Index
Page Page
Strategy - Dawn after the dusk 1
Top Picks 4
Jagran Prakashan 14
JK Lakshmi Cement 16
Bajaj Electricals 5
Blue Star 6
KEC Intl. 18
Kirloskar Oil Engines 20
Crompton Greaves 7
Goodyear India 9
MM Forgings 21
NCC 22
HSIL 10
IFB Agro Industries 11
South Indian Bank 24
Siyaram Silk Mills 26
India Cements 12 Styrolution 27
Dawn after the dusk
BJP led NDA won 336 seats (62%) in the 543 seats parliament – comfortably higher than the 272 mark. Thismandate will ensure a significant change in the governance of central government as for the first time in last30 years, the government is not dependent on coalition partners for getting key reforms done. Corporatey , g p p g g y pIndia, is quite receptive to Modi’s model of development which will ensure significant increase in allocation ofinvestments/resources in India.Historically, any country with the kind of demographics that India has, with the additional ingredients ofgood governance and leadership, has registered decades of scorching growth. Acknowledging the crucialgood gove a ce a d eade s p, as eg s e ed decades o sco c g g ow c ow edg g e c uc aphase of India’s demographic dividend that we are currently in, the new government is focused ondelivering on the aspirations of one of the largest and fastest growing youth populations in the world. Thisshould catalyze a strong long-term improvement in our GDP growth trajectory and make Indian equitiesthe top-performing asset class going forward.p p g g g
Key Agenda for the new government Accelerate project approvals leading to reversal in slowdown in the capex cycle
Infrastructure push through impetus on power, roads and rail
Tax reforms through a push for GST and restructuring of PSU’s managements.
Federal reforms (greater autonomy, funds and hence accountability to states) and e-Governanceinitiativesinitiatives
1
Dawn after the dusk
The benchmark indices were already trading close to their historic high levels led by defensives andexport oriented stocks and in anticipation of favorable outcome of the general elections.
N th l th b d k t i ll th li l t k t di t l l ti Nevertheless, the broader market especially the cyclical stocks were trading at lower valuations.Despite the recent rally, most of the stocks in the broader market are still trading at reasonablevaluations, which are lower than their average levels. This provides room for further upside in our viewgiven that the earnings upgrades will follow with the improvement in the macro-economicen ironment o er the ne t co ple of earsenvironment over the next couple of years.
A strong developmental focus of the new government coupled with expected turnaround in theeconomy are likely to lead our markets to newer heights going forward. Against this backdrop, werecommend investors to increase focus on domestic cyclical stocks and policy improvement plays inthe banking, capital goods, cement, infrastructure and media sectors. Not only that, going forward,stocks in the broader market, especially mid-caps are likely to out-perform the large-cap stocks. Infact, mid-caps trading at 25% while small-caps trading at 65% discount from their respective all-timehigh.
2
Mid Caps await new highs
30,000 Small-cap Mid-cap BSE sensex
20,000
25,000
15,000
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3
Top Picks
Stocks CMP (`) TP (`) Upside Bajaj Electricals 327 441 35%
l S 2 3 4 23%Blue Star 255 314 23%
Crompton Greaves 195 225 15%
Goodyear India 416 510 23%
HSIL 204 266 30%HSIL 204 266 30%
IFB Agro Industries 187 276 48%
India Cements 104 130 25%
Jagran Prakashan 116 140 21%Jagran Prakashan 116 140 21%
JK Lakshmi Cement 178 215 21%
KEC Intl. 118 140 19%
Kirloskar Oil Engines 231 290 26%Kirloskar Oil Engines 231 290 26%
MM Forgings 146 222 52%
NCC 81 100 23%
South Indian Bank 28 36 29%South Indian Bank 28 36 29%
Siyaram Silk Mills 390 654 68%
Styrolution 459 566 23%
4
Bajaj Electricals(CMP: `327/ TP: `441/ Upside: 35%)
Increased ad spends to increase visibility: BELcelebrated its 75th year in FY2014 by elaborating itsad spends by almost 50% to `75cr (from `38cr inFY2013) in order to increase its visibility. The
Timely execution in E&P segment to be a gamechanger: E&P segment contributes ~25-30% overFY2010-12 to total revenue of BEL. However, the EBITmargin for the segment has been contracting
)
FY2013) in order to increase its visibility. Thecompany has achieved decent growth with limitedadvertisements till now, hence, with this increment, itis expected to create consumer pull, therebyenhancing the top-line.
margin for the segment has been contractingsignificantly since FY2010 from 10.7% to 3.3% inFY2012 on account of delayed execution of projectsand cost overruns thereby impacting the bottom-line.Hence, despite strong order book of `2,100cr as ond h i i l i f h i fdate, their timely execution of the same is of graveimportance. The turnaround in the performance hasbeen initiated in 3QFY2014 and is expected toimprove going forward.
