14/03/2013

Buy NIIT Technologies Ltd for target of Rs.310 


Company Profile: New Delhi based NIIT Technologies Ltd. offers IT solutions primarily in North America, Europe, the Middle East, Asia &
Australia. It offers application development & management services in the areas of custom software development, business intelligence,
migration and modernization, as well as functional & regression testing, system testing and full lifecycle testing for software applications; package implementation and cloud computing services; managed services; platform-based solutions; BPO solutions that enable clients to manage back office, middle office and front office operations; and contact centre operations for international customers. The company also provides geographic information systems based solutions ranging from software products, training, technical support, data conversion, and application development to geo-spatial image processing & consulting. It serves organizations in the banking, financial services, insurance, travel, transportation and logistics, manufacturing, distribution, government, and healthcare sectors.
Equity & Share Holding Pattern: It has an equity
base of Rs.59.63 cr. that is supported by reserves of around Rs.850.26 cr., which is 14.25 times its equity. It has a share book value of Rs.105.76. The promoters hold 31.33%, FIIs hold 26.83%, DIIs hold 17.57% while the public holding is 24.27% stake in the company.
Share Profile: Its shares with a face value of Rs.10 are listed on the BSE & NSE under the B group. Its share price touched a 52 week high/low of Rs.324.80/227.10. At its current market price of Rs. 271, the company has a market capitalization of Rs. 1630crore.
Financial Performance: For Q3FY13, it posted net sales of Rs.286.55cr. with net profit of Rs.49.26 cr. against net sales of Rs.218.37 cr. with net profit of Rs.37.62 cr. in Q3FY12 on a standalone basis. For 9MFY13, itrecorded net sales of Rs.786.63 cr. with net profit of Rs.121.57 cr. against net sales of Rs.585.44 cr. with net profit of Rs.82.95 cr. in 9MFY12 on standalone basis. The Q3FY13 EPS stood at Rs.8.19 while the 9MFY13 EPS stood at Rs.20.21.At the current level, the stock is available at forward a P/E multiple of just 7.35.

Dividends & Bonus : The Company has been paying dividend as follows: FY05: 55%, FY06: 60%, FY07: 65%, FY08: 65%,FY08: 65%, FY09:65%, FY10: 70%, FY11: 75% and for FY12 it has paid 80% dividend on a face value of Rs.10 per share. It has paid bonus shares as follows: 2007 in a ratio of 1:2.

 


Future outlook & Conclusion: The Company may declare a record net profit around Rs.220crore and an EPS of
Rs.36.89 for FY13. At its current market price of Rs.271, the share price discounts less than 7.35 times its FY13 (E) EPS of Rs.36.89. The stock appears undervalued and is likely to attract value buying at this level. Hence, we recommended to buy this stock in 2 parts (1) Rs.270-271 (2) Rs.255-258 with stop loss of Rs.245 for target of Rs.310++ in next 4-6 months…while stock can zoom upto Rs.350+ levels in less than 12-15 months. Best stock going at dirt cheap rate due to market sentiment…!!! 
 Buy BPCL

3QFY13 results better than expected: BPCL’s PAT for 3QFY13 was INR16.5b (v/s our estimate of a loss of INR1.4b) as against INR31.4b in 3QFY12 and INR50.3b in 2QFY13. EBITDA was INR22.6b, higher than our estimate of INR5.1b, led by (a) net over-recovery of INR2.2b (v/s our estimate of net under-recovery of INR12b), (b) adventitious gain (on product inventory) of INR3.3b, and (c) staff cost being lower by ~INR0.8b, though the benefits were partly offset by forex loss of INR2.2b. Given the ad-hoc subsidy sharing, we believe quarterly financials are not indicative of the likely full year performance.
* 9MFY13 PAT negative despite government subsidy: The upstream companies have compensated BPCL INR109b in 9MFY13 and the government has already provided a support of INR132b. However, this compensation was inadequate and resulted in INR59b loss for BPCL in 9MFY13. As in previous years, we model that major portion of the government subsidy would be received in 4Q. For FY13, similar to FY12, we model subsidy sharing of 60% by the government, 40% by upstream, and nil by OMCs. Valuation and view
* Our positive stance on the stock is driven by the recently announced diesel reforms, following which gross under-recoveries are likely to reduce by 50% by FY15. For OMCs, in the initial period of reforms, stock performance will largely be led by re-rating. The earnings benefit will be limited, as we already assume nil subsidy sharing in FY14.

