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Sharekhan ValueGuide March 20121
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March 2012 Sharekhan ValueGuide2
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Sharekhan ValueGuide March 20123
CONTENTS
The equity markets
continued to build on the
gains of January 2012 inFebruary also. Many
common investors
missed out on the rally
because they were
waiting on the sidelines
either in a bid to time the market or because they were simply petrified
by a slew of negative news flow globally.
REGULAR FEATURES
Report Card 4
Earnings Guide I
TECHNICALS
Sensex 29
Market Outlook 7
Sharekhan Top Picks 11
Stock Idea 15
Stock Update 16
Sharekhan Special 26
Thematic report 27
From Sharekhans Desk EQUITY
06
Perils of timing the market FUNDAMENTALS
DERIVATIVES
View 30
TECHNICALS
Crude oil 31
Gold 32
Silver 32
FUNDAMENTALS
Copper 32
Lead 32
Zinc 33
Gold 34
Silver 34
Crude Oil 34
Copper 35
Natural gas 35
Nickel 35
TECHNICALS
INR-USD 36
INR-EUR 36
FUNDAMENTALS
USD-INR 37
EUR-INR 37
GBP-INR 37
JPY-INR 37
INR-GBP 36
INR-JPY 36
disclaimerDISCLAIMER: This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and maycontain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the
purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHANwill not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the
information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current.
Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be reliedupon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the meritsand risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to
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herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from,or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to,
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COMMODITY
CURRENCY
PMS DESK
ProPrimeTop Equity 38
ProPrimeDiversified Equity 39
ProTechDiversified 40
ProTechNifty Thrifty 41
ProTechTrailing Stops 42
ADVISORY DESK
Smart Trades 43
Derivative Trades 43MID Trades 43
MUTUAL FUNDS DESK
Top MF Picks (equity) 44
Top SIP Fund Picks 45
Sector Update 28
Viewpoint 28
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March 2012 Sharekhan ValueGuide4
STOCK IDEAS STANDING (AS ON MARCH 02, 2012)
REPORT CARD
COMPANY RECO PRICE RECO CURRENT PRICE AS ON GAIN- ABSOLUTE PERFORMANCE RELATIVE TO SENSEXPRICE TARGET DATE RECO 02-MAR-12 LOSS (%) 1M 3M 6M 12M 1M 3M 6M 12M
EVERGREEN
GSK Consumers 2544.0 3000.0 14-12-11 Buy 2585.0 1.6 -2.8 3.2 7.4 25.6 -4.4 -3.4 1.6 29.9
HDFC 540.0 785.0 19-Nov-07 Hold 672.7 24.6 -2.8 2.0 1.0 4.3 -4.4 -4.5 -4.5 7.9
HDFC Bank 71.6 570.0 23-Dec-03 Hold 518.8 624.5 3.4 13.3 8.9 21.0 1.7 6.1 3.0 25.1Infosys 689.1 ** 30-Dec-03 Hold 2845.7 313.0 4.2 7.6 22.6 -6.1 2.5 0.7 15.9 -2.9
Larsen & Toubro 1768.0 1588.0 18-Feb-08 Buy 1299.7 -26.5 -5.0 -1.3 -20.6 -20.0 -6.5 -7.6 -24.9 -17.3
Reliance Ind 283.5 980.0 5-Feb-04 Buy 814.1 187.2 -2.4 1.5 3.6 -17.3 -4.0 -5.0 -2.0 -14.5
Tata Consultancy Services 426.3 1294.0 6-Mar-06 Buy 1217.3 185.6 8.1 7.8 17.6 10.1 6.3 0.9 11.2 13.8
APPLEGREEN
Aditya Birla Nuvo 714.0 1050.0 6-Dec-05 Buy 874.1 22.4 7.8 -2.7 -3.5 11.6 6.1 -8.9 -8.7 15.4
Apollo Tyres 37.0 86.0 27-Jul-09 Buy 79.6 115.0 12.1 24.6 38.5 47.5 10.3 16.6 30.9 52.5
Bajaj Auto 1610.0 1612.0 27-Dec-11 Reduce 1750.0 -8.0 10.1 4.1 12.8 36.6 8.4 -2.5 6.6 41.3
Bajaj Finserv 545.0 600.0 26-May-08 Buy 633.8 16.3 38.8 46.2 18.7 44.6 36.6 36.9 12.2 49.5
Bajaj Holdings 741.9 1009.0 26-May-08 Buy 804.6 8.4 21.1 13.4 7.5 7.3 19.2 6.2 1.6 10.9
Bank of Baroda 239.0 1065.0 22-Apr-12 Buy 824.9 245.1 8.9 15.7 11.7 -5.9 7.2 8.3 5.7 -2.7
Bank of India 309.0 384.0 22-Apr-12 HOLD 368.5 19.3 7.9 10.2 19.0 -19.2 6.2 3.1 12.5 -16.4
