22/2/2013
Buy Zensar Technologies Ltd For Target Rs.310


The management has indicated that, CY13 client budgets have been finalized. Clients are confident about the year going ahead despite macro concerns like debt ceiling and spending cuts. anufacturing and retail are expected to see strong growth, as reflected by budgets. The IM business is expected to return to QoQ growth in 4Q after two quarters as restructuring is almost complete and client shutdowns are past it. The integrated IM offering has been accepted well by clients with larger orders and an enhanced order book reflecting the same. The planned measures like lean execution, improved efficiencies, best practices, etc are targeted at improving the profitability profile of the company in FY14. We view the profitability initiatives positively but will wait for the same to play out, especially as the macro scene is uncertain. We retain our FY14 EPS estimate of Rs.44.6 and also the PT of Rs.310. Upgrade the stock to BUY from ACCUMULATE, post the recent decline. We met the top management recently. The main takeaways are as under.
Valuations
* Our DCF based price target is Rs.310 for the stock, based on FY14E earnings.
* We view the business restructuring exercise with optimism, but would like the initial benefits to play out before becoming more positive on margins. The uncertain macro may also sustain challenges on the revenue front.
* We had recommended an ACCUMULATE on the stock looking at the limited upside post 3Q results.
* The stock has since come off and now offers 28% upside. We, therefore, upgrade the stock to BUY. At out TP, FY14E earnings will be discounted by 7x.
* Sustained rise in margins and stable revenue growth profile may lead us to accord higher valuations to the stock.
 

Buy Dhanuka Agritech Ltd For Target Rs.154



Results in line with expectations
Dhanuka Agritech reported revenues in line with expectations. The company reported revenue of Rs 139.71 cr which grew by 26.5% yoy. This is led by 23% volume growth and remaining by pricing. EBITDA grew by 25% yoy while EBITDA margins marginally declined to 11.3% v/s 11.5% in Q3FY12. PAT rose by higher rate of 49% yoy on strong operational performance and lower interest expense. Quarterly numbers are not comparable as Q2 being seasonally strong quarter for the company.
9MFY13 sales have grown 14% yoy while PAT grew 19.8% over 9MFY12.
Key Highlights
* Gross margins were down by 3-4% during the quarter because of subdues performance from Targa Super which management expects to normalize in next year (Q4 is a off season quarter)
* Insecticides and Fungicides contribution to sales have increased during the quarter while that of Herbicides has fallen due to poor performance from Targa Super. Insecticides, Herbicides, Fungicides and Others contributed 50.6% (v/s 47.7% in 9MFY12), 26.8% (29.5%), 12.5% (11.7%) and 10.1% (11.1%) respectively to sales in 9MFY13
* North, East West and South zones contributed 19.6% (v/s 18.1% in 9MFY12), 13.9% (13.4%), 29.2% (33.8%)and 32.4% (30.1%) of sales in H1 FY13, with contribution from West zone falling due to drought-like condition in Saurashtra, Gujarat.
* Company has 6-7 products are in pipeline which is novel products. Out of these two products would be launched every year.
Valuation & Recommendation
At CMP the stock trades at 9.3x FY13E and 8.1x FY14E. Dhanuka has reported decent if not good quarter numbers despite poor industry scenario and where other companies have reported poor results. We believe that company is well positioned and can report strong growth as and when industry revives. We have a positive outlook on the stock. Based on 10.0x FY14E EPS of Rs 15.4 target price comes to Rs 154, indicating potential upside of 24% from current levels. We maintain our BUY rating on the stock.
  Buy Selan Exploration Technology Ltd For Target Rs.339.00


