as against 4.1% in Q3FY12 also led the margin compression.

* Net Sales for Q3FY13 increased by 42.8% YoY to Rs. 348.1 crore and by 11.6% QoQ. The revenue was up due to the good growth recorded in the Electronics (47.4% YoY growth) and Electricals (40.9% YoY growth). Stabilizer, Pump, Wire, LTT Cables, Fans and Inverter reported a strong revenue growth during the quarter. The company has reported a steady growth of 40% in South markets and 49% growth in non-South markets in Q3FY13 as against Q3FY12.
* The PAT was up by 23.3% YoY to Rs. 15.4 crore and down by 14.6% QoQ. The PAT margin declined by 50bps YoY to 4.4% and by 140bps QoQ. The increase in depreciation and interest cost by 19.4% and 7.8% YoY respectively. The decline in tax rate and jump in Other income supported the profitability of the company.
* The company had successfully launched two products in Kerala 1) domestic switchgear and 2) induction cook top and is planning to roll out in other Southern states in the next 12 months and prior to that other non-southern state. Management had launched induction cook-top in Karnataka during Q3FY13E. The company expects to launch mixer grinder by Q1FY14E in Kerala and after 6 months in Karnataka and later to other parts of South India.

Valuation & Recommendation
At CMP of Rs. 496, the stock is trading at a PE of 20.2x in FY13E and 14.8x in FY14E. V Guard has outperformed BSE Consumer Durable Index with 175.9% return in one year as compared to just 27.3% return by the latter during the same period. We remain positive on the stock owing to strong domestic business, steady penetration in non-south market and gradually expansion of product portfolio. We are upbeat on the stock on the account of core business momentum remains robust with healthy EPS growth, cash flow generation and high RoEs. We have revised our target price of Rs. 535 per share at PE 16x FY14E (Rs. 464 per share). We recommend a “HOLD” rating and advise our investors to buy on decline.

 Buy VST Industries Ltd For Target Rs.2073.00




VST Industries Ltd. is a public conglomerate tobacco company headquartered in Hyderabad, India.
* VST Ltd. is third largest cigarette manufacturing company in India.
* VST Ltd has recommended dividend for the year 2011-12, Rs. 65.00 per Equity Share of Rs. 10.00 each.
* During the quarter ended, the robust growth of Net Sales is increased by 6.94% to Rs. 1761.90 million.
* Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 30% over 2011 to 2014E respectively.
* Company has recorded leaf export turnover  of Rs. 154 crore, in the year 2011-12.
* During the year under review the cigarette volumes stood at 762 millions up by 12% when compared to 2010-11.
* The company manufactures & distributes cigarettes under the brands Charms, Charminar, Gold.
Investment Highlights
Results updates- Q2 FY13,
The company’s net profit jumps to Rs.276.00 million against Rs.335.90 million in the corresponding quarter ending of previous year, a decrease of 17.83%. Revenue for the quarter rose 6.94% to Rs.1761.90 million from Rs.1647.60 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.17.88 a share during the quarter, registering 17.83% decrease over previous year period. Profit before interest, depreciation and tax is Rs.458.50 millions as against Rs.541.40 millions in the corresponding
period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.1885.00, the stock P/E ratio is at 16.15 x FY13E and 13.94 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.116.74 and Rs.135.18 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 30% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 10.04 x for FY13E and 8.75 x for FY14E.
*  Price to Book Value of the stock is expected to be at 9.16 x and 8.37 x respectively for FY13E and FY14E.
*  We recommend ‘HOLD’ in this particular scrip with a target price of Rs.2073.00 for Medium to Long term investment.
  Buy Arshiya International Limited For Target Rs.188