Bharat Electronics 1108.0 1893.0 25-Sep-06 Buy 1580.3 42.6 15.6 7.9 5.2 -4.4 13.8 1.0 -0.6 -1.1
Bharat Heavy Electricals 120.4 328.0 11-Nov-05 HOLD 296.9 146.6 17.3 8.4 -15.3 -26.0 15.4 1.5 -19.9 -23.4
Bharti Airtel 313.0 450.0 8-Jan-07 Buy 350.4 11.9 -4.2 -8.7 -14.4 2.8 -5.7 -14.5 -19.1 6.4
Corp Bank 218.0 636.0 19-Dec-03 Buy 464.2 112.9 11.4 31.3 5.3 -15.2 9.6 22.9 -0.4 -12.3
Crompton Greaves 50.4 164.0 19-Aug-05 Hold 142.9 183.5 -0.9 11.5 -4.7 -42.5 -2.5 4.4 -9.9 -40.6
Divi's Labs 767.0 1122.0 31-May-11 Buy 737.0 -3.9 -6.2 -2.0 2.6 24.2 -7.7 -8.2 -3.0 28.5
GAIL 476.0 471.0 1-0ct-10 Buy 371.3 -22.0 -0.8 -5.1 -8.2 -14.3 -2.4 -11.2 -13.2 -11.3
Glenmark Pharmaceuticals 599.0 400.0 17-Jul-08 Buy 309.7 -48.3 4.4 -1.7 -4.8 8.1 2.7 -8.0 -9.9 11.8
GCPL 145.0 497.0 7-May-09 Buy 449.9 210.2 1.5 13.1 5.0 23.6 -0.2 5.8 -0.7 27.9
Grasim 1119.0 2980.0 30-Aug-04 Buy 2718.1 142.9 3.4 13.1 26.9 20.9 1.7 5.9 20.0 25.1
HCL Technologies 103.0 523.0 30-Dec-03 Buy 481.7 367.6 10.1 20.9 19.6 5.2 8.3 13.2 13.1 8.8
Hindustan Unilever 324.0 406.0 29-Jul-11 Hold 382.9 18.2 -1.1 -2.6 19.8 34.9 -2.7 -8.9 13.3 39.6
ICICI Bank 284.0 1070.0 23-Dec-03 Buy 902.7 217.9 -0.7 15.9 1.2 -12.8 -2.3 8.5 -4.3 -9.8
Indian Hotel Company 76.6 84.0 17-Nov-05 Buy 67.3 -12.1 2.1 14.9 -5.8 -15.4 0.5 7.5 -10.9 -12.5
ITC# 34.8 227.0 12-Aug-04 Buy 205.3 490.6 2.6 1.6 3.4 21.9 1.0 -4.9 -2.2 26.1
Lupin 80.7 597.0 6-Jan-06 Buy 488.2 505.0 0.9 3.7 7.5 22.7 -0.8 -3.0 1.7 26.9
M&M 116.0 794.0 1-Apr-04 Hold 680.0 486.2 -1.0 -6.6 -7.6 4.3 -2.6 -12.6 -12.7 7.8
Marico 7.7 186.0 22-Aug-02 Buy 157.4 1943.5 4.8 6.1 6.3 31.6 3.1 -0.7 0.5 36.1
Maruti Suzuki 1163.0 1382.0 23-Jan-12 Hold 1330.6 14.4 8.3 36.7 20.5 2.6 6.5 27.9 13.9 6.1
Piramal Healthcare 417.0 345.0 9-May-11 Reduce 447.6 -6.8 6.3 23.6 22.6 -0.4 4.5 15.7 16.0 3.0
PTC India 79.0 71.0 22-Mar-11 Buy 57.5 -27.3 17.5 22.1 -16.8 -32.4 15.6 14.3 -21.4 -30.1
Punj Lloyd 69.0 ** 9-Feb-11 Reduce 56.8 21.5 1.5 18.6 -2.6 -10.0 -0.1 11.0 -7.9 -6.9
SBI 476.0 2725.0 13-Feb-12 Buy 2246.7 372.0 6.8 21.6 12.4 -16.9 5.1 13.8 6.3 -14.1Sintex industries^ 143.0 105.0 26-Sep-08 Buy 84.8 -40.7 -0.2 -8.4 -41.1 -43.7 -1.8 -14.3 -44.3 -41.7
TGBL(Tata Tea)^ 78.9 129.0 12-Aug-05 Hold 120.6 52.8 13.0 39.8 31.9 38.1 11.2 30.8 24.7 42.8
Wipro 356.0 ** 31-Oct-11 Hold 429.0 20.5 3.2 10.5 27.3 -2.8 1.5 3.4 20.4 0.5
EMERGING STAR
Axis (UTI) Bank 229.4 1620.0 24-Feb-05 Buy 1166.7 408.7 6.0 18.5 7.5 -9.5 4.2 10.9 1.6 -6.4
Cadila Healthcare# 198.3 818.0 21-Mar-06 Buy 708.5 257.3 8.5 0.8 -15.9 -4.0 6.7 -5.6 -20.5 -0.7
Eros International Media 186.0 298.0 15-Nov-10 Buy 184.4 -0.9 -9.1 -17.7 -13.4 31.2 -10.6 -23.0 -18.1 35.7
Gateway Distriparks 131.0 173.0 2-Feb-12 Buy 151.5 15.6 17.2 14.1 16.5 34.1 15.3 6.8 10.2 38.7
Greaves Cotton^ 83.0 89.0 25-Jan-12 Hold 82.3 -0.8 -0.5 5.2 -8.6 -2.5 -2.1 -1.6 -13.5 0.9
ITNL 362.0 330.0 14-Sep-10 Buy 190.1 -47.5 -8.4 11.4 4.0 -6.8 -9.8 4.3 -1.7 -3.6
EQUITY FUNDAMENTALS
NEW
NEW
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COMPANY RECO PRICE RECO CURRENT PRICE AS ON GAIN- ABSOLUTE PERFORMANCE RELATIVE TO SENSEXPRICE TARGET DATE RECO 02-MAR-12 LOSS (%) 1M 3M 6M 12M 1M 3M 6M 12M
REPORT CARD
STOCK IDEAS STANDING (AS ON MARCH 02, 2012)
EQUITY FUNDAMENTALS
NEW
NEW
IRB Infra 234.0 200.0 29-Nov-10 Buy 188.4 -19.5 2.7 22.5 22.9 -6.2 1.0 14.7 16.2 -3.0
Max India 212.0 234.0 24-Nov-09 Buy 169.0 -20.3 -1.3 -0.2 -16.5 13.4 -2.9 -6.6 -21.1 17.3
Opto Circuits India 199.0 393.0 13-May-08 Buy 271.5 36.4 11.6 33.4 2.9 9.8 9.8 24.9 -2.7 13.6
Thermax 124.2 526.0 14-Jun-05 Hold 524.0 321.9 8.9 13.9 8.4 -10.5 7.1 6.6 2.5 -7.4Yes Bank 332.0 431.0 2-Dec-10 Buy 350.5 5.6 1.1 21.8 22.5 26.0 -0.5 14.0 15.8 30.3