Selan Exploration Technology Ltd is a private sector listed company, incorporated in 1985, engaged in oil-gas exploration & production.
* Selan Exploration Technology Ltd announced sharp growth of 15.14% in its net profit to Rs 120.90 million for the quarter ended Dec. 31, 2012 as compared to Rs 105.00 million in the same period last year.
* During the quarter, Revenue for the company rose 2.54% to Rs.246.00 millions from Rs.239.90 millions, when compared with the prior year period.
* Selan Exploration Technology Ltd has declared an Interim Dividend of 50% (i.e. Rs. 5.00/- per equity shares) for the financial year 2012-13.
* The Company has laid down diverse growth and expansion plans for its oil and gas fields; which shall lead to higher production of crude oil / gas.
* Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 21% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
Selan Exploration Technology Limited (SELAN) is a private sector listed company & engaged in oil exploration and production, reported its  financial results for the quarter ended 31 DEC, 2012.
The company’s net profit rose to Rs. 120.90 million against Rs. 105.00 million in the corresponding quarter ending of previous year, and increase of 15.14%. Revenue for the quarter rose 2.54% to Rs. 246.00 million from Rs. 239.90 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.7.18 a share during the quarter, registering 16.17% increase over previous year period. Profit before interest, depreciation and tax is Rs. 180.60 millions as against Rs.151.30 millions in the corresponding period of
the previous year.
Outlook and Conclusion
* At the current market price of Rs.303.00, the stock P/E ratio is at 10.15 x FY13E and 9.14 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.29.85 and Rs.33.15 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 21% over 2011 to 2014E respectively.
*  On the basis of EV/EBITDA, the stock trades at 6.68 x for FY13E and 6.12 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.98 x and 1.63 x respectively for FY13E and FY14E.
*  We recommend ‘BUY’ in this particular scrip with a target price of Rs.339.00 for Medium to Long term investment.
  Buy Vaibhav Global Ltd. (VGL) For Target Rs.213


Result in line with expectation
* Vaibhav Global (VGL) posted a steady quarter in terms of Net Sales which grew by 16.5% YoY to Rs. 248.1 crore and by 13.9% QoQ. The steady growth in the Net Sales was attributed to the jump in sales volume in US by 64.4% YoY and UK by 75.1%, increase in customer registrations in US by 2.4% YoY though UK faced a marginal decline (US contributes 60% of revenue as compared to 30% from UK & Balance from Wholesale). The company has the strategy to reduce the average selling price to garner market share by increasing the sales volume. The average selling price per piece in US fell down to US$19 Q3FY13 as compared to US$25 Q3FY12 whereas, in UK it fell down to US$26 Q3FY13 from US$41 Q3FY12.
* The EBITDA was down by 26.9% YoY to Rs. 28.8 crore and up by 113.1% QoQ. The EBITDA margin was down by 310bps YoY to 11.6% in Q3FY13 and up by 550 bps QoQ. The margin was down on YoY basis due to the significant jump in employee cost and other expenses as a % of sales. The employee cost was 14.9% as a % of sales in Q3FY13 and 11.5% in Q3FY12. The Other expense was 43.5% in Q3FY13 as against 35.5% in Q3FY12 as a % of sales. The jump in Other expenses is attributed to the fact that the company has subscribed to free air broadcaster in UK which increased expenses, company also started six hour separate TJC channel which was making losses plus company also investing for the future growth where it has increased storing capacity (as Q3 and Q4 is a peak season).
* The PAT was down by 39.5% YoY to Rs. 18.7 crore and up by 171.3% QoQ. The PAT margin declined by 700bps YoY to 7.6% in Q3FY13 and was up by 440 bps QoQ. The jump in interest cost by 13.3% YoY and significant upside in tax rate negatively impacted the profitability of the company. The tax rate stood at 16.2% in Q3FY13 as against 6.6% in Q3FY12 and 14.6% in Q2FY13.
Valuation & Recommendation
VGL has transformed itself to a discount retail business through TV channel from the jewellery business. This discounted model has helped the company to post a remarkable growth in terms of revenue and PAT and also to survive amongst the biggies. VGL is expected to continue the same model where it will sell the products at discounted rate and increase the volume by expanding its reach and providing other aligned fashion accessories. We feel the discounted sale retailing on TV channel in US and UK business is highly scalable and will help company to grow its revenue and PAT by 25.7% and 23.4% CAGR during FY12 to FY14E respectively. The ROE for the company is expected at 23.7% FY13E and 26.6% FY14E. At CMP of Rs. 115, the stock is trading at a PE of 5.1x in FY13E and 3.8x in FY14E. With the ability to grow strong and focus on the discounted segment where it differentiated with its competitor like HSN and QVC (Liberty Interactive Corp), we feel that VGL valuation can also improve. We maintain our target price of Rs. 213 per share (PE 7x FY14E) and BUY rating on the stock.