Strong operational performance in Q2FY13 - FTWZ and container rail grows at healthy pace
Arshiya has reported its Q2FY13 net profit at Rs 354 million (+11% YoY). This was on account of increased share of FTWZ revenues in the overall revenues which has increased from 16% in Q2FY12 to 24% in Q2FY13. FTWZ revenues have grown from Rs 387 mn in Q2FY12 to Rs 893 mn in Q2FY13. As FTWZ is a high margin business, the increased share has helped the overall margins expand from 25.6% in Q2FY12 to 29% in Q2FY13.
The company currently operates 4 warehouses at Panvel FTWZ and we estimate the company to ramp it up to 8 warehouses by end of FY13E. ARST has also started its Khurja FTWZ in Q4FY12 with 2 warehouses and we estimate the company to ramp it up to 4 by end of FY13E. The VAS to rental ratio has improved from 1.25 x to 1.4 x sequentially and we estimate it to improve from to 1.5 x by FY13E and further to 2x by FY14E. In the rail segment the company operates 20 rakes currently and we estimate the company to ramp it upto 24 by end of FY13E. Rail segment has reported 55% YoY growth in revenues with EBIT margins expanding to 16.5%. The company wants to  integrate its entire rail operations with its logistics business and FTWZ business and run these rakes primarily on the domestic segment. The company continues to grow steadily in its core third party logistics (3PL) businesses. Total revenues have grown to Rs 3.72bn (+50%  YoY).
We expect the company to deliver revenue CAGR of 24% over FY12 to FY14E to ~ Rs 16.4 bn with improvement in operating margins from 25.7% in FY12 to 27.3% in FY13E and 29.3% in FY14E. With improvement in margins and benefits of aggressive capex accruing to the company going ahead, we expect the return ratios of the company to improve. High leverage, execution delays and poor acceptability of the key FTWZ concept are some of the pitfalls and can be a drag for the company. Consequently we value the company at 30% discount to the one year forward multiple of 8 x of peer group companies in the Logistics space which comes at Rs 188. The discount captures the risks on account of the high leverage position of the company. We re-iterate BUY with a price target of Rs 188.
Valuation and recommendation
AIL is getting transformed from a 3PL player to becoming an integrated service provider, and its Free Trade Warehousing Zone (FTWZ) foray, if successful, can lead to a significant re-rating. We expect 24% sales growth over FY12 to FY14E driven by FTWZ segment and an increasing presence in container haulage and 3PL logistics. Adjusted PAT is expected to increase over FY12 to FY14E driven by a 170 bps expansion in EBITDA margin as high margin FTWZ expands and contributes about 25% to revenues in FY13E and 33% in FY14E.
We expect sizeable value accretion from the FTWZ business from FY13E. Consequently we value the company at 1/3rd discount to the one year forward multiple of 8x of peer group companies in the Logistics space which comes at Rs 188. The discount captures the risks on account of the high leverage position of the company, nascent FTWZ concept and slowdown in the economy. We rate the stock BUY with a price target of Rs 188.
  Buy Federal Bank For Target Rs.580 

Federal bank’s Q3FY13 numbers were much better than reported numbers as one‐ off losses (Rs200m interest reversal + Rs600m NAFED provisioning) significantly exceeded one‐off cap gains from CARE IPO. Growth has picked up after the de‐ bulking in H1FY13 and asset quality (excl. NAFED) has also held up better‐than‐ expected. With strain from legacy assets coming off and high opex growth phase
nearing end, we expect ROEs to move up to ~15.5‐16% over FY13‐15 after being stuck in a narrow band of 12‐14% for the last five years and thus, maintain our ‘BUY’ rating with a PT of Rs580/share.
* Many one‐offs in Q3FY13 as expected: (1) Capital gain of Rs400m on 2% stake sale in CARE IPO (2) Rs600m provision for their Rs2bn NAFED exposure which is also recorded as NPA and (3) Rs200m interest reversal leading to a miss on NII. Adjusted for one‐offs, PPOP was in line with expectations and adjusted for NAFED, asset quality surprised.
* Growth picks up; adjusted margins in line: Growth momentum has picked up after the corporate book de-bulking in H1FY13, with 9% sequential loan growth driven by retail (7% QoQ) and large corporate (14% QoQ). NIM adjusted for the one-off interest reversal of Rs200m improved by ~6bps QoQ was in line with our expectations and management guidance.
* Asset quality better than expected: Gross NPA inched up QoQ largely due to recognition of Rs2bn NAFED exposure as NPA, adjusted for which Gross NPA was down QoQ. Provisions were also largely linked to NAFED at Rs0.6bn as FB decided to marginally run-down NPA coverage on their earlier NPA pool. Segmental slippages data indicate a positive trend, with slippages coming off in the SME and large corporate segment (excl. NAFED) and segmental ratings for their large/SME assets improving v/s Q2FY13.
* Other highlights: (1) Opex was in line with estimates. However, with Federal bank closing on their 1100 branch target (1028 branches in Q3FY13), we believe opex growth will moderate from FY14 (2) Non-interest income was aided by treasury/CARE/recovery of ~Rs1bn adjusted for which core fee income growth was ~10% which is under management guidance on core fees.
 