Zydus Wellness 530.0 323.0 18-Nov-11 Reduce 367.7 44.1 -11.1 -19.0 -37.1 -36.7 -12.6 -24.2 -40.5 -34.5
UGLY DUCKLING
Ashok Leyland # 27.0 27.0 2-Feb-12 Reduce 28.7 -5.8 -2.4 12.5 12.3 11.3 -4.0 5.3 6.2 15.1
Bajaj Corp 109.0 142.0 30-Aug-11 Buy 114.1 4.7 12.2 3.4 0.1 19.7 10.4 -3.2 -5.4 23.8
CESC 282.0 405.0 29-Jun-11 Buy 265.9 -5.7 4.8 2.8 -11.8 -12.6 3.2 -3.7 -16.6 -9.6
Deepak Fert 50.6 188.0 17-Mar-05 Buy 156.6 209.4 11.8 6.0 -4.8 4.3 10.0 -0.8 -9.9 7.9
Federal Bank 258.0 522.0 16-Mar-10 Buy 415.2 60.9 -0.3 9.6 7.9 12.4 -1.9 2.6 2.0 16.2
Gayatri Projects 393.0 310.0 5-Apr-10 Buy 133.0 -66.2 15.8 30.0 1.5 -28.0 14.0 21.7 -4.0 -25.5
India Cements 72.0 105.0 12-Aug-11 Hold 100.4 39.4 19.3 37.0 49.9 16.7 17.4 28.3 41.8 20.7
Ipca Laboratories 132.0 436.0 5-Nov-07 Buy 335.1 153.8 8.1 35.3 11.5 26.4 6.3 26.7 5.4 30.7
ISMT 43.0 36.0 8-Oct-09 Buy 29.5 -31.5 0.7 14.5 -9.6 -38.3 -0.9 7.1 -14.6 -36.2
Jaiprakash Associates 16.7 105.0 30-Dec-03 Buy 74.9 349.0 2.7 15.2 22.6 -9.4 1.1 7.8 15.9 -6.3
KKCL 427.0 800.0 7-Oct-10 Hold 640.0 49.9 2.0 -11.4 -14.9 33.2 0.3 -17.1 -19.5 37.7
NIIT Technologies 210.0 277.0 19-Jan-11 Buy 239.0 13.8 13.8 16.9 25.1 29.5 12.0 9.4 18.3 33.9
Orbit Corporation 142.0 70.0 23-Dec-09 Buy 57.6 -59.4 26.3 106.2 63.2 23.7 24.3 93.0 54.4 27.9
Polaris Financial Techn 164.0 179.0 3-Nov-10 Buy 156.5 -4.6 9.0 28.8 22.8 -13.4 7.2 20.6 16.1 -10.4
Pratibha Industries 65.2 65.0 18-Jan-10 Buy 47.6 -27.1 2.3 47.0 5.1 -14.1 0.6 37.6 -0.6 - 11.2
Provogue India 61.0 62.0 6-Jul-10 Buy 34.5 -43.5 34.3 37.0 22.0 -17.4 32.1 28.2 15.4 -14.6
Punjab National Bank 180.0 1340.0 19-Dec-03 Buy 953.7 429.8 -0.7 5.3 2.1 -11.5 -2.3 -1.4 -3.5 -8.4
Ratnamani Metals 54.0 132.0 8-Dec-05 Buy 107.8 99.5 1.4 2.5 5.0 -14.4 -0.2 -4.1 -0.7 -11.4
Raymond 387.0 500.0 3-Nov-11 Buy 352.4 -8.9 1.5 -8.0 1.5 29.8 -0.1 -13.9 -4.0 34.2
Selan Exploration Tech 58.0 500.0 20-Mar-06 Buy 285.6 392.4 2.3 6.8 1.4 -11.2 0.6 -0.1 -4.2 -8.1
Shiv-Vani Oil & Gas 370.0 283.0 4-Oct-07 Buy 208.9 -43.5 -3.2 11.4 24.4 -22.0 -4.8 4.2 17.7 -19.4
Sun Pharma 60.4 692.0 24-Dec-03 Buy 566.6 838.1 0.1 5.3 12.7 24.2 -1.5 -1.5 6.6 28.4
Torrent Pharma 185.0 779.0 4-Oct-07 Buy 568.1 207.1 0.1 2.7 -4.7 8.7 -1.5 -3.8 -9.9 12.4
UltraTech Cement 384.0 1550.0 10-Aug-05 Hold 1424.6 271.0 14.3 21.6 32.4 49.1 12.5 13.8 25.2 54.2
Union Bank of India 46.0 259.0 25-Jan-12 Hold 232.7 405.8 -2.8 5.3 -5.6 -27.7 -4.4 -1.4 -10.7 -25.2
United Phosphorus 163.0 167.0 27-Aug-09 Buy 135.8 -16.7 -3.3 0.9 -2.4 2.4 -4.8 -5.5 -7.7 5.9
V-Guard Industries 162.0 227.0 6-Sep-10 Buy 188.5 16.4 -1.6 4.9 -8.1 15.3 -3.2 -1.8 -13.1 19.2
VULTURE'SPICK
Mahindra Lifespace 799.0 400.0 9-Jan-08 Buy 328.1 -58.9 8.1 21.0 3.7 -6.5 6.4 13.3 -2.0 -3.3
Orient Paper and Industries 21.4 70.0 30-Aug-05 Buy 55.8 160.7 5.3 15.3 -3.2 19.0 3.6 7.9 -8.4 23.1
Tata Chemicals 411.0 400.0 31-Dec-07 Hold 355.6 -13.5 3.8 2.5 7.4 10.5 2.1 -4.1 1.5 14.3
Unity Infraprojects 138.4 107.0 26-Feb-08 Buy 49.9 -63.9 29.3 62.4 -1.7 -14.6 27.2 52.0 -7.1 -11.7
CANNONBALL
Allahabad Bank 73.0 271.0 25-Aug-06 Buy 189.7 159.9 16.2 20.1 6.3 -6.1 14.3 12.4 0.5 -2.9
Andhra Bank 120.1 156.0 3-Feb-11 Buy 126.2 -4.9 25.7 28.1 -1.7 -6.4 23.6 19.9 -7.0 -3.2
IDBI Bank 106.0 131.0 19-Jun-09 Hold 112.8 6.4 11.6 18.4 4.4 -15.9 9.8 10.8 -1.3 -13.0
Madras Cement 88.0 148.0 10-Feb-11 Hold 141.0 60.2 18.4 26.6 61.1 50.6 16.5 18.5 52.4 55.7
Shree Cement 445.0 ** 17-Nov-05 Hold 2799.8 529.2 27.1 39.1 74.3 68.1 25.1 30.2 64.9 73.8
**Price target under review Reco price adjusted for stock split #Reco price adjusted for bonu
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Perils of timing the market
FROM SHAREKHANS DESK
fromshare
khan
sdeskThe equity markets continued to build on the gains of January 2012 in February also.
