15/03/2013

Buy Mangalore Refinery and Petrochemicals Ltd. (MRPL) For Target Rs.68

MRPL's management has recently indicated that entire phase-III expansion can commission in Q2FY14, if Bharat heavy electrical ltd (BHEL) completes 100 MW captive power plant in June-July'13. The Company has also highlighted that the fluid catalytic cracking (FCC) and coker units are completed and partial work can begin at the coker unit by March'13 end. We are positive and expect the power plant to commission soon.
*  MRPL will not be able to commission the polypropylene facility unless FCC starts operations. Based on these uncertainties, in our FY14 projections, we have not considered earnings from polypropylene facility.
*  On account of these delays, the stock has already corrected by ~20% from 7th Jan'13 and hence most of the negatives are already priced-in, we opine. MRPL's valuation looks attractive and long term investors can accumulate the same.
*  Singapore complex refining margins has improved significantly in Q4FY13 till date to $8.26/bbls from $6.43/bbls in Q3FY13. Further, in
Jan'13 refinery throughput has increased by 7% MoM to 1.297 MMT to cover up the lower production in Dec'12.
*  On the acquisition side, MRPL has refrained from bidding for stake sale in Haldia Petrochemicals Ltd (HPL), which in our eyes, suggest discipline on capital employed. HPL is currently a loss making entity and a legal battle is going among promoters. Consequently, the plant is running at a capacity of ~50%. This acquisition of a loss making company by MRPL had been our key concern earlier, which we now believe is largely resolved.
*  At current price of Rs.54, stock is trading at 8.0x P/E and 5.3x EV/EBITDA multiples on FY14E earnings, respectively.
*  With expansion, the profitability is expected to improve on account of i). Higher refining capacity, ii). Higher utilization levels iii). Improved product mix, iv). Better refining margins v). Economies of scale, vi). Forward integration - Polypropylene plant and vii). Various tax benefits.
*  We recommend 'BUY' rating on MRPL. We value MRPL using EV/EBIDTA multiple of 6.0x and arrive at a price target of Rs.68/Share (earlier Rs.71). We have tweaked our GRMs assumption marginally on lower side for FY14E.
 
 Buy Jammu & Kashmir Bank For Target Rs.1,650 


State liability advantage: J&K Bank enjoys a very strong liability franchise due to its J&k state advantage, with CASA within J&K at ~53%. J&K Bank’s total CASA at ~39.4% is among the best in the industry, providing the bank with a significant cost advantage.
Growth picking up in J&K; Bank best positioned: Management’s intended growth acceleration after five years of consolidation coincides with a phase of strong economic growth and activity in J&K. With ~60% market share in advances and deposits, we believe J&K Bank is best positioned to benefit from the J&K story. Also, outside J&K, the bank is concentrating on expanding lending expertise to mid corporate (predominantly AAA tillnow) and that will aid in improving lending yields.
Competition will not be disruptive: High CASA + low operating costs make J&K an attractive expansion opportunity for private banks. However, our feedback from large private banks suggest that competition will not be disruptive. Also, expertise in specific segments like horticulture lending and state business (30% of J&K Bank’s loans) will be less impacted by competition.
More private than PSU bank; Valuation benchmarking with PSU’s unwarranted: Low fees income and CA ratio are the only commonalities with PSU banks, apart from which J&K Bank is more of a private bank on most fundamental parameters like high CASA and margins, sound underwriting and high ROAs/RORWAs. Management continuity, which is a big issue with PSUs, is also absent in J&K Bank with ~5-6 years of average tenure for the Chairman; thus, valuation benchmarking to mid-cap PSU banks is unwarranted. The bank is trading at 1.03x FY13 P/B with ROE at plus 20%.



Buy Zydus Wellness Limited For 

Target Rs.522.00 

Zydus Wellness is serving the health and fitness conscious consumers of India since 1988.

 

* The company aims at posting revenues of Rs. 500 crores by 2013.

 

* During the quarter, the robust growth of Net Profit is increased by 38.13% to Rs. 236.20 million.

 

* SugarFree has consolidated its position in the low calorie sugar substitute market with a market share of more than 90% as of March 31, 2012.

 

* The company is No. 1 in peel-off with 97% share, which is growing at >20% and ~50% share in scrub market.

 

* Indian FMCG industry is valued at over $ 30 bn, growing at ~13% p.a. & is expected to cross $ 70 bn by 2018.

 

* The company has recommended the declaration of dividend @ Rs. 5/- per Equity Share on 3,90,72,089 Equity Shares of Rs. 10/- each of the Company for the  year ended on March 31, 2012.

 

* Operating Profit and PAT of the company are expected to grow at a CAGR of 2% & 15% over 2011 to 2014E respectively.

 

 

Outlook and Conclusion

 

At the current market price of Rs.458.00, the stock P/E ratio is at 22.34 x FY13E and 19.98 x FY14E

respectively.

 

Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.20.50 and

Rs.22.92 respectively.

 

Operating Profit and PAT of the company are expected to grow at a CAGR of 2% and 15% over 2011 to 2014E

respectively.

 

On the basis of EV/EBITDA, the stock trades at 20.14 x for FY13E and 18.21 x for FY14E.

 

Price to Book Value of the stock is expected to be at 6.70 x and 5.02 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.522.00 for Medium to Long term investment.

Buy Dabur India Ltd For Target Rs.148 

Dabur India Ltd (DIL) reported revenue growth of 12.3% yoy to Rs.16.3 bn (Bloom est. 17.1bn) for Q3FY13, driven by Consumer Care (+11.6% yoy), Foods (+20.6% yoy), partially offset by 86.3%/4.0% yoy decline in Retail and Other segments.
Domestic business grew by 14.3% yoy (contributed 71%) led by healthy volume growth. However, international business (contributed 29%) went up only by 9.0% yoy on account of some compression in Namaste Business. In spite increase in employee (+48 bps at 7.5%), advertisement (+77 bps at 14.4%) and other (+2 bps at 12.8%) expenses, lower material costs (+219 bps at 48.8%) resulted in 94 bps yoy expansion in the EBITDA margins at 16.8% (v/s 15.9% in Q3FY12). During the quarter, DIL reported other income/finance cost of Rs.220mn /Rs.78 mn (v/s Rs167mn/ Rs183mn in Q3FY12). The company reported tax of Rs.478 mn leading to the tax rate of 18% (v/s 16% in Q3FY12). Net profit during the quarter went up 22.2% yoy to Rs2,111mn (Bloom est. Rs.2102 mn) led by lower interest cost and higher other income, partially offset by 28.0% yoy expansion in depreciation. As a result, net profit margin expanded by 105 bps yoy to 12.9% (v/s 90 bps yoy expansion at EBITDA level).

Valuations & Outlook
At the current price of Rs130, the stock is trading at a P/E multiple of 30.3x FY13E and 25.3x FY14E Bloomberg earnings estimate. We like the company’s unique and well diversified revenue mix, which have a potential of deliver strong revenue growth. Further, we remain positive on the company’s growth prospects into newer geographies. The recent quarter performance was slightly below the street expectations on revenue front due to de-growth in Namaste business. However, recent restructuring and re-branding initiatives will help the company to turnaround product Namaste going ahead. We maintain BUY rating with target price of Rs.148 (valuing 27x FY14E).
 


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