V l ti BEL i t t h l l t t
One year forward P/E
350
400
450 Price 3x 10x 17x 24x
Valuations: BEL is set to have a clean slate postFY2014 with the closure of delayed projects. On theback of recent developments, we expect the bottom-line to grow at a CAGR of 77.8% (due to low base)respectively over FY2013-16E. Based on target
0
100
150
200
250
300
(`)
Valuation Snapshot
respectively over FY2013 16E. Based on targetEV/Sales of 0.8x FY2016E, target price comes at`441, 34.5% upside from current levels.
Source: Company, Angel Broking
0
50
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Y/E Sales OPM PAT EPS ROIC P/E P/BV EV/EBITDA EV/SalesMarch ( ` cr) (%) ( ` cr) ( `) (%) (x) (x) (x) (x)
FY2015E 4,713 6.6 160 16.1 30.8 20.4 3.8 10.7 0.7
FY2016E 5,483 6.6 199 20.0 33.2 16.4 3.2 9.0 0.6
5
Blue Star(CMP: `255, TP: `314, Upside: 23%)
Improvement in macro scenario to drivegrowth: Electro Mechanical Projects andPackaged Air-conditioning Systems (EMPPAC)Di i i hi h t ib t 60% f t t l
Valuations: At the current market price, the stock istrading at EV/sales of 0.7x for FY2016E which webelieve is attractive from its historical level of 1.0x(fi e ear a erage) Hence we recommend a BDivision, which contributes ~60% of total
revenues will benefit from the revival ineconomy as it caters mainly toinstitutional/commercial clients. We expect netsales to grow at CAGR of10% over FY2014 16E
(five year average). Hence, we recommend a Buyrating on the stock with a target price of `314based on a target EV/sales of 0.9x for FY2016E.
One year forward EV/Salessales to grow at CAGR of10% over FY2014-16Eto `3,450cr.
EBITDA Margins to improve: Legacy orders,which are low or no margin orders stood at 3,000
3,5004,0004,5005,0005,500
cr)
EV 1.6x 1.2x 0.8x 0.4x
g`300cr for 3QFY2014 out of total order book of`1,737cr. These are being cleaned up and thecompany plans to begin FY2015 with a cleanerslate. Owing to this, we expect EBITDA margins 0
5001,0001,5002,0002,500,
09 09 0 0 1 1 2 2 3 3 4
EV (`
to improve from 3.7% in FY2014E to 5.4% inFY2016E.
Valuation Snapshot
May
-0
Nov
-0
May
-1
Nov
-1
May
-1
Nov
-1
May
-1
Nov
-1
May
-1
Nov
-1
May
-1
Source: Company, Angel Broking
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/Sales
March (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)FY2015E 3,062 4.6 88 9.8 19.1 26.2 4.7 18.1 0.8FY2016E 3,450 5.4 112 12.5 20.9 20.4 3.9 13.8 0.7
6
Crompton Greaves(CMP: `195, TP: `225, Upside: 15%)
Crompton Greaves (CG), a part of the US$4bnAvantha Group, is a globally diversifiedcompany and a leading player in power T&D
i b i i di h
Operating margin performance of international operations
11.2 9.5 13
18 1,500
equipment business in India. The companyoperates across three segments - Power Systems,Consumer Products and Industrial Systems.
In the last couple of years, CG has under-
5.1
0.5 1.4
0.7 0.2 (0.1)
(2)
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1,000
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14 p y ,
performed the Sensex mainly on account ofEBITDA losses in international operations (due toslowdown in Europe and restructuring atBelgium unit). The GDP slowdown in India and
(0.5) (0.8)
(10.6)
(4.8)(0.6)
(17)
(12)
(7)
(1,500)
(1,000)
(500)
3QFY
1
4QFY
1
1QFY
1
2QFY
1
3QFY
1
4QFY
1
1QFY
1
2QFY
1
3QFY
1
4QFY
1
1QFY
1
2QFY
1
3QFY
1
EBIDTA (`cr) EBIDTA Margins (%)
tough competition in domestic market to bag thelimited orders further worsened the situation.
However, international operations are showingsigns of recovery, with 9MFY2014 EBITDA losses
Source: Company, Angel Broking
Moreover, the Management’s assurance thatnew international orders have been booked athi h i i di f h isigns of recovery, with 9MFY2014 EBITDA losses
having reduced to `7.5cr from `132cr in9MFY2013. According to the Management, theinternational power segment units at Belgiumand Hungary have already turned EBITDA
higher margins indicates at further recovery inmargin next year. Therefore, we are of theopinion that CG’s consolidated operatingmargin is likely to improve over the next12 thg y y
positive.12 months.
7
Crompton Greaves
Robust order book
29 32
30
35
10,500
12,000
Robust order book provides revenue visibility:CG reported a robust order book of `10,074cras at the end of 3QFY2014 (up 10% yoy). TheManagement indicates that its global power
000 66
72
00
00
26
771
743 074
14 17
15
9 7
10 10
15
20
25
3,000
4,500
6,000
7,500
9,000
%
(`cr
)
Management indicates that its global powertransformer factories are running at fullcapacities, implying healthy revenue visibilityfrom international operations, which now formalmost 60% of the company’s total order
8,0
8,3
9,1
9,4
9,2
9,1
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9,7
10,7
4 0
5
-
1,500
3QFY
12
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1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
order backlog Growth (yoy)
p ybacklog.