Many common investors missed out on the rally because they were waiting on the sidelines
either in a bid to time the market or because they were simply petrified by a slew of negativenews flow globally.
Timing the market is an obsession with many common investors or even some institutional
investors. However, many successful fund managers and investment gurus do not worry
too much about timing the market but rather focus on stock picking and valuations. Since
inception of their funds, Warren Buffet and one of the most successful fund managers in
India (Prashant Jain of HDFC Mutual Fund in case of HDFC Prudence Fund since 1994)
have given close to 20% annualised returns over a period of decades without worrying
about timing the market.
As they say, it is not about timing the market but the time in the market that really matters
to the equity investors. And the equity market has its own ways to remind the same to
investors. The recent sharp rally is a case in point.
No doubt, the equity market can test your conviction in the near term but investment
decisions made at right valuations in quality stocks tend to generate healthy returns over a
longer period of time. Analysis of the past data suggests that the market has given returns
of over 100% in a period of three years if the investments were made at multiples of below
12x one-year forward earnings (one can adjust the consensus estimate to factor in the
potential earnings downgrades).
After the sharp rally in the past two months, the major excesses of the pessimism in the
valuations have been filled up now. Our research team points out that the Sensex multiple
has moved up from just below 12x forward earnings to over 14x forward earnings and is
only at a slight discount to the long-term average multiple of around 14.8-15x one-year
forward earnings. From here on, the markets re-rating will depend upon the domestic
triggers, such as policy push and the Reserve Bank of Indias stance on the pace of monetary
easing. Refer to our Market Outlook report on page 7 for details.
Do not rue the missed opportunity. The market seems to be taking a break to digest the
sharp gains of the past two months and is waiting for the outcome of the major policy
related events scheduled for this month. Moreover, there is always value to be explored in
the broader market. There are still many quality stocks available at discounted valuations.
Our research teams endeavour is to help you identify some of these stocks that have a
secular growth story and are available at reasonable valuations.
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Policy push needed for the next leg up
MARKET OUTLOOK MARCH 03, 2012
March cluttered with eventspoll results, budget, RBI policy:This March has several key events like election results (March6, 2012), the Reserve Bank of India (RBI)s policy review (March15, 2012) and Union Budget (March 16, 2012) in addition tothe usual liquidity pressure driven by the advance tax payment.The high turnout in the Uttar Pradesh elections and mediasurveys suggest a possible gain in vote share by Samajwadi Party(SP) and Congress Party at the expense of the ruling BhahujanSamaj Party (BSP), which could lead to an alliance of theCongress Party and SP at the state level and a possible extensionof the same at the Centre. This would reduce the ruling UnitedProgressive Alliance (UPA)s dependence on Mamata BanerjeesTrinamool Congress (TMC) and enable the government to pushforward reforms. Though no fireworks are expected from the
budget, the key triggers to watch out for are: a credible roadmapfor fiscal consolidation and some definitive steps to boost theinvestment cycle.
Inflation and economic growth moderate sharply but firm crudeprices cast a shadow on the trajectory of monetary easing byRBI: The sharp run-up of 17% to $125 per barrel in the crudeoil prices since January this year, fuelled by the rising geopoliticaltensions and easy liquidity conditions globally, has brought backthe fears of its damaging impact on inflation and economicgrowth globally. Indias dependence on imports for its crudeoil needs and lack of reforms in its oil sector make it morevulnerable in such a scenario and could result in the reallocationof funds by foreign investors away from India to resource-rich
countries (like Brazil, Russia, Indonesia) within the emergingmarkets. Moreover, the RBI could delay the much-awaitedpolicy rate cuts in view of the inflationary pressure emanatingfrom the rising crude oil prices.
Q3 earnings growth below expectations but pace of earningsdowngrades slowing down: While the Q3FY2012 earningsgrowth was in low single digits, the revenue growth momentumremains strong driven by a healthy growth in volumes, betterprice realisation and a favourable currency. Since April 2011the Sensex earnings estimates have been downgraded by 7.5%and 14.8% for FY2012 and FY2013 respectively. But the paceof the earnings downgrades has slowed down considerably witha marked improvement in the earnings upgrades/downgrades
ratio in the third quarter of FY2012. However, the revival inthe corporate earnings upgrade cycle is possibly still a couple ofquarters away and would depend on the RBI and thegovernments policies.
