25/04/2013
Buy Swaraj Engines Ltd. For Target Rs.586

Outlook Led by the slowdown in the rural sector, domestic tractor market has continued to demonstrate signs of weakness over the last couple of months. However, with the spurring pace of mechanization in the Indian agricultural sector, we foresee the long term structural story remaining intact. In addition to this, the increasing usage of tractors in non-agri related activities like passenger transportation and carrying material for industrial/ construction purposes would enhance the owner’s capital efficiency in non-farming seasons thereby increasing demand.
We have added FY15 estimates to our forecasts and have modeled in Revenue and PAT CAGR of 12.2% (v/s 15.5%) and 9.3% (v/s 13.0%) respectively over the period FY13-FY15E. Although, the tractor industry in India is witnessing a cyclical downturn, SEL caters solely to the captive requirements of the Swaraj division of Mahindra & Mahindra (M&M) and hence is well insulated. At the CMP of Rs 463, the stock is trading at 9.9x and 8.7x its FY14E and FY15E earnings estimates. We recommend a BUY on the stock with target price of Rs 586 (~26.5% upside potential).
Key Takeaways
* The net sales of the company de-grew by 3.3% YoY to Rs 113.3 crore (-8.3% QoQ) on account of 4.1% YoY decline in volumes to 13,686.
* While the company witnessed de-growth of 4.1% YoY (10.5% QoQ) in its volumes (13.686 v/s 14,274) in Q4FY13, its average  realization marginally improved by 0.9% QoQ to Rs 82,785 (+2.5%YoY).
* Despite marginal improvement in realizations, the EBITDA margins declined by 110 bps on YoY basis and 50 bps on QoQ basis on account of increased cost pressures.
* During the quarter, non-operating income rose by a whopping 69.9% YoY (+61.1% QoQ) to Rs 5.8 crore. Moreover, the effective tax continued to be at 30.1% (v/s 33.5% in Q4FY12). As a result PAT grew by 3.9% YoY to Rs 13.9 crore.
* We expect Net Sales, EBITDA and PAT CAGR of 12.2%, 12.1% and 9.3% respectively from FY13-FY15E.
We have continued to maintain our revised volume growth assumption of 8% (61,967 units) and 13% (70,023) for FY14 and FY15 respectively. Further, we have modeled in ~3.2% increase in realization for FY14E and FY15E. In FY14 and FY15, we have built in EBITDA margins of 14.5% and 14.9% respectively.
 

 Buy Caplin Point Laboratories Ltd For Target Rs.76.00


Caplin Point Laboratories Ltd manufactures a wide range of Ointments, Creams and other External application preparations in addition to the regular segments of pharmaceutical formulations.
* The company’s net sales registered an 8.05% increase and stood at a record Rs. 293.32 million from Rs. 271.47 million over the corresponding quarter last year.
* The company’s net profit registered a 75.37% increase and stood at a record Rs. 35.81 million from Rs. 20.42 million over the corresponding quarter last year.
* Caplin Point has over 1500 products registered in various countries and further registrations are on the way.
* The ERP implementation covering all the processes in all locations are in the final stages and is hoped that this will go live from January 2013.
* Caplin Point will be starting up operations in the fully regulated markets of Europe, USA, Mexico and Brazil in mid-2013.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 25% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q2 FY13,
Caplin Point Laboratories Ltd manufactures a wide range of Ointments, Creams and other External application preparations in addition to the regular segments of pharmaceutical formulations, reported its financial results for the quarter ended 31 DEC, 2012.
The company’s net profit jumps to Rs.35.81 million against Rs.20.42 million in the corresponding quarter ending of previous year, an increase of 75.37%. Revenue for the quarter rose 8.05% to Rs.293.32 million from Rs.271.47 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.3.62 a share during the quarter, registering 75.37% increase over previous year period. Profit before interest, depreciation and tax is Rs.59.19 millions as against Rs.32.15 millions in the corresponding period of the previous
year.
Outlook and Conclusion
* At the current market price of Rs.68.00, the stock P/E ratio is at 9.87 x FY13E and 8.17 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.6.89 and Rs.8.32 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 25% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 6.40 x for FY13E and 5.40 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.31 x and 1.80 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.76.00 for Medium to Long term investment.
  Buy Cipla Limited For Target Rs.445.00