With expectations of recovery in Indian economyin 2HFY2015, order intake as well as executionof domestic power and industrial business is also
Attractive valuations: Given the attractivevaluations (stock trading at 0.8x FY2016EEV/Sales compared to its 5 year range of 0 6x to
Source: Company, Angel Brokingof domestic power and industrial business is alsolikely to improve going ahead. Further, thedomestic consumer business continues to reportconsistent volume and value growth.Considering all these factors we expect CG to EV/Sales compared to its 5-year range of 0.6x to
1.6x), we maintain our Buy rating on the stock.We have assigned an EV/Sales multiple of 1.1xto arrive at a target price of `225.
Valuation Snapshot
Considering all these factors, we expect CG topost a healthy growth in revenues in FY2015and FY2016.
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 14,899 6.6 504 7.9 12.9 24.8 3.0 14.2 0.9
FY2016E 16,720 7.2 639 10.0 14.8 19.6 2.7 11.8 0.8
8
Goodyear India(CMP: `416, TP: `510, Upside: 23%)
Improvement in tractor sales to drive growth:Goodyear is a market leader in tractor tyreindustry, and it accounts for ~60% of itst ff t k D d f t t i t d
Valuations: At the current levels, the stock istrading at a PE of 8.0x its CY2015E earnings.We recommend a Buy rating on the stock with at t i f `510 b d SOTP l ti
( )
tonnage off take. Demand for tractor is expectedto grow by 7-9% on the back of rise in minimumsupport prices and need for higher level oftractor penetration.
L bb i id EBITDA i
target price of `510 based on SOTP valuation.
SOTP Valuation
Particulars (` cr) CY2015E
C h R 439 Lower rubber prices to aid EBITDA margins:Rubber prices are expected to be under pressurein FY2015 and are expected at the levels of`150 as world Natural Rubber surplus is
t d t b t 428 000 t i t
Cash Reserves 439
Discounted Cash reserves (by 50%) (A) 220
Recurring PBT 144
Net Profit 96expected to be at 428,000 metric tonne.
Strong Balance Sheet: GIL is a debt free-cashrich company with a RoIC of 61.7%. Thecompany’s cash and equivalents are expected tob ` 439 b CY2015 d hi h 47%
Target PE multiple 10.0
Value based on PE (B) 957
Total Market Cap (A+B) 1,176
No of shares (cr) 2.3be at ` 439cr by CY2015-end, which are ~47%of the current market cap.
Valuation Snapshot
( )
Target Price (`) 510
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
CY2014E 1,667 9.5 104 45.2 22.5 9.1 1.9 3.6 0.3
CY2015E 1,777 10.0 118 51.1 21.4 8.0 1.6 2.8 0.3
9
HSIL(CMP: `204/ TP: `266/ Upside: 30%)
Leading position and extended capacity to be keydrivers: HSIL holds a leading position in thesanitaryware industry (organized segment) with~40% market share and well-known brands like
Valuations: On the back of robust growth in thesanitaryware industry coupled with stable growth inthe glass industry; net profit for HSIL is expected topost CAGR of 6 4% over FY2013-16E With a~40% market share and well-known brands like
QUEO Hindware Art, Hindware Italian, Hindware,Raasi, and Benevalve in its basket. Moreover, withincreasing awareness about improving sanitation,low penetration and changing lifestyles of people,
post CAGR of 6.4% over FY2013-16E. With atarget EV/Invested capital at 0.4x to Glasswaredivision and target PE of 15.0x to Sanitarywaredivision (current PE of 11.3x at 75.6% discount toCera which we expect to reduce to 33%), we arrive
the sanitaryware industry is witnessing traction. HSIL’sgreenfield project in its Sanitaryware division is expected toenable the company to encash on the traction in theindustry and thereby drive its overall growth.
at target price of `266.
SOTP Valuation
Particulars (` cr) FY2016E
Glass-ware- division Debt 1,074 Glassware division- unlikely to be a drag going
forward : Considering the vast difference in theprofitability's of the Sanitaryware (ROCE of 18-27%)and Glassware (ROCE of 6-10%); and lack of anysynergy between them we believe the two divisions
Capital employed 1,276 Target EV/Invested capital 0.4Expected MCAP (A) 81Sanitary-ware division- PAT 112T t PE 15 0
Valuation Snapshot
synergy between them, we believe the two divisionswill be separated into different entities sooner or later,which will provide fair valuations to both the entities.
Target PE 15.0Expected MCAP (B) 1,674Expected Total MCAP (A+B) 1,755Upside 30.5%
Y/E March Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/Sales(` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 1,792 13.1 49 7.5 6.5 27.3 1.2 9.2 1.2FY2016E 2,105 14.2 90 13.6 9.0 15.0 1.1 7.2 1.0
p
10
IFB Agro Industries(CMP: `187, TP: ` 276, Upside: 48%)
Increasing promoter’s stake :
The promoters’ have increased their stake from55% in Sept. 2012 to 65% in March 2014,
Restructuring of Spirit and Liquor business hasstarted reaping benefits :
IFB has exited two of its low margin businesses p ,boosting investor’s confidence in the company.
gnamely, IMFL Bottling and Manufacturing. Thecompany has replaced its existing IMFL bottlingcapacity with the higher margin country liquor(IMIL) bottling business and It has also sold its
One year forward P/E
350 Price 2x 4x 6x 8x
IMFL brands to Tilaknagar Industries. As a result,its margins will improve going forward.