Short covering blip behind us: fundamentals would come tofore again: The BSE small-cap index appreciated by 25%compared to the 14% upmove in the benchmark indices. Theshort covering in view of the surge in the market has resulted inmore than 50% rise in many debt-laden high beta stocks. Thishas provided an opportunity to churn portfolios in favour ofquality stocks, not necessarily from the defensive sectors. With
MARKET OUTLOOKEQUITY FUNDAMENTALS
the technical blip behind us, we expect the fundamentals tocome to the fore again.
Need policy push for further re-rating of multiples: After the recenrun-up, the Sensex valuations have expanded from around 12xto close to 14x FY2013 earnings estimate which is close to itslong-term average multiple. The global scenario is much moreconducive now with the injection of huge liquidity through theLong-Term Refinancing Operation (LTRO) in Europe andimproving economic data points in the USA. However, for thliquidity-driven rally to sustain, there is a need for domestictriggers in the form of adequate support from the governmentpolicies (in power, infrastructure, subsidy, foreign direcinvestment [FDI] etc) accompanied by monetary easing from the
RBI. Our base case assumption is a likely consolidation phasearound the current level before another leg of the rally unfolds.
SENSEX P/E (BASED ON ROLLING ONE-YEAR FORWARD EPS)
Source: Bloomber
6
9
12
15
18
21
24
27
30
Feb-93
Feb-94
Feb-95
Feb-96
Feb-97
Feb-98
Feb-99
Feb-00
Feb-01
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Marchbig events awaited (poll results, budgets, RBI policy)
Several events like Union Budget, state assembly election resultsRailway Budget and the RBI policy review will fall in March thisyear, thereby making it a crucial month for the market. Apart fromthat, liquidity will remain exceptionally tight due to the advancetax payments and credit disbursal by banks. Since the market harallied substantially ahead of these events, investors would belooking at these events for future course of the market. While thelection outcome will determine the strength of the government inpushing through reforms, the budget will throw light on the mean
and measures to contain the twin deficits. The expectations fromthe RBIs policy have come down in the wake of the high crudeprices and the market may take solace from a likely cut in the cashreserve ratio (CRR) in the coming monetary review.
EVENTS IN CHRONOLOGICAL ORDER
Date Events
06-Mar-12 Election Results
12-Mar-12 IIP
14-Mar-12 Inflation
14-Mar-12 Rail Budget
15-Mar-12 RBI mid-quarter pol icy review
16-Mar-12 Union Budget
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Political permutations will shape the market
The poll results will be out for five states (Uttarakhand, Punjab,Goa, Manipur and Uttar Pradesh, which is the most crucial stateamong these) on March 6, 2012. The high turnout in the UttarPradesh polls in all the six phases indicates trouble for the incumbentBSP government which will either benefit SP or the Congress Party.Further, most of the opinion polls, surveys etc indicate the possibility
of a hung assembly in Uttar Pradesh with no single party likely toget a majority. In such a case, three scenarios are possible: (1) anSP-Congress alliance; (2) a BSP-Bharatiya Janata Party (BJP)alliance; and (3) mid-term polls. The SP-Congress alliance will bepositive for the market as the alliance could be extended at theCentre and would aid in the passing of some of the controversialbills even without the support from the TMC. The BSP-BJP alliancewould further consolidate the opposition against the governmentand affect the key decisions which would be perceived as a negativeby the market.
clearly articulated that reduction in policy rates would depend oncredible action from the government on the fiscal deficit front andallaying of the inflation fears. So inflation continues to be an issuedue to the increase in the crude oil prices while fiscal deficit willremain high contributed by the lumpy expenditure budget. Thiscould actually delay the much awaited repo rate cut and we expectthat to happen not before April 2012. Therefore, in the budget the
government will try to address the concerns on fiscal deficit andpromote the investment activity in the economy.
POSSIBLE COMBINATIONS (SP-CONGRESS, BSP-BJP)
States Poll dates Verdict
Punjab Jan 30, 2012 Mar 6, 2012
Uttarakhand Jan 30, 2012 Mar 6, 2012Manipur Jan 28, 2012 Mar 6, 2012
Uttar Pradesh Feb 8-28, 2012 (in 7 phases) Mar 6, 2012
Goa Mar 3, 2012 Mar 6, 2012
Source: Election Commission of India
Union Budgetlikely to address fiscal deficit and growth concernsin a limited way
The Union Budget, to be tabled in the parliament on March 16,2012, will throw light on fiscal management amid high pressure onthe expenditure side (food security, subsidies etc). We do not foreseeany path-breaking measures except for some initiatives on increasingthe indirect taxes, such as customs duty, import duty and servicestax. Given the limited flexibility on the revenue side, the fiscal
consolidation will hinge on disinvestment and collections from the3G auctions. Therefore, the market would look on the fiscal deficitestimate and the borrowing target that would shape the RBIs policy,and the reforms announced will be taken very positively by the market.