* We model monthly hike of INR0.45/liter in diesel price and expect OMCs to be fully compensated by upstream (40% share) and the government (60% share) for the under-recoveries on controlled products. The stock trades at 13.3x FY14E EPS of INR30.3. Adjusted for investments, it trades at 0.8x FY14E BV. BPCL is our top pick among OMCs. Maintain Buy.
  

 Buy Shree Cement Ltd For Target Rs.5,000 


Strong visibility on volume expansion: Management has guided to increase its cement capacity by 2.5mt/year (first unit in June-2013) over next five years and aim to exit the FY17 with capacity of 25mtpa. Our channel checks suggest ordering of much awaited Chhattisgarh based 3rd unit during the current month. Robust cash flow generation, strong balance sheet (debt free) and exceptional project execution ascribes strong visibility to the consistent volume growth.
Presence in stable and balanced markets: SRCM’s entire dispatches come from relatively stable Northern and Central regions. Utilization levels in these regions (including East) are way ahead of the national average as well as threshold levels, coupled with better demand growth and lower capacity addition. Hence, it would benefit SRCM, with strong prices and higher operating rates on expanded volumes.
Structural beneficiary of shrinking domestic coal supplies: SRCM meets its entire fuel requirement through imported coal/pet coke. Coupled with continuous cut in legacy, coal linkages and price increases by Coal India, the availability of cheaper domestic coal under linkage came down significantly to all top producers. Shree Cement would stand as the major beneficiary of this structural shift, given its 100% dependence on imported coal/pet coke.
Valuations attractive, maintain ‘BUY’: Shree Cement commands one of the best earnings quality in the sector, backed by company’s strongcommand across the aspect of business-cost (ranks 1st), market share (highest market share in northern region @20%), timely volume expansion (5-year CAGR at 15%). At CMP, stock trades at attractive valuations of EV/Tonne at US$88 and EV/EBITDA at 4.9x FY15E. We reiterate our ‘BUY’ rating with TP of Rs5,000, valued cement biz at EV/EBITDA of 6x FY15E and power biz at P/BV of 0.5x FY15E BV.
Strong visibility on volume expansion: Management has guided to increase its cement capacity by 2.5mt/year (first unit in June-2013) over next five years and aim to exit the FY17 with capacity of 25mtpa. Our channel checks suggest ordering of much awaited Chhattisgarh based 3rd unit during the current month. Robust cash flow generation, strong balance sheet (debt free) and exceptional project execution ascribes strong visibility to the consistent volume growth.
Presence in stable and balanced markets: SRCM’s entire dispatches come from relatively stable Northern and Central regions. Utilization levels in these regions (including East) are way ahead of the national average as well as threshold levels, coupled with better demand growth and lower capacity addition. Hence, it would benefit SRCM, with strong prices and higher operating rates on expanded volumes.
Structural beneficiary of shrinking domestic coal supplies: SRCM meets its entire fuel requirement through imported coal/pet coke. Coupled with continuous cut in legacy, coal linkages and price increases by Coal India, the availability of cheaper domestic coal under linkage came down significantly to all top producers. Shree Cement would stand as the major beneficiary of this structural shift, given its 100% dependence on imported coal/pet coke.
Valuations attractive, maintain ‘BUY’: Shree Cement commands one of the best earnings quality in the sector, backed by company’s strongcommand across the aspect of business-cost (ranks 1st), market share (highest market share in northern region @20%), timely volume expansion (5-year CAGR at 15%). At CMP, stock trades at attractive valuations of EV/Tonne at US$88 and EV/EBITDA at 4.9x FY15E. We reiterate our ‘BUY’ rating with TP of Rs5,000, valued cement biz at EV/EBITDA of 6x FY15E and power biz at P/BV of 0.5x FY15E BV.
 Buy Arcotech Ltd For Target Rs.72.00 