Valuations: At CMP, the company is trading atan attractive PE of 4.2x and P/BV of 0.7x for
200
250
300
(`)
an attractive PE of 4.2x and P/BV of 0.7x forFY2016E. We maintain our Buyrecommendation on the stock with a target priceof `276 based on a target PE of 6x for FY2016E.
0
50
100
150
Valuation Snapshot
Source: Company, Angel Broking
May-09 May-10 May-11 May-12 May-13 May-14
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 580 11.2 37 41.5 17.8 5.1 0.8 1.7 0.2
FY2016E 666 11.2 43 47.9 17.5 4.4 0.7 1.2 0.1
11
India Cements(CMP: `104, TP: ` 130, Upside: 25%)
80
100
20
25
To be a major beneficiary of expected cementdemand pick-up in south India: South India’scement demand growth has lagged that of the
t ’ th th t f l l d
Southern region demand and utilization
20
40
60
80
5
10
15
20country’s growth over the past few years largely dueto de-growth in Andhra Pradesh, which is a keymarket in the south. While we expect the country’soverall cement demand to pick-up going ahead dueto the improvement in economic scenario, we expect
0
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01
1
FY2
01
2
FY2
01
3
Demand growth (%) Utilization (%) - RHS
p , pcreation of Telangana state w.e.f June 2014 to bethe key catalyst for demand pick-up in South India.India Cements with ~60% of its cement capacities inAndhra Pradesh would be a key beneficiary of thisi k i d dpick-up in demand.
Return ratios to improve: India Cements’ stand-alone return ratios have remained subdued over theyears due to weak profitability. However, we expect
Source: Company, Angel Broking
y p y pthe company’s earnings profile to improve goingahead due to better demand and realizations,resulting in higher return ratios. The company’srecently announced merger of two of its subsidiariesTrinetra Cement and Trishul Concrete Products withTrinetra Cement and Trishul Concrete Products withitself which is a corporate move in the right directionas it would result in healthier Balance Sheetconsidering India Cements’ substantial advancesand investment in these companies.p
12
India Cements
100,000
120,000EV/tonne $40 $60 $80 $100
Stock available at attractive valuations: India Cements,which is south India’s largest cement manufacturer, istrading at an attractive valuations of US$65/tonne (vs.replacement cost of US$ 140/tonne) ie at a huge
Ev/tonne band
40,000
60,000
80,000
EV (`
mn)
replacement cost of US$ 140/tonne), ie at a hugediscount to valuation of many of its large cap playerspeers ( EV/tonne in the range of US$ 115 to US$165)and its other mid-cap peers like Ramco Cements(currently trading at US$ 88/tonne). We believe such ah di i j ifi d id i h d
0
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huge discount is unjustified considering the expectedimprovement in demand – supply dynamics and thebottoming out of capacity utilization in south India. Wemaintain a Buy on the stock with a Target Price of`130. Source: Bloomberg Angel BrokingSource: Bloomberg, Angel Broking
Valuation SnapshotY/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/tonneMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (US $)
FY2015E 5,317 11.1 102 3.3 3.8 31.3 1.2 10.7 59
FY2016E 6,078 11.9 198 6.4 7.1 16.2 1.1 8.6 58
13
Jagran Prakashan(CMP: `116, TP: ` 140, Upside: 21%)
Advertising growth expected to bounce back todouble digits: After a sluggish 6.8% yoy growthin advertising revenue in FY2013 (due to
Advertising revenue
20 2 6.8
21.6
20 0
25.0
1,000
1,200
advertising rate cuts as Indian GDP decelerated),we expect Jagran Prakashan’s advertisingrevenue to bounce back and post strong double-digit growth in FY2014 and FY2015 (on back ofhik i d i i d i l i f N i
15.7
20.210.8
6.8
10.0
15.0
20.0
400
600
800
hike in advertising rates and inclusion of NaiDunia financials).
Further, considering Dainik Jagran’s status asthe most read Hindi newspaper and its strong
So rce Compan Angel Broking * FY2014 cannot be directl comparable o
638 767 850 907 11030.0
5.0
0
200
FY2010 FY2011 FY2012 FY2013 FY2014E*Advertising Revenue (` cr, LHS) Growth (yoy, RHS)
p p gpresence in rapidly growing Hindi markets ofBihar, Haryana, Jharkhand, Punjab, MadhyaPradesh and Uttar Pradesh, we believe, JPL willbenefit the most from an eventual recovery in
Source: Company, Angel Broking * FY2014 cannot be directly comparable yoydue to inclusion of Nai Dunia financials
the Indian economy.