RBIs monetary action hinges on fiscal roadmap to be given by thegovernment
The market has rallied based on the indications of the RBI cuttingrates against the backdrop of a slowing growth and the peaking ofinflation. However, the RBI in its third quarter policy review had
FISCAL DEFICIT, GOVERNMENT BORROWINGS
Source: Economic Survey
0
1,000
2,000
3,000
4,000
5,000
6,000
FY2002A
FY2003A
FY2004A
FY2005A
FY2006A
FY2007A
FY2008A
FY2009A
FY2010A
FY2011A
FY2012BE
0%
1%
2%
3%
4%
5%
6%
7%
Net Debt Market Bor row ings Cent ra l F isca l Def ic it
FISCAL DEFICIT AND OIL PRICES
Source: Ministry of Finance, Bloomberg
0500
10001500
20002500
30003500
40004500
M
ar-01
M
ar-02
M
ar-03
M
ar-04
M
ar-05
M
ar-06
M
ar-07
M
ar-08
M
ar-09
M
ar-10
M
ar-11
Ma
r-12E
0
20
40
60
80
100
120
140
Fis cal Def ic it Crude
Acute liquidity shortage (advance tax, capital mop-up) will lead toCRR cuts
The borrowings from the liquidity adjustment facility (LAF) windowof the RBI have increased to Rs1.9 lakh crore (as on March 1,2012) compared to the RBIs target of about Rs60,000 crore. Thisindicates an acute liquidity crisis which has fired the short-termrates and may affect the smooth functioning of the market. Thecurrent crisis has been driven by a rise in disbursement by banks, aslower deposit growth and highter government borrowings. Going
ahead, the initial public offering mop-ups (through divestment ofONGC etc) and advance tax payments could further strain theliquidity. Therefore, the RBI could ease the CRR or the statutoryliquidity ratio (SLR) to address the liquidity issues in the Marchmid quarter policy review.
LAF RBI, CP RATES
Source: Bloomberg
-2000
-1500
-1000
-500
0
500
1000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
9
9.5
10
10.5
11
11.5
LAF CP Rates
Earnings growth yet to pick up but downgrades bottoming out
While the Q3FY2012 earnings growth was in low single digits, therevenue growth momentum remains strong and exceeds theestimates. So for the past three quarters the top line growth has
MARKET OUTLOOK EQUITY FUNDAMENTALS
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MARKET OUTLOOKEQUITY FUNDAMENTALS
been expanding even on a sequential basis whereas the rising inputcost and interest cost are hurting the profitability. The othercontrasting thing seen in the Q3FY2012 results is the significantdrop in the downgrades which indicates a likely peaking of thedowngrade cycle. Since April 2011 the Sensex earnings estimateshave been downgraded by 7.5% and 14.8% for FY2012 andFY2013 respectively. This suggests the factoring of the imminent
concerns and the bottoming of the downgrade cycle which augurswell for the market. However, the revival in the corporate earningscycle is possibly still a couple of quarters away and would dependon the RBI and the governments policies.
unwinding of the monetary tightening policy which will weakenthe market sentiment. Further, the rising crude oil prices wouldderail the global recovery that is already quite fragile and wouldaffect our export scenario. India is more sensitive to a rise in crudeoil prices as the same will increase the input cost and feed inflationespecially in H2FY2013 when the high base effect will waneFurther, this will delay the easing of the interest rates by the RBI
thereby affecting the economic recovery and the outflow of funds
SECTOR-WISE EARNINGS GROWTH IN Q3FY2012, EARNINGS ESTIMATEDOWNGRADES AND UPGRADES
Source: Bloomberg
11001150
1200
1250
1300
1350
1400
1450
1500
1550
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
FY 2012E FY 2013E
Macro indicators suggest sluggish recovery
Macro data remains weak as the gross domestic product (GDP)growth has decelerated to 6.1%, the lowest in ten quarters, whileindustrial production is growing in low single digits. The weak coresector numbers (in January 2012) and a secular decline in the fixedcapital formation remain causes for worry as the same would affectthe investment activity in the economy. The 7% growth targeted
for FY2012 and the target of around 7.5% growth for FY2013seem to have been factored in by the market but the downside risksare more than the upside risks. This requires the government tofocus on structural problems like the easing of the supply-sideconstraints to tackle the price pressures and fiscal consolidation.
GDP IIP, FIXED CAPITAL FORMATION
Source: Bloomberg
-10%
-5%
0%
5%
10%
15%
20%
25%
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
GDP IIP
Rise in crude prices raises macro concerns
The crude oil prices have appreciated by almost 17% in the year tilldate (YTD; about $125 per barrel) fueled by global liquidity. Therising crude oil prices will feed inflation and the RBI may delay the
PERFORMANCE OF CRUDE OIL, SENSEX
Source: Bloomber
0
5000
10000
15000
20000
25000
J
an-00
J
an-01
J
an-02
J
an-03
J
an-04
J
an-05
J
an-06
J
an-07
J
an-08
J
an-09
J
an-10
J
an-11
J
an-12
0
20
40
60
80
100
120
140
160
Sensex Crude
FII flowsso far so good
Led by an influx of liquidity on account of the LTRO the markehas appreciated sharply. In 2012 so far the foreign fund flows inequities have been to the tune of $7.3 billion compared with -$512million in the entire CY2011. The flows have been relatively higheron the debt side compared with equity. Going ahead, the foreigninstitutional investor (FII) flows would be supportive and will beaided by LTRO II of around $713 billion. In the event of sustainedfirmness in crude oil prices there could be a shifting of foreign
investors allocation to the other resource-rich countries (like BrazilRussia, Indonesia) within the emerging markets.
FII INFLOWS AND CRUDE PRICES
Source: Bloomber
-60000-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
M
ar-01
M
ar-02
M
ar-03
M
ar-04
M
ar-05
M
ar-06
M
ar-07
M
ar-08
M
ar-09
M
ar-10
M
ar-11
0
20
40
60
80
100
120
FII Crude
Short covering blip behind us: fundamentals would come to fore
The CNX Small-cap Index has rallied 24% while the CNX Mid-cap Index has climbed 26% YTD compared with the
13% appreciation in the benchmark indices. The CNX Mid-capIndex, which had reached the lows of 6,095, bounced back drivenby the short covering of high beta stocks, indicating the factoring
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BSE SMALL-CAP INDEX, BSE MID-CAP INDEX
Source: Bloomberg
in of the imminent concerns. Individual stocks have risen by asmuch as 50% in the first two months of CY2012. This has providedan opportunity to churn the portfolios in favour of the quality stocksand avoid the debt-laden mid-cap/small-cap stocks. Since thetechnical blip is behind us, we expect the fundamentals to drive thestock valuations going ahead.
