11/03/13

Buy on Dips Raymond Ltd For Target Rs.422

Valiation &Recommendations

Raymond is trading at PE of 13x of its FY14E EPS of Rs.24.80 and 1.9x of its TTM book value. Further, while considering the proposed cutbacks in excise duty on readymade garments  and dispose of a land will help improve the  operating margin and margin of the company respectively. Apart from this,expansion of retail garment shops & auto segment business will add its volums as well  top line growth in long run while in short run the demand is also likely to revive soon by up coming wedding & festive seasons. Hence,we recommend to keep "Buyon Dips" strategy for the target price of Rs.422 from medium to long-term time horizn.
 
Buy Larsen & Toubro Ltd For Target Rs.1,704


At attractive valuations: L&T is certainly facing the turmoil of a slow economic growth environment. With a recent price fall (3M underperformance‐ 12.2% relative to Nifty and 13.7% on Absolute basis), despite a healthy set of announcements in the recently d
Budget, L&T is trading at P/E of 10.7x FY15E core earnings. However, with the recent news flow in terms of order intake being positive, L&T announce looks on a comfortable wicket and poised to end the year with a 15% order inflow growth. Hence, we believe that the sheer  underperformance is unwarranted for an infrastructure giant like L&T.
Order book at comfortable footing: Order wins in Jan-Feb 2013 were close to Rs39bn which were a mix of B&F (Government), Defence, Hydrocarbon and Power. Further, with the impetus given to DMIC, DFC and other BOT projects in transportation (Budget 2013-14), along with a strong financial backing, we expect L&T to be able to secure sizeable orders. Though we have not factored in a major downfall in the EBITDA margins (11%) over FY14E-15E, we have also not kept it higher. However, any adverse mix in terms of order inflow may alter the margins. We are expecting a 10% CAGR in standalone earnings for the period of FY12-15E which is again not an out-of-reach assumption.
Valuation still in safe zone: Though the price points have corrected sharply in the recent times, we see these
levels as an entry point/increasing exposure to a stock in volatile times. At CMP, the stock  is trading at a core P/E of 11.8x FY14E and 10.7x FY15E. We have also rolled over our valuations to FY15E. With no near-term risks attached and sheer under performance of the stock,

 Buy Tata Motors Ltd For Target Rs.360


New platform for Land Rover models to lead to a 12.6% CAGR in volumes: JLR recently launched the all-aluminium bodied new ‘Range Rover’ which has generated a huge response. Given the fact that there was no platform change over the last decade, there could be a pent-up demand for the new ‘Range Rover’ and the upcoming product launches on the new platform. In addition to the new Range Rover, JLR is likely to start  the wholesale sales of the new ‘Range Rover Sport’ by June’13.
Jaguar to address newer segments leading to a 20.0% CAGR in volumes: Jaguar has just three models - XF, XJ and XK - in the higher-priced segments. To increase its addressable markets, Jaguar has planned few launches mainly 1) Station wagon XF – to address ~45% of the European Market and 2) New All-wheel drive (AWD) products – 40% of the US market remained untapped. At the same time, ‘XF’ and ‘XJ’ with a 2 litre engine have been launched in China which are expected to lead to better pricing as it would attract lower consumption tax. Increase in addressable segments would lead to a 20.0% CAGR in volumes over FY13-FY15E period.
Rising share of China in sales and richer product mix to improve JLR’s margins: JLR enjoys higher ASPs and margins in China than in any other geography due to the stronger demand environment in the country. At the same time, the new ‘Range Rover’ and ‘Range Rover Sport’ are likely to account for 34.6% of JLR volumes in FY15E as against 21.8% in FY13E. Most of JLR’s new product launches are either new models in higher priced segments or more expensive product upgrades of existing products (new Range Rover). We expect JLR’s blended ASPs to rise over the next two years and forecast a 9-10% ASP increase over FY13-15E period.
Upgrade to ‘BUY’ with a SOTP based TP of Rs360/share: We value JLR at 3.5x FY15E EV/EBITDA multiple at Rs296/share. We value standalone business at Rs41/share, whereas, we value the other subsidiaries at Rs23/share. The stock is currently trading at 8.0x FY14E EPS and 6.6x FY15E EPS. However, adjusting for R&D expense, the valuation stands at 9.4x FY14E and 8.0x FY15E.. Buy Wipro Ltd For Target Rs.480


Q3FY13 in-line with expectation, but guidance cautious: Wipro reported another quarter of a weak revenue growth of 2.4% QoQ (TCS: 3.3%, INFO: 4.2%, HCLT: 3.6%), led by realization improvement 3.8% QoQ (Onsite: 3.6%, Offshore: 3.4%). However, volume decline by 1% QoQ is weaker by ~2pp compared to peers. Moreover, the company guided for 0.5% to 3% QoQ growth which accounts for fiscal uncertainty and possible delay in ramp-up. We see high likelihood of Wipro delivering quarter towards the upper end of guidance.
Investment to S&M to be steady: Wipro likely to have steady investment in S&M (i.e. not to grow ahead of revenue). We do not expect it to decline on a QoQ basis, neither do we expect as a percentage of revenue. The company’s structure to mine its top clients (farming) have started showing results and so is new client addition (hunting). We see improved deal pipeline, pick-up in sales cycle and better win ratio to help pushing better growth in CY13.
Towards the tail end of restructuring: Wipro has gone through organizational restructuring over the last eight quarters. The restructuring has been a bumpy ride where it has seen changes at the senior management levels, organizational structure (Service verticalization), S&M investment and tail-trimming of clients. The company is now reaching the end of restructuring process.
Improved client composition and deal pipeline to give stronger CY13: Management indicated 1.7x stronger deal pipeline in Q3FY13 (v/s Q3FY12). Also, the deal wins have improved on QoQ basis. The company has reduced its non-productive tail of 80 clients to 20 with 181 new clients’ addition since Q4FY12. We expect improved client composition (due to strong clients’ addition and tail trimming) to result in improved business momentum in FY14.