14
Jagran Prakashan
Robust operating performance of maturemarkets expected to continue: JPL reported a273bp yoy improvement in operating margin to
f fl h d l k
9MFY14 9MFY13 %
Dainik Jagran
Operating Revenue 945 855 10 634.1% for its flagship daily Dainik Jagran in9MFY2014.
Further, with Mid-Day already earning operatingprofit compared to `5cr of operating loss in
Operating Revenue 945 855 10.6
Operating Profit 322 268 20.2
Operating Margin (%) 34.1 31.4 273bp
Other Publicationsp p p gFY2013 and with the Management’s confidencein reducing Nai Dunia’s losses, we expect JPL’sconsolidated OPM to expand by at least 280-300bp in FY2014 itself.
Operating Revenue 245 211 15.9
Operating Profit (18) (23) -
Operating Margin (%) (7.2) (11.0) 375bp
Source: Company, Angel Broking
Attractive valuation: The stock is currently tradingat attractive valuations of 12.9x FY2016Econsolidated EPS of `9.0. Considering theexpected improvement in advertising revenue and
JPL has also reduced its net debt from `239cr in9MFY2013 to `152cr in 9MFY2014, therebyenabling it to reduce interest cost and boostprofitability in coming quarters.
Valuation Snapshot
expected improvement in advertising revenue andoperating margin, we recommend Buy rating onthe stock with a target price of `140.
p y g q
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 1,867 23.4 238 7.5 22.1 15.4 3.2 8.6 2.0
FY2016E 2,074 24.4 283 9.0 23.4 12.9 2.9 7.3 1.8
15
JK Lakshmi Cement(CMP: `178, TP: ` 215, Upside: 21%)
10.6
10.0
12.0
Capacity addition to propel growth: JK LakshmiCement (JKLC) has 60% exposure to highgrowth northern region, with the remaining 40%
Ramping up Capacity
5.4 5.4
8.0
4 0
6.0
8.0
10.0
(mtp
a)
revenue arising from the western region. JKLC isembarking on a huge expansion plan whichwould double its overall capacity from thecurrent 5.4mtpa. The company’s 2.7mtpa
fi ld i i t d t b f ll
0.0
2.0
4.0
FY13 FY14 FY15E FY16E
greenfield expansion is expected to be fullycommissioned by March 2015. The 1.5mtpaclinker capacity at Durg along with a 1.7mtpagrinding unit is expected to be commissioned byDecember 2014 The 1mtpa grinding unit inDecember 2014. The 1mtpa grinding unit inOdisha is expected to be operational by March2015. With cement demand expected to pick upfrom 2HFY2015 aided by improvement ineconomy JK Lakshmi’s capacity additions are
Source: Company, Angel Broking
economy, JK Lakshmi s capacity additions areexpected to drive its growth.
16
JK Lakshmi Cement
25,000
30,000EV/tonne $40 $55 $70 $85
Stock available at attractive valuations: Weexpect JKLC’s top-line and bottom-line to growat a CAGR of 20% and 36% over FY2014-16E.
$
Ev/tonne band
10,000
15,000
20,000
EV (`
mn)
Currently the stock is trading at US$65/tonne(vs. replacement cost of US$ 140/tonne), ie at ahuge discount to valuation of many of its largecap players peers ( EV/tonne in the range ofUS$ 115 t US$165) d it th id
0
5,000
Oct
-02
Apr
-03
Oct
-03
Apr
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US$ 115 to US$165) and its other mid-cappeers like Ramco Cements (currently trading atUS$ 88/tonne). The stock has ralliedconsiderably over the past few months, but westill believe there is significant upside in the stock Source: Companystill believe there is significant upside in the stockconsidering its attractive valuations. We maintaina Buy on the stock with a Target Price of `215.
Source: Company,
Y/E S l OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/
Valuation SnapshotY/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/tonneMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (US $)
FY2015E 2,318 15.3 104 8.9 7.6 20.1 1.5 9.8 68
FY2016E 2,819 17.2 156 13.3 10.5 13.4 1.4 6.9 65
17
KEC Intl.(CMP: `118, TP: ` 140, Upside: 19%)
Robust order inflow from international marketsled to strong order book: In spite of slowdown ininvestment cycle in India, KEC reported a 13.3%
h d fl
Strong order book
9.9 9.9 11.1 10.3 10.5
6 3
8.7 1.0 7.7 10
1212,000
yoy growth in order inflow to `8,482cr inFY2014, mainly on account of good orderingfrom international markets, which nowcontribute almost 57.9% to the company’s total
d i fl
8,57
2
9,46
2
9,38
6
10,1
50
9,47
0
10,0
56
10,2
00
10,2
50
10,2
00
6.3
2
4
6
8
8,000
10,000
order inflow.
The strong order accretion over FY2014 has ledto a robust order backlog of `10,200cr,implying an order book coverage of 1 3x its So rce Compan Angel Broking
06,000
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
Order Backlog (` cr, LHS) Growth (yoy %, RHS)
implying an order book coverage of 1.3x itstrailing 4 quarter revenues.
Further, we believe KEC to be well poised andbe among the key beneficiaries of an eventual
Source: Company, Angel Broking
g yrecovery in the Indian economy
18
KEC Intl.
