DATED 
13/03/2014
Accumulate Allcargo Logistics Ltd For Target Rs.170


As one of the largest players in the global Non Vessel Owning Common Carrier (NVOCC) space, Allcargo Logistics (ALL) is well-placed to derive maximum benefits from the ongoing recovery in global trade. The company's well-entrenched international presence is likely to strengthen further through the proposed acquisitions in the NVOCC segment in Europe and US - this could also act as a near-term trigger for the stock. Post consolidation of the acquisitions - US based Econocaribe Consolidators and Netherlands based FCL Marine Agencies; we estimate volumes in the MTO segment to grow at 18.7% in FY14 and 4.8% in FY15 with some margin decline despite bad times as the company primarily operates in Less than Container Load (LCL) segment which is more immune to sluggishness in container trade. Strong relationships will help the company to outperform its peers and report stable volumes in the CFS division. We estimate earnings to grow by 19% in FY14 at Rs 2 bn (EPS of Rs 15.8/share) and to grow by 18.6% in FY15 to Rs 2.37 bn (EPS of 18.8/share).
We assign a PE of 9 x to the stock on the back of 1) Immune nature of MTO (LCL) business to weak trade: 2) Latest acquisitions which help diversify the business and 3) estimated recovery in global trade. Recommend Accumulate on ALL with an unchanged TP of Rs 170.
Non Vessel Owned Container Carrier (NVOCC) or Multimodal Transport Operations (MTO) continues to show a small growth
Outlook and Valuation
Allcargo has a strong presence in the MTO business through wide network of ECU Line and also has a strong hold on domestic MTO business, MTO volumes and realizations may come under pressure in near term due to the weakness in the container shipping segment and economic problems in Europe and US. However, Allcargo continues to perform strongly in the MTO segment despite sluggish container shipping market as the company primarily operates in the LCL segment which is more immune to slowdown. We are estimating volumes in the MTO segment to grow at 18.7% in FY14 and 4.8% in FY15. Strong relationships will help the company to report stable volumes in the CFS segment in FY14E and FY15E.at around 200,000 TEUs per annum. While we estimate PES division to continue to report volatility in revenue and profitability.
We assign a PE of 9x to the stock on the back of 1) Immune nature of MTO (LCL) business to weak trade: 2) Latest acquisitions which help diversify the business and 3) estimated recovery in global trade. Recommend ACCUMULATE on ALL with an unchanged TP of Rs 170.


 
 Buy Cadila Healthcare Ltd For Target Rs.1,133



A fresh wave of US approvals and the management’s plans to intensify the US filings reaffirms our confidence in the long-term prospects of the company. Currently, the company has nearly 100 ANDA pending approvals including some related to blockbuster products, like Abilify ($4 billion), Niaspan ($1.1 billion) and Lialda ($550 million), which are likely to lose their patent protection in FY2015.
*   Apart from the US business, the company is also likely to improve its performance in the Indian business in subsequent quarters, as price related issues are getting settled. The focus on niche segments like injectibles, trans-dermal and topical formulations are likely to improve its margin profile as well.
*  Despite a good quality management and de-risked business model (diversified presence), it has been trading at significant discounts to peers as well as its historical averages, mainly owing to a restructuring-led weaker performance during the past few quarters.
*  Now, as the US business is coming out of woods, we believe the stock should see a re-rating. We revise our price target to Rs1,133 (17x FY2016E EPS; vs Lupin’s 19x) from Rs1,000 (15x FY2016E EPS) and maintain our Buy rating on the stock.
Valuation gap to narrow; we revise the price target up to Rs1,133:
A fresh wave of product approvals in the US, the improvement in the Indian business and the improvement in the margin profile are some of the factors which should result in a re-rating of the stock and reduce the valuation gap (vis-à-vis peers). Currently the stock is trading at 15x FY2016E as compared with Lupin’s 18x. We revise our price target up to Rs1,133, which implies 17x FY2016E (15x earlier) as compared with Lupin’s target multiple of 19x. We maintain our Buy rating on the stock.
 