Cipla laid foundations for the Indian pharmaceutical industry back in 1935 with the vision to make India self-reliant in healthcare.
* Cipla is planning to new joint ventures and even acquisitions in key markets like Turkey, Morocco, Brazil and Nigeria.
* Cipla had acquired the over-the-counter and pharmaceutical divisions of Australian drug maker Sigma Pharmaceuticals for $800 million.
* Cipla has already invested $165 million in India and China to acquire facilities and build new ones for its foray.
* During the quarter, the robust growth of Net Profit is increased by 61.83% to Rs. 5000.10 million.
* Cipla has plans to increase its focus on domestic markets, with introduction of its offerings in new oncology and neuropsychiatry therapeutic segments.
* Cipla has launched of ‘Qvir’ drug kit for treating HIV/AIDS.
* Cipla has get approval from World Health Organization for anti-malaria drug.
* Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 18% over 2011 to 2014E respectively.
 
Outlook and Conclusion
India's pharmaceutical sector is gaining its position as a global leader. The pharma market in India is expected to
touch US$ 74 billion in sales by 2020 from the current US$ 11 billion, according to a PricewaterhouseCoopers
(PwC) report.
* At the current market price of Rs.390.00, the stock P/E ratio is at 22.62 x FY13E and 19.83 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.17.24 and Rs.19.67 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 18% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 14.44 x for FY13E and 12.75 x for FY14E.
* Price to Book Value of the stock is expected to be at 3.44 x and 2.93 x respectively for FY13E and FY14E.
Cipla plans to shift headquarters, keen on buying Rs 270 crore space in central Mumbai. At the end of financial year 2011-12, the company cash and cash equivalents stood at about Rs 1,400 crore while its assets were worth nearly Rs 4,000 crore.
The second quarter witnesses a healthy increase in overall sales as well as profitability on account of growth in anti-depressants, anti-ulcerant, anti-asthma, anti-biotics and cardiovascular therapy segments. 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.445.00 for Medium to Long term investment.
 
 
Accumulate HDFC Bank For Target Rs.725


HDFC Bank reported a strong quarter on most metrics, except core fees, as ~20bps organic NIM improvement made up for slower-than-expected core fee growth. Asset quality continues to remain robust despite muted guidance on CVs. Though growth is likely to slow down, HDFCB has created significant buffers on Opex (1075 branches in FY11-13) and credit costs (floating provisions of Rs18bn) that can be used as levers for profit growth in FY14. However, valuations at 3.9x FY14 book is demanding to warrant a BUY. Hence, we continue to maintain ‘Accumulate’ with PT of Rs725/share).
* NII growth surprises: Adjusted for reclassification, core NIMs improved ~20bps QoQ, higher than our expectations and this made up for the miss on core fees. With a large fixed rate book and falling rate cycle, we expect NIMs to remain stable for HDFCB v/s a moderating trend for the sector.
* Asset quality stable: Both Gross and Net NPAs were lower QoQ and even in CVs, management indicated that asset quality performance has been manageable v/s their muted guidance. Credit costs at ~50bps included ~Rs0.5bn of floating provisions. Credit costs is likely to inch up in FY14; however, large stock of floating provisions provides comfort on our ~80bps assumption for FY14.
* Marked slowdown in fees; Opex + credit cost levers to aid PAT growth in the current slowdown: The only negative was a slowdown in core fees (down to 10% YoY growth from +20% in 9MFY13). With a slowdown in B/S growth and bottoming-out of credit costs, we expect large stock of floating provisions (Rs18bn) + opex buffer created (1075 branches over the last two years) to aid FY14 PAT growth.
* Large P&L reclassification ‐ PAT Neutral: Two regulatory reclassifications in Q4FY13 are (1) Agent commissions and OEM subventions earlier netted off under NII and now agent commissions recognised as Opex and OEM subventions as other income (2) Write-offs earlier netted off under NPA provisions and now recorded separately as other income – These reporting changes are PAT neutral.