Margin pressure expected to ease further inFY2015: Although transmission segmentmargins continue to be good (between 9.0% to9 5%) t bl d l ti l
Margin pressure is easing
8.2 7.6
5.8 6.3 6.4 7.0
789
140160180
9.5%), power systems, cables, and relatively newsegments of railway and water are currentlyoperating at low/negative margins which isexerting pressure on the company’s operatingmargin 17
0
103
86
103
89
88
112
142
151
5.1
4.1
5.0
123456
20406080
100120
margin.
However, the Management has assured thatmost of the low margin orders have alreadybeen executed, while a few of such remaining Source: Company, Angel Broking
00
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
EBITDA (` cr, LHS) EBITDAM (%, RHS)
Outlook and valuation: Considering KEC’sgeographically diversified business model whichinsulates it from slowdown in any particular region,
d b k d d
, gorders are in final stages and expected toachieve closure in the next 3 to 4 months.Hence, we expect overall margins to improve inFY2015.
Source: Company, Angel Broking
Valuation Snapshot
strong order book and expected margin recovery,we recommend Buy rating on the stock with a targetprice of `140.
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 8,657 7.2 182 7.1 22.9 16.7 2.3 7.4 0.5
FY2016E 9,879 7.5 255 9.9 24.7 11.9 2.0 6.2 0.5
19
Kirloskar Oil Engines(CMP: `231/ TP: `290/ Upside: 26%)
Outlook & Valuations: A revival in the economycoupled with operating leverage will be strongdriving factors for the company’s growth. At CMP,it is trading at a PE of 14 3x for FY2016E We
Long term prospects intact on account of operatingleverage: KOEL is the flagship company of theKirloskar group. It is one of the world’s largestgenerating set (genset) manufacturers operating at
O f d P/E
it is trading at a PE of 14.3x for FY2016E. Wemaintain our Buy recommendation on the stockwith a target price of `290 with a target PE of18.0x for FY2016E.
generating set (genset) manufacturers, operating ata capacity utilization level of 55%. With capacityalready in place and minimum capex requirementin near future, we expect that once the operatingleverage starts paying off, it will directly shoot up
One year forward P/Eg p y g , y p
the bottom-line of the company, which is expectedto grow at a CAGR of 14.3% over FY2014-16E at`233cr.
Increasing promoters’ stake and cash rich position:200
250
Increasing promoters stake and cash rich position:Promoters have raised their stake from 66.9% inDec 2011 to 72.7% in Mar 2014. With zero debton books, minimum capex requirement andsubsidy earned on the Kagal plant, the company is 50
100
150(`)
Source: Company, Angel BrokingValuation Snapshot
expected have a cash and cash equivalent of`772cr by FY2016E. Ju
n-11
Aug
-11
Nov
-11
Feb-
12
May
-12
Aug
-12
Nov
-12
Feb-
13
May
-13
Aug
-13
Nov
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Feb-
14
May
-14
Price (`) 10x 12x 14x 16x
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2014E 2,421 12.4 204 14.1 15.3 16.4 2.4 8.7 1.1
FY2015E 2,651 12.6 233 16.1 15.8 14.3 2.1 7.1 0.9
20
MM Forgings(CMP: `146/ TP: `222/ Upside: 52%)
Outlook & Valuations: Backed by increased capacity andimprovement in the economy of its major export markets -America and Europe, we are positive on the companyfrom a long term perspective. On account of positive
Sufficient capacity to cater to improving demandacross the globe: MMFL is one of the largestexporters of forgings from India with a capacity of40,000MT. It is now focusing on optimum capacity
O f d P/E
from a long term perspective. On account of positivegrowth outlook and low valuation we recommend Buy onthe stock with a target price of `222 at a target PE of 6.0xFY2016E earnings.
40,000MT. It is now focusing on optimum capacityutilisation to take advantage of the productioncapacities that it has created.
Exports contributed ~70.0% to the revenue inFY2013 with major export markets as America and One year forward P/EFY2013 with major export markets as America andEurope. After the recession, the American economyis now seeing an upturn, and thus we are witnessinga growth in CV sales as well.
On the domestic front CV industry faced de growth200
250
300
On the domestic front, CV industry faced de-growthin FY2012-14 because of the shelved and stalledinfra projects. However, with new governmentcoming in, we expect the project clearance tohappen at faster pace leading to structural revival in 0
50
100
150
0 0 0
(`)
Source: Company, Angel BrokingValuation Snapshot
appe a as e pace ead g o s uc u a ev vathe overall CV industry. These factors collectively willhelp in driving company's revenue. Ju
n-09
Oct
-09
Feb-
10
Jun-
10
Nov
-10
Mar
-11
Jul-
11
Nov
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Apr
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Dec
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May
-13
Sep-
13
Jan-
14
Price (`) 2x 4x 6x 8x
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2014E 469 19.2 36 29.6 17.4 4.9 0.8 3.4 0.7
FY2015E 534 19.3 45 37.0 19.3 16.7 0.7 3.0 0.6
21
NCC(CMP: `81/ TP: `100/ Upside: 23%)
Execution pick up & healthy order book providesrevenue visibility: After weak execution in1HFY2014 (up 4.5% yoy), execution has picked
i 2HFY2014 ( 25 3% ) A di t
Healthy order book
18.5
13 0 15 0
20.0
25.0
20 500
21,000
21,500
up in 2HFY2014 (up 25.3% yoy). According tothe Management, execution pick-up willcontinue as the under construction projects arebeing executed at a steady pace.