Buy L&T Finance Holding Ltd For Target Rs.98 and 109 

 The stock has provided a breakout from an inverse head and shoulders pattern which is quite positive for the bulls going forward. However, the final confirmation will be above 86 levels only as there are cluster of resistance at those levels

The Bollinger bands have narrowed a lot but they are expected to expand and once they do the upward momentum will increase quickly. The stock has been forming higher tops and bottoms in this rally, hence the previous swing low of 76.90 is an important support level and till that is held the bulls need not worry. However, if that level is broken then the pattern will consider be considered as failed and in that scenario stock may see severe beating. So, we recommend placing a strict stop loss of 76.50 levels. The previous rise was a five wave up pattern i.e. an impulse on the way up, so the probability of next five waves up after a decent retracement in the form of an A-B-C decline is quite high.
Investment Strategy:
Buy L&TFH 50% quantity around 81 levels and remaining 50% above 86 levels for the targets of 98 and 109 levels with a stop loss of 76.50  levels.
Risk: Reward = 1: 2.07
Risk: 83.50 (Average of 86 and 81) – 76.50 = 7
Reward: 98 - 83.50 (Average of 86 and 81) = 14.50


 

 Buy V-Guard Industries Ltd For Target Rs.550

Indian summer in sight
Growth to pick pace, attractive valuations
We interacted with V-Guard Ind’ (VGRD) MD, Mr Mithun K Chittilappilly to get an update on the demand scenario and growth prospects, going forward.
Poised for recovery, current valuations warrant a Buy
*   VGRD has seen YoY growth of ~12-12.5% in January and February 2014, against our expectation of 5% for 4QFY14E (1.1% growth in 3QFY14).
*   Possibility of strong summer season could be a significant driver for revenue in FY15E, given ~65-70% of VGRD’s products are summer-poised in nature.
*   Margins in 4QFY14E are expected to improve significantly to 9.7%, compared to 5.3% in 4QFY13 due to significant one-offs in 4QFY13 and lower ad spends during 4QFY14.
*   We believe that growth has bottomed out after two quarters of lower single digit performance and is expected to accelerate going forward, given the strong outlook for summer season and lower base effect.
Revenue set to post a recovery:
Our interaction with the management suggests that the company has seen strong growth of ~12-12.5% in January and February 2014 (v/s 4QFY14E growth expectation of 5%), driven by 15% growth in stabilizers, 10% in pumps, 30% in household wires 30% in fans And 40% in Induction cooktops due to revival in Tamil Nadu market. Inverter segment continues to remain a drag with a de-growth of ~25-30%. However, growth in March is expected to be ~8-10% due to unseasonal rains in non-south markets affecting demand. International weather forecasters expect strong summer in CY14, which could be a significant driver for VGRD’s revenue in FY15 as ~65-70% of its products are summer-facing in nature. Given the low base in FY14 and expectation of strong summer, we expect revenue growth of 20% in FY15E.
Margins set to improve going forward:
We expect margins in 4QFY14E to improve significantly to 9.7%, compared to 5.3% in 4QFY13 due to significant amount of one-offs in 4QFY13. Also, VGRD plans to spend ~INR100m (2.5% of revenue) as ad spends in 4QFY14, compared to INR140m (3.7% of revenue) in 4QFY13, which should aid the margin expansion. We expect margins to improve by 40bp to 8.8% in FY15E, primarily driven by improved operating leverage.
Valuation and view:
We expect VGRD to post 20.3% CAGR in revenue and 28.1% CAGR in PAT over FY14E-16E. We believe that growth has bottomed out after two quarters of lower single digit performance and is expected to accelerate, given the strong outlook of summer going forward and lower base effect. At CMP of INR442, the stock trades at 13.9x FY15E and 11.2x FY16E earnings respectively. We value VGRD at 14x FY16E EPS of INR39.3 and arrive at a target price of INR550. Maintain Buy.