We initiated coverage of Arcotech Ltd and set a target price of Rs. 72.00 for Medium term Investment.
* Arcotech Ltd. has been promoted in 1981 for manufacturing internationally acceptable quality of Copper & Brass Strips and Foils.
* The company’s net sales registered an 45.55% increase and stood at a record Rs. 995.21 million from Rs. 683.74 million over the  corresponding quarter last year.
* The company’s net profit registered a 82.58% increase and stood at a record Rs. 70.64 million from Rs. 38.69 million over the  corresponding quarter last year.
* Arcotech Ltd has approved the proposal for issue on a preferential basis to the promoter upto 10,00,000 fully paid equity shares of the  Company at a price of Rs. 51.00 per share.
* Company has taken up an expansion cum odernization plan which will increase its installed capacity to 24000 MTPA.
* Net Sales and PAT of the company are expected to grow at a CAGR of 34% and 37% over 2011 to 2014E respectively.
Investment  Highlights
Results updates- Q3 FY13,
The company’s net profit jumps to Rs.70.64 million against Rs.38.69 million in the corresponding quarter ending of previous year, an increase of 82.58%. Revenue for the quarter rose 45.55% to Rs.995.21 million from Rs.683.74 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 82.58% increase over previous year period. Profit before interest, depreciation and tax is Rs.171.26 millions as against Rs.99.80 millions in the corresponding period of
the previous year.
Outlook and Conclusion
*  At the current market price of Rs.64.00, the stock P/E ratio is at 4.99 x FY13E and 3.55 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.12.82 and Rs.18.05 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 34% and 37% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 2.35 x for FY13E and 1.80 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.25 x and 0.92 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.72.00 for Medium to Long term investment.
 

Buy Oil India Ltd For Target Rs.635



Unrest in Assam impacts 3QFY13 performance: Oil India reported EBITDA of INR11.2b for 3QFY13 (v/s our estimate of INR12.9b, adjusted for subsidy) - down 16% YoY and 2% QoQ. EBITDA was below our estimate, as unrest in Assam resulted in lower production. PAT was also lower at INR9.4b (-7% YoY and -1% QoQ). Oil production for 3QFY13 was 0.92mmt (-4% YoY and QoQ) while gas production was 0.68bcm (flat YoY and down 2% QoQ). Management has hinted that production is gradually nearing normal levels post the unrest.
* Expect upstream to share 40% subsidy for FY13 against 9MFY13 average of 36%: In 3QFY13, Oil India's subsidy share was INR19.5b and its share in upstream subsidy was 12.9%. Upstream sharing in 9MFY13 was at ~36% of the total under recoveries. We estimate Oil India's share at 13.3% of the upstream sharing (40%) for FY13.
* Net realization at USD52.6/bbl: Oil India's gross realization was in line at USD108.6/bbl (v/s our estimate of USD109/bbl) and subsidy burden stood at USD56/bbl, resulting in net realization of USD52.6/bbl (v/s USD57/bbl in 3QFY12 and USD52.5/bbl in 2QFY13).
* DD&A at INR2.2b: DD&A was INR2.2b (v/s our estimate of INR3b), lower sequentially due to decrease in dry well expenses from INR1.2b in 2QFY13 to INR0.7b. However, decrease in DD&A was negated by lower other income of INR4.9b (v/s our estimate of INR5.5b).
* Valuation and view: We have factored in gas price of USD7/mmbtu from FY15 onwards for Oil India. Also, in line with the announced reforms, we have assumed a diesel price hike of INR0.45/liter/month. We estimate 30% and 50% reduction in under-recoveries for FY14 and FY15, respectively. Of the INR753b reduction in under-recoveries in the next two years, we believe 90% would go towards reducing government subsidy and expect only 10% benefit for upstream companies, resulting in the upstream sharing increasing to 50%/60% in FY14/FY15 from the current 40%. The stock trades at 6.6x FY15E EPS of INR80.9. Our target price is INR635/share. Buy.