9 9 3 8 7 2 6 (8 1)
3.1
4.3
13.0
(5.0)
0.0
5.0
10.0
15.0
18,000
18,500
19,000
19,500
20,000
20,500
NCC has secured orders worth `9,385cr inFY2014, which is higher than our expectation aswell as the Management’s guidance of `6,600crfor the full year. Further, the Management has
d h h d h b b k d So rce Compan Angel Broking
19,6
39
18,7
99
18,5
53
18,0
98
20,2
47
19,6
12
20,9
56
(14.5)
(8.1)(11.8)
(20.0)
(15.0)
(10.0)
16,500
17,000
17,500
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14
Order Booking (` cr, LHS) Growth (yoy %, RHS)
assured that these orders have been booked athigher margins due to reduction in competitiveintensity.
The company’s order book stands at `20,956cr
Source: Company, Angel Broking
p yas at the end of FY2014, indicating order bookto sales of 3.4x trailing revenues, which providescomfort on the revenue visibility front.
22
NCC
Expect profitability to improve going ahead asdebt and interest reduces: In the last couple ofyears, NCC’s profitability has been adverselyff d b hi h i (d
Expect profitability to improve going ahead
1.6 1.7
1 5
2.0
30
35
affected by higher interest expense (due toincreasing debt and high interest rates).However, NCC has already pared down its debtby `250cr to `2,470cr in 4QFY2014 itself.
0.6
0.9 0.8
0.4 0.5
1.0
1.5
10
15
20
25
Further, the company is also in the process offurther reducing its debt through completion ofstake sale in the Himachal Sorang project andNelcast Power Project and stake sale in two of its
d ll d S C A l B ki
8 11
27
11
5
(7)
32
(0.5)
(1.0)
(0.5)
0.0
(10)
(5)
0
5
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14
PAT (` cr, LHS) PATM (%, RHS)
Outlook and valuation: Considering the expectedpick-up in execution and order inflows as well aslikely reduction in debt, we recommend Buy on the
road BOT projects (Western UP Tollways andBangalore Elevated Expressway). It also plans toraise equity through a rights issue.
Hence, we expect substantial reduction in debt
Source: Company, Angel Broking
Valuation Snapshot
y , ystock with a target price of `100.
, pover FY2015, thereby reducing interest expenseand increasing profitability.
Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 6,699 7.8 75 2.9 2.9 27.7 0.8 8.5 0.7
FY2016E 7,654 8.0 117 4.6 4.4 17.7 0.8 7.0 0.6
23
South Indian Bank(CMP: `28/ TP: `36/ Upside: 29%)
Attractive bet for Increased Mergers &Acquisition opportunities in the sector: The RBIhas just granted new banking licenses to two
to `148cr in 2HFY2014). Going forward, theManagement is optimistic of healthyrecoveries/upgrades of stressed loans aiding
Gross NPAs (` cr) Net NPA (` cr) PCR (%, RHS)
applicants and with recent guidelines evenallowing foreign banks to take over banks inIndia (subject to conditions), M&A activity in thesector may increase going forward. South IndianB k (SIB) id i d P i t b k ith h lth
Asset quality witnessed improvement in 2HFY2014
further asset quality improvement.
53.2
57.9
53.5 55.8
62.7
54.0
59.0
64.0
375 450 525 600 675 Bank (SIB), a mid-sized Private bank with healthy
return ratios, healthy operating metrics anddecent network presence/customer base is anattractive bet not only from a standaloneinvestment point of view but also as a potential
43
4
49
3
61
4
55
5
43
3
25
0
34
8
44
0
39
2
28
2
39.0
44.0
49.0
-75
150 225 300
investment point of view but also as a potentialtakeover target, keeping in mind currentvaluation parameters like P/ABV and Marketcap/Branch.
39.0 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 Asset quality showed improving signs:
After witnessing severe pressures over1HFY2014, the bank’s asset quality improvedduring 2HFY2014, aided by lower fresh addition
Source: Company, Angel Broking
of stressed assets and healthy recoveries/upgrades (at `317cr in 2HFY2014 compared
24
South India Bank
45Price (`) 0.5x 0.8x 1.1x 1.4x 1.7x
Healthy capital adequacy, profitability matrixprovides comfort: Over the past five years, SIB’sloan book grew at a healthy CAGR of 25%,h b d i i i CAGR f 21% B
One year forward P/ABV
15
20
25
30
35
40thereby driving earnings CAGR of 21% yoy. Butin light of current macro challenges, growth inloan book and earnings has moderated.However, the bank’s tier-I CAR stands at ahealthy 10 8% and this is expected to generate
0
5
10
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
Dec
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Apr
-08
Aug
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Dec
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Apr
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Aug
-09
Dec
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Apr
-10
Aug
-10
Dec
-10
Apr
-11
Aug
-11
Dec
-11
Apr
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Aug
-12
Dec
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Apr
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Aug
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Dec
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Apr
-14
healthy 10.8%, and this is expected to generateRoEs of ~16% over the next two years, whichgives it enough headroom to grow at a healthypace, with increased expectations ofimprovement in business environmentimprovement in business environment.