SENSEX P/E (BASED ON ROLLING ONE-YEAR FORWARD EPS)
Source: Bloomberg
Valuations
The Sensex valuation has expanded to about 14x one-year forwardearnings and the benchmark index now trades closer to its long-term mean of 15x. The global scenario is much more conducivenow with the injection of huge liquidity through the LTRO in
Europe and the improving economic data points in the USA. Barringa few blips on account of events like budget or election results, thefundamentals would come to the fore again. However, for theliquidity-driven rally to sustain, there is a need for domestic triggersin the form of adequate support from government policies (in areasof power, infrastructure, subsidy, FDI etc) accompanied by monetaryeasing from the RBI. Our base case assumption is that the market
would consolidate around the current level before another leg ofthe rally unfolds. The consolidation phase could provide entry pointsfor the fence-sitters (investors waiting on the sidelines) who havemissed out on the initial phase of the rally.
90
95
100
105
110
115
120
125
130
135
Jan-12
Jan-12
Jan-12
Jan-12
Jan-12
Feb-12
Feb-12
Feb-12
Feb-12
Sensex CNX Midcap CNX Smallcap
6
912
15
18
21
24
27
30
Feb-93
Feb-94
Feb-95
Feb-96
Feb-97
Feb-98
Feb-99
Feb-00
Feb-01
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
MARKET OUTLOOK EQUITY FUNDAMENTALS
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Sharekhan Top Picks
SHAREKHAN TOP PICKS
After building on the gains of January this year, the equity marketfaltered in the later part of February delivering flattish returns since
our previous issue of the ValueGuide released on February 3, 3012.
Our basket of Top Picks also performed in line with the market
and ended with a marginal loss of 0.6% during the same period.The performance was marred by a rather unexpected decline of
15% in Eros International Media despite its robust Q3FY2012
performance. Consequently, we are replacing Eros International
Media with Orient Paper and Industries, which is our preferred
mid-cap stock in the cement sector.
* CMP as on March 02, 2012
NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY11 FY12E FY13E FY11 FY12E FY13E TARGET (%)
Bank of Baroda 825 7.7 7.1 6.3 23.5 20.4 19.9 1,065 29
Bharat Electronics 1,577 15.0 13.9 12.5 17.2 14.9 13.8 1,893 20
Divis Laboratories 738 22.8 20.2 16.0 23.9 23.4 25.6 1,122 52
Grasim 2,724 11.5 9.8 8.9 14.8 14.7 13.6 2,980 9
ICICI Bank 903 20.2 16.7 14.7 9.6 10.8 11.4 1,070 19
Marico 157 37.4 29.6 22.1 32.7 30.7 31.7 186 18
Orient Paper 56 7.9 6.3 5.3 17.0 18.4 18.9 70 25
Pratibha Ind 47 6.1 5.0 3.8 18.8 14.9 17.0 65 38
Selan Exploration 284 15.2 10.6 7.6 18.7 21.9 23.6 500 76
Sun Pharma 566 32.3 24.1 21.6 19.2 21.1 19.2 692 22
TCS 1,217 27.4 22.0 17.9 33.6 33.0 32.4 1,294 6
ABSOLUTE OUTPERFORMANCE (RETURNS IN %) CONSTANTLY BEATING NIFTY AND SENSEX (RETURNS IN %)
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
YTD
CY2012
YTD
CY2011
CY2010
CY2009
SinceJan
2009
Sharekhan Sensex Nif ty
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%180.0%
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Sharekhan Sensex Nifty
In this month, we are increasing the beta of the Top Picks basket byreplacing GlaxoSmithKline Consumer Healthcare with ICICI Bank
The second change in the Top Picks basket is to hedge against the
rising crude oil prices by bringing in Selan Exploration Technology
(which benefits in terms of higher average realisation) in place oGAIL (where the subsidy burden could increase due to higher under
recoveries resulting from firm crude oil prices).
SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS
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March 2012 Sharekhan ValueGuide12
GRASIM 2,724 11.5 9.8 8.9 14.8 14.7 13.6 2,980 9
Remarks: Grasim Industries is well placed to capture the growing opportunity in its core business of VSF in terms of both volume and healthy realisation. In addition, the performanceof its cement business (ie its key subsidiary UltraTech Cement) has shown signs of improvement with an increase in the average cement price.
Due to the improved demand environment, the performance of the VSF and Chemical division has improved. The VSF realisation has sustained at a healthy level andincreased by 4-5% to Rs129 per kg in Q3FY2012. On the other hand, the chemical division has witnessed an improvement in its profitability.
The cement capacity of the company at the consolidated level is the highest among the other domestic players at 52.75MTPA. Hence the company will be the key beneficiaryof a likely pick-up in the demand through government infrastructure projects in the coming couple of months.
On the other hand, the company is planning to expand its VSF capacity by another 120,000 tonne by FY2013 and its cement capacity by 9.2MTPA by FY2014. We believethe capacity addition will provide volume growth in the longer run.
We believe the company will benefit due to its strong balance sheet as most of its capex will be met through internal accruals.
However, in light of the upcoming capacity and stabilisation of the newly-added capacity, the cement prices are expected to come under pressure. Moreover, cost pressurein terms of coal prices and higher freight cost remains a key concern.
At the current market price the stock trades at PE of 8.9x its FY2013 earnings estimate on a consolidated basis.
BHARAT ELECTRONICS 1,577 15.0 13.9 12.5 17.2 14.9 13.8 1,893 20
Remarks: BEL, a public sector unit, is one of the leading defence companies in India. With the increase in the defence budget and the focus on modernisation of the defence technology,BEL is best placed to take a sizeable pie of the defence spend.
The companys order book currently stands at Rs27,000 crore, which is around 5x its FY2011 revenues. This gives us a strong revenue visibility for at least the next two tothree years.
