20/05/2014

Buy Shriram City Union Finance Ltd For Target Rs.1350

Shriram City Union Finance Ltd (SHRIRAM CITY) is India's premier financial services company, specializing in the retail finance.
*  During Q4 FY14, company’s net profit jumps to Rs. 1474.40 mn against Rs. 1257.20 mn in the corresponding quarter ending of previous year, an increase of 17.28%.
*  Revenue for the quarter declines by 2.63% to Rs. 8042.50 mn from Rs. 8259.40 mn, when compared with the prior year period.
*  Profit before interest, depreciation and tax is Rs. 5413.40 mn as against Rs. 5581.00 mn in the corresponding period of the previous year.
*  The Company has recommended a final dividend of Rs. 6.00 per equity share (60%) for the year ended March 31, 2014.
*  As on March 31, 2014, Assets Under Management stood at Rs. 1,46,680 mn as compared to Rs. 1,58,280 mn as on March 31, 2013.
*  As on March 31, 2014, Disbursements of the Company stood at Rs. 1,54,480 mn as compared to Rs. 1,74,120 mn corresponding quarter of previous year.
*  As on March 31, 2014, Gross NPAs and the Net NPA at 2.82% and 0.38% respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 11% over 2013 to 2016E respectively.
QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q4 FY14,
Shriram City Union Finance (SHRIRAM CITY) was started as a deposit-accepting non-banking financial company (NBFC) and is India’s premier financial services company, specializing in small-ticket retail finance, reported its financial results for the quarter ended 31st March, 2014.
The company’s net profit jumps to Rs. 1474.40 million against Rs. 1257.20 million in the corresponding quarter ending of previous year, an increase of 17.28%. Revenue for the quarter declines by 2.63% to Rs. 8042.50 million from Rs. 8259.40 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 24.87 a share during the quarter, registering 9.64% increase over previous year period. Profit before interest, depreciation and tax is Rs. 5413.40 million as against Rs. 5581.00 million in the corresponding period of the previous year.
OUTLOOK AND CONCLUSION
*  At the current market price of Rs.1228.00, the stock P/E ratio is at 12.73 x FY15E and 11.77 x FY16E respectively.
*  Earnings per share (EPS) of the company for the earnings for FY15E and FY16E are seen at Rs.96.49 and Rs.104.35 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 11% over 2013 to 2016E respectively.
*  On the basis of EV/EBITDA, the stock trades at 6.18 x for FY15E and 5.85 FY16E.
*  Price to Book Value of the stock is expected to be at 2.10 x and 1.78 x respectively for FY15E and FY16E.
*  We recommend ‘BUY’ in this particular scrip with a target price of Rs.1350.00 for Medium to Long term investment.
Buy Cummins India Ltd For Target Rs.620

Rebalancing growth
Domestic outlook constrained, but new levers at inflexion point
Channel checks: muted pre-buying, limited pricing increases
We interacted with several participants in the Diesel generator chain, including powergen dealers, GOEMs and engine manufacturers. Key takeaways are:
*   To meet the CPCB 2 norms, most engine manufacturers have attempted to do value engineering on the exhaust systems of the existing mechanical engines, given the trade-off between capital costs vs fuel efficiency.
*   Upto 200kva gensets have witnessed pricing increase of just ~3-4% vs initial expectations of ~7-8% (with electronic engines). For 240kva+ gensets, the new pricing has not yet been announced, and the initial expectation was 12-15% increase (electronic engine genset).
*   Pre-buying intensity remains weak given a complete lack of demand. Dispatches are expected to pick up post elections.
Readings from Cummins Inc: India powergen down 46% YoY
Cummins Inc stated that India powergen revenues have declined 46% YoY in 1QCY14; and the decline was higher than our expectations of 31% in USD / 22% in INR. It now expects India powergen revenues to decline 15% in CY14, vs previous expectation of flat revenues. We have modeled revenues to decline 10% in USD / 7% INR in CY14.
MHP genset exports (till 330kva) provides a larger global canvas
In 2013, Urja product range was extended by adding 140-175 kva, and recently, has been further extended to 330 kva. This, we believe, will provide a much bigger canvas in terms of global product positioning. Initially, the management stated that the possible revenues from LHP gensets stand at INR10b over the next few years, and the MHP gensets could possibly double the potential. KKC will commence exporting MHP gensets from July 2014.
Valuation and view
*  KKC has seeded various growth levers (like LHP gensets for domestic / exports, MHP gensets, Recon, etc). We expect the revenue contribution of these segments to increase from 8% of in FY13 to 23% in FY16, and will drive 15% revenue CAGR till FY16E.
*  Key triggers are: i) incremental success in LHP genset (both domestic and exports), which contributed ~INR4b to revenues in FY13 and internal targets are ~INR15-20b over the next 3-5 years ii) MHP genset exports (likely from July 2014) to provide a much larger global canvas iii) possible demand recovery in US and Europe (which would drive HHP exports), and iv) pick-up in the recon business with implementation of CPCB-II.
*   We maintain Buy, with revised price target of INR620 (20x FY16E).


Buy Finolex Cables Ltd For Target Rs.180

Finolex Cables Ltd (FCL) reported a very strong set of numbers in Q4FY2014 backed by a significant margin expansion (the OPM expanded by 231BPS YoY to 11.6%). Further, with the commencement of a captive solar power plant it availed a tax benefit; hence the reported PAT grew by 79% YoY to Rs 69 crore. With an adjustment of a forex gain and an investment diminution provision, the adjusted PAT grew by 51% YoY, significantly better than our estimates.
*   Apart from the 23% YoY earnings growth (ahead of our estimate) in FY2014, FCL generated a very hefty cash flow from the operations of above Rs200 crore (about 85% of the operating profit). Further, with a debt repayment of Rs54 crore it ended FY2014 with a stronger balance sheet.

*   Considering its margin expansion potential, we have revised upward our earnings estimates by 18% and 10% for FY2015 and FY2016 respectively. Based on this, we revise our SoTP-based price target to Rs180 (Rs152 per share at 10x FY2016 core earnings and an investment in Finolex Industries at Rs28 per share) and retain our Buy rating on the stock.