18/04/2013

Buy SAIL For Target Rs.79


Tough times - just be patient and wait for cyclical turnaround. Reiterate BUY
Faltered domestic steel demand is a concern but expect improvement this fiscal
Assumption changes & Valuation
* Global macro environment is mixed. Concerns remain on EU GDP de-acceleration, reemergence of EU sovereign crisis and last few days sharp sell-off in gold, silver and brent crude. But there are also positives in form of aggressive QE recently announced by Japan @0.85-0.9x of US QE3, fiscal stimulus of c$15bn announced by South Korea yesterday, expected fiscal stimulus from Russia as recently demand by its president yesterday and reasonable probability of fiscal stimulus from China in coming months as leadership change has finally been affected last month.
* We have cut our saleable steel volume estimates for FY13 and FY14 by 0.14mt and 0.5mt respectively to 11.06mt and 12mt respectively, factoring in slowdown of domestic steel demand.
* We have cut average sales realizations estimates for FY13 and FY14 by 1% each.
* We have also down minor tweaking in our coking coal/coke cost estimates.
* Our EPS estimates for FY13 and FY14 is cut by 12.1% and 12.3% respectively to Rs6.06 and Rs.8.6 respectively.
* We maintain our valuation methodology on the stock but have cut our valuation multiple to 6.5x vs. 7x earlier to factor in weaker then expected industry macro and compression in industry multiples.
* We highlight that present CWIP of SAIL is 1.4 times the prevailing market capitalization and that SAIL balance sheet is so strong that even post completion of 60% capacity growth by next year, its debt leverage would be just 0.6x which would be amongst lowest in the industry globally. Add to it, SAIL's biggest strength is its iron ore reserves which are not only 2.5x of NMDC but are largest high quality iron ore reserves by any steel company globally.
* We maintain BUY on SAIL with a reduced TP of Rs79 (vs. Rs102 earlier)
 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 Simplex Infrastructures Ltd For Target Rs.173.00


We initiated coverage of Simplex Infrastructures Ltd and set a target price of Rs. 73.00 for Medium to Long term term Investment.
* Simplex Infrastructures Ltd is the largest pure play civil construction & engineering contractors in India, with more than eight decades of successful operations & completion of over 2600 projects in India and abroad.
* The order intake during the quarter is Rs. 12390.00 million & cumulative upto Dec’12 is Rs. 42540.00 mn against Rs. 38400.00 mn last year registering a growth of 11%.
* The order book as of Dec’12 stands at Rs. 150640 million in addition to the LI status of Rs. 17840 million.
* Net Sales and Operating Profit of the company are expected to grow at a CAGR of 8% & 4% over 2011 to 2014E respectively.
* Simplex has been recognized internationally with construction contracts in several countries in Africa, West Asia and other neighboring countries of Indian subcontinent.
Investment Highlights
Results updates- Q3 FY13,
The company’s net profit falls to Rs.107.80 million against Rs.180.30 million in the corresponding quarter ending of previous year, a decrease of 40.21%. Revenue for the quarter declined 15.33% to Rs.13515.80 million from Rs.15963.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.2.17 a share during the quarter, registering 40.21% decrease over previous year period. Profit before interest, depreciation and tax is Rs.1244.60 millions as against Rs.1303.70 millions in the corresponding period
of the previous year.
Outlook and Conclusion
* At the current market price of Rs.153.50, the stock P/E ratio is at 12.98 x FY13E and 18.63 x FY14E respectively.
*  Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.11.82 and Rs.8.24 respectively.
* Net Sales and Operating Profit of the company are expected to grow at a CAGR of 8% and 4% over 2011 to 2014E respectively.
*  On the basis of EV/EBITDA, the stock trades at 1.49 x for FY13E and 1.39 x for FY14E.
* Price to Book Value of the stock is expected to be at 0.60 x and 0.59 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.173.00 for Medium to Long term investment.
 Buy BASF India Ltd. (BASF) For Target Rs.779

Q3FY13 Result Highlights

BASF India Ltd (BASF) Q3FY13 result was below INSPL estimate led by de-growth in agricultural solutions segment and high interest outgo. During the quarter, revenue went up 5.5% yoy to Rs.8.2bn (v/s INSPL est: Rs8.9bn in Q3FY12). Except agricultural solution segment (down 26.2% yoy), remaining segments delivered (performance products +6.0%, plastic +14.9%, chemicals +18.5%, functional solution +13.9% and others +5.7%) growth.

EBITDA declined 10.9% yoy to Rs.219 mn (v/s INSPL est. Rs.314 mn) due to lower revenue growth and widening of loss in agriculture segment. As a result, EBITDA margin contracted 49.3bps yoy to 2.7% v/s 3.2% in Q3FY12. Depreciation during the quarter grew by 8.1% yoy to Rs.152 mn. Profit before tax, interest, un-allocable & exceptional items declined 36.7% yoy to Rs.148 mn (v/s Rs.233 mn in Q3FY12) due to widening of loss in agriculture solutions segment (Rs.149 mn v/s Rs.71 mn in Q3FY12) and decline in profit of performance products (down 26.0% yoy) and functional solution (down 36.3% yoy). This was partially offset by contraction of loss in plastic (Rs.31 mn v/s Rs.91 mn in Q3FY12) and increase in profit of chemicals (+112.4% yoy) and others (+426.7% yoy) segments.

The interest cost increased 106% qoq to Rs.52mn due to depreciation of rupee (v/s USD) from 52 at the end of Q2FY13 to 54 at the end of Q3FY13. BASF reported provision for impairment loss of Rs.7mn after board’s approval to shutdown of Thane expandable polystrene (EPS) facility. Profit before tax was down 83.2% yoy to Rs15mn. Tax outgo was down 83.9% yoy to Rs.5mn v/s Rs31 mn in Q3FY12. The effective tax rate stood at 32.5%. During the quarter, net profit declined by 82.8% yoy to Rs10 mn v/s Rs.61mn in Q3FY12. Excluding exceptional loss of Rs.7mn, adj.net profit stood at Rs.17mn v/s Rs.61 mn in Q3FY12.

Valuation

At CMP of Rs.670, the stock is trading at 22.1x/17.3x P/E and 10.8x/8.7x EV/EBITDA its FY13E/FY14E estimates. The recent quarter performance was in-line with our estimates, except significant decline in agriculture solution segment. However, going ahead we see recovery in agriculture solution segment on back of ongoing Rabi harvest (mid Nov to April). Additionally, green and brown field expansion along with product innovation looks positive. The consolidation of production facilities by shifting global manufacturing base to India should give significant operating leverage going-ahead. We maintain BUY with the target price of Rs.779 (20x FY14E earnings).