Valuation: With healthy capital adequacy andreasonable profitability, the bank currentlytrades at relatively moderate valuations of 0.9x
Source: Company, Angel Broking
Valuation Snapshot
FY2016E ABV. We recommend a Buy rating onthe stock with a target price of `36.
Y/E Op. Inc NIM PAT EPS ABV ROA ROE P/E P/ABVMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 1,969 2.7 558 4.2 26.6 0.9 16.2 6.4 1.0
FY2016E 2,241 2.7 653 4.9 30.3 0.9 16.7 5.5 0.9
25
Siyaram Silk Mills(CMP: `390/ TP: `654/ Upside: 68%)
Outlook & Valuations: SSML’s market leadership inblended fabrics, strong brand building, widedistribution channel, strong presence in tier II andtier III cities and emphasis on latest designs and
Demand for blended fabric to drive growth: Being thelargest manufacturer of blended fabric in India, SSML enjoysa 4% market share in the organized market in this segment.Increasing demand in this segment places SSML in a sweet tier III cities and emphasis on latest designs and
affordable pricing points are the growth drivers forthe company. We maintain our Buyrecommendation on the stock with a target priceof `654 with a target PE of 6.0x for FY2016E.
Increasing demand in this segment places SSML in a sweetspot. Fabric and garment segments have witnessed growthof 11.3% and 30.8% yoy in FY2014 and we expect thesedivisions to continue its momentum going forward drivingthe revenue to grow at a CAGR of 17.0% to `1,783 in gg ,FY2016E.
Rigorous advertisement and retail expansion to pushdemand: SSML is aggressively spending on advertisementsand has roped in celebrities like M S Dhoni (Siyaram’s,
One year forward P/E
500
600
700
p ( y ,MSD), Neil Nitin Mukesh (Mistair), Saif Ali Khan (Oxemberg)and Hrithik Roshan (J. Hampstead) as brand ambassadorsfor its products, which has helped it in brand building andimproving visibility. Also, the company plans to increase the
b f h h f h 0
100
200
300
400
500
(`)
number of stores to 500 (existing 160) through franchiseesby FY2017E.
Source: Company, Angel Broking
0
Jun-
09
Nov
-09
May
-10
Nov
-10
May
-11
Nov
-11
May
-12
Nov
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May
-13
Nov
-13
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-14
Price (`) 2x 4x 6x 8x
Valuation SnapshotY/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/SalesMarch (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2015E 1,525 10.7 80 85.3 19.7 4.6 0.8 4.1 0.4
FY2016E 1,783 10.8 102 109.0 20.9 3.6 0.7 3.3 0.4
26
Styrolution(CMP: `459/ TP: `566/ Upside: 23%)
Persisting ABS short supply coupled with capex tobe key growth driver: The gap between domesticdemand for ABS vis-a-vis the supply has persistedf l d th till ti t i t Th
Valuations: With initiation of revival in theeconomy, we expect Styrolution’s revenue to post aCAGR of 7.4% over CY2013-15E. The EBITDA
i t t bili ith t bili i tfor long and the same still continues to exist. Theunfulfilled demand is being met by the imports ofABS. Moreover, the revival in economy due tostable government is expected to drive the growthin the user industries like automobiles and
margins are to stabilize with stabilizing currency at7.2% in CY2015E. The net profit is to register aCAGR growth of 10.6%. We recommend Buyrating on the stock with the a target price of `566,based on target PE of 17x for CY2015Ein the user industries like automobiles and
consumer durables (60% of ABS’s industrialdemand) which will further extend the gap.Styrolution’s recent commencement of a new linefor Absolan, is hence expected to enable the
based on target PE of 17x for CY2015E.
One year forward P/E
800
1000 Price 2.5x 8.5x 14.5x 20.5x
company en-cash the mounting demand.
Margins expected to improve : Styrolution importsabout 81% of the total raw materials used forproduction. However, with currency stabilizing at 0
200
400
600
(`)
Valuation Snapshot
production. However, with currency stabilizing atexpected lower levels of 57-58, will result in theimprovement in operating margins for the company.
Source: Company, Angel Broking
0
May
-09
Nov
-09
May
-10
Nov
-10
May
-11
Nov
-11
May
-12
Nov
-12
May
-13
Nov
-13
May
-14
Y/E Dec Sales OPM PAT EPS ROIC P/E P/BV EV/Sales(` cr) (%) (` cr) (`) (%) (x) (x) (x)
CY2014E 1,172 7.0 52 29.7 13.1 15.5 1.5 0.7
CY2015E 1,288 7.0 59 33.3 13.9 13.8 1.4 0.6
Valuation Snapshot
27
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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