Buy ABM Knowledgeware Ltd For Target Rs.70.00



ABM has developed a thorough insight in implementing and institutionalizing e- Governance in the Indian context.
* During the quarter, the robust growth of Net Sales is increased by 20.82% to Rs. 204.12 million.
* ABM is awarded e-Governance contracts worth Rs. 380 millions in different domain like SAP, Utility Billing and Software for Accounting Reforms.
* ABM Knowledgeware Ltd has been awarded by NASSCOM for crossing the Emerge milestone in revenue at the NASSCOM EMERGEOUT Conclave at Gurgaon.
* ABM bagged "Special Jury Award" for its Project "Implementation of Municipal Administrative Information Network (ABM MAINet®) in the category of "Best Government to Citizen Initiative of the Year".
* Net Sales and PAT of the company are expected to grow at a CAGR of 38% and 30% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q2 FY13,
ABM’s business focus is on niche domains like providing e-Governance solutions to Municipal Bodies (G2B & G2C), CRM solution for Electricity Distribution Companies (G2C) and Automation of Billing, Accounting and Collection for Water Distribution Authorities (G2B & G2C), reported its financial results for the quarter ended 30 Sep, 2012.
The company’s net profit decline’s to Rs.35.32 million against Rs.36.15 million in the corresponding quarter ending of previous year, a decrease of 2.30%. Revenue for the quarter rose 20.82% to Rs.204.12 million from Rs.168.94 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.3.53 a share during the quarter, registering 2.30% decrease over previous year period. Profit before interest, depreciation and tax is Rs.53.55 millions as against Rs.55.09 millions in the corresponding period of the
previous year.
Outlook and Conclusion
*  At the current market price of Rs.62.00, the stock P/E ratio is at 3.22 x FY13E and 2.66 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.19.26 and Rs.23.34 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 38% and 30% over 2011 to 2014E respectively.
*  On the basis of EV/EBITDA, the stock trades at 2.14 x for FY13E and 1.78 x for FY14E.
*  Price to Book Value of the stock is expected to be at 0.92 x and 0.68 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.70.00 for Medium to Long term
 



 Buy Den Networks Ltd. For Target Rs.220

Outlook
Digitization is a reality now as analog signals in Delhi and Mumbai has been switched off (as per Phase-I deadline of 30th Oct, 2012) without any major hiccups. Given that MSO’s are expected to be the biggest beneficiaries of digitisation, we believe Den Networks Ltd is well placed to reap the benefits of digitisation on the back of its strong subscriber revenue base of ~11 mn and aggressive management team. At a CMP of Rs 180, the stock is trading at 31.5x and 25.9x its FY13 and FY14 earnings estimates and we recommend a BUY on the stock with DCF based target price of Rs 220 (~20.8% upside potential).

Key Takeaways
• Den Networks reported strong set sets of numbers during the quarter with 23.9% YoY top-line growth in its cable business led largely by consolidation of acquired JVs. Consolidated revenues were at Rs 216.09 crore during the current quarter. It is to be noted that consolidated top-line is not comparable with corresponding period of previous year due to the change in accounting policy at Media Pro which has started reporting revenues on a net basis (Gross revenues – Cost of Distribution rights).

• Moreover, the company has been able to save on operating costs (66% v/s 72.2% of sales) for the second quarter in a row (in cable business) which has lead to significant improvement in margins by 540 bps YoY (22.9% v/s 17.5%). Consequently, consolidated EBITDA and PAT were at Rs 49.6 crore (+59.2% YoY) and Rs 16.4 crore (+112% YoY) respectively.

• During the quarter, company added over ~4,00,000 more set top boxes taking its total set top box universe to ~2.4 mn with majority of the additions in Delhi and Mumbai. We remain upbeat on the company as the company has analog network of over 3.75 mn subscribers in Phase II cities and is likely to convert a significant portion. The company has a strong analog presence in Phase II cities across Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Rajasthan and Haryana.

• Den Networks Ltd has allocated ESOPs to employees in March, 2011 and as a result would amortise the ESOP premium over the next three years. As a result, the company has amortised Rs 0.81 crore during the quarter
 

Yessssssssss

The investment by overseas investors into Indian stock market since the beginning of 2013 has crossed USD 7 billion mark, out of which more than USD 3 billion were pumped in the month of February alone.

Foreign Institutional Investors (FIIs) infused a net amount of USD 3.23 billion (about Rs 17,211 crore) during February, taking the total for 2013 so far to USD 7.29 billion (Rs 39,270 crore ) for Indian stocks.

Market analysts attributed strong FII inflows to signs of easing interest rates by the Reserve Bank and the subsequent impact of improved liquidity position.

Additionally, a slew of measures taken by the government, including the postponement of GAAR (General Anti Avoidance Rules) implementation by two years to April 1, 2016 and partial decontrol in diesel prices have also attracted foreign investors.

During February, FIIs were gross buyers of shares worth Rs 34,298 crore, while they sold equities amounting to Rs 17,087crore, translating into a net investment of Rs 17,211 crore (USD 3.23 billion), as per data available with market regulator Sebi.