BEL has entered into joint ventures and technology collaborations to strengthen its position in the defence services space, reap the benefits of the offset clause (which it
believes is worth $300 million in the next five to seven years) and enter into newer areas of operations.
The March quarter is the strongest for BEL and the upcoming budget could also have something positive to offer to the defence sector and in turn to BEL.
The key risk remains its execution: a delay in release of orders could lead to slower execution.
At the current market price the stock trades at 12.5x its FY2013E earnings. The company has huge cash reserve of Rs5,875 crore, which translates into cash per share ofRs734 and gives the stock further support. We maintain our Buy recommendation on the stock.
BANK OF BARODA 825 7.7 7.1 6.3 23.5 20.4 19.9 1,065 29
Remarks: Bank of Baroda stands out among the PSU banks as it continues to deliver strong earnings growth with improvement in key operational metrics. The banks business growthis expected to remain better than industrys (contributed by stronger overseas growth) with relatively stable margins which will lead to a healthy growth in the top line.
While the asset quality of most PSU banks has deteriorated significantly over the past two to three quarters, BoBs asset quality has remained healthy due to lower slippages.
Although, the asset quality risks have risen due to weak macro environment and policy issues, yet BoB is expected to fare better than the other PSU banks in terms of assetquality, resulting in lower credit cost and higher growth in earnings.
The operating metrics of BoB has improved significantly led by strong focus on CASA, margins, fee income etc. The bank is expected to post RoE and RoA of around 20%and 1.1% respectively over the next two years.
We believe BoB commands a premium over the other PSU banks due to a steady growth in its core income and a healthy asset quality. Currently, the stock is trading at 1.2xFY2013 book value which is reasonable. We recommend a Hold on the stock with a price target of Rs1,065.
DIVIS LABORATORIES 738 22.8 20.2 16.0 23.9 23.4 25.6 1,122 52
Remarks: Strong M9FY2012 performance (PAT growth 27%) has re-affirmed our confidence in the growth potential of Divis Labs.
The new DSN SEZ facility at Vishakhapatnam that started production from one of its blocks in June 2011 (the remaining blocks of this facility are likely to get operational overFY2012-13) is likely to bring better economies of scale and tax benefits.
A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploit growth opportunities inniche segments like high potency drugs for oncology and steroids for contraceptives.
With the order inflow picking up and its new plant getting operational, Divis has a strong revenue growth visibility and the operating leverage in the business will boost itsmargins. At the current market price the stock trades at a price earning (PE) multiple of 16.0x discounting its FY2013E earnings. We maintain our Buy recommendation.
NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY11 FY12E FY13E FY11 FY12E FY13E TARGET (%)
SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS
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NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY11 FY12E FY13E FY11 FY12E FY13E TARGET (%)
ICICI BANK 903 20.2 16.7 14.7 9.6 10.8 11.4 1,070 19
Remarks: ICICI Bank is back on growth path as its advances are growing at a healthy rate (up 19.1% YoY and 5.2% QoQ in Q3FY2012). We expect the advances of the bank to growby 18% CAGR over FY2011-13. This should lead to a 15% CAGR growth in the net interest income in the same period.
ICICI Banks asset quality has shown a turnaround as its NPAs have continued to decline over the last six quarters led by contraction in slippages. This has led to a sharp
reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid theprofit growth.
With a pick-up in the business growth and an improvement in the margins the RoEs are likely to expand to about 12% over the next two years while the RoA would improveto 1.4%. This would be driven by a 17% CAGR in profits over FY2011-13.
Despite the run-up the stock over the past two months it trades at 1.6x FY2013E book value. We expect the stock to re-rate, given the improvement in the profitability led bylower NPA provisions, a healthy growth in the core income and improved operating metrics. We recommend Buy with a price target of Rs1,070, with an upside of 18% fromthe current levels.
MARICO 157 37.4 29.6 22.1 32.7 30.7 31.7 186 18
Remarks: Marico is one of the strongest players in the Indian hair care and edible oil markets. Its flagship brand Parachute along with Nihar commands a 54% share in the domesticbranded coconut oil market. Its portfolio of value-added hair oil got strong traction in the domestic market helping it to clock around 20% volume growth in the domestic market.The companys good for heart edible oil brand Saffola is also witnessing mid-teen volume growth on account of improving consumer awareness.
Apart from domestic operations, Marico has strong international presence in Bangladesh, Egypt, South Africa, and the recently entered South East Asia. Though the near-term performance has been affected by political instability and high inflationary environment in some of the international markets, we believe the long-term growth potential
is intact in these markets.
Kaya is showing signs of improvement with a double-digit same-store collection growth in the past few quarters.
Any significant increase in the prices of the key raw materials (including copra) and a slowdown in the sales volume growth would act as the key risks to our earningsestimates.
We expect the top line to grow at a CAGR of about 25% over FY2011-13 and the bottom line to grow at a CAGR of 30% over the same period (on the back of an expectedimprovement in the margins due to the softening of raw material prices). At the current market price the stock trades at 29.6x its FY2012E EPS of Rs5.3 and 22.1x its FY2013EEPS of Rs7.1.
ORIENT PAPER 56 7.9 6.3 5.3 17.0 18.4 18.9 70 25
Remarks: OPIL, a part of CK Birla group, is a diversified conglomerate operating in three segments; cement, paper and fans. The cement division contributes over 53% of the totalrevenue. The company benefits due to its diversified business model.
Due to the recent increase in cement prices, the present realisation of the company is higher by over 24% over FY2011. The surge in the realisation will be able to offset thecost inflation and the profitability of the division is likely to improve (marginally).
In the electrical division, due to the new product launches and gaining market shares, the company would deliver over 11% revenue growth in FY2012. Going forward, thedivision can witness growth on the back of lighting products (CFL) and household appliances.
The restructuring plan to demerge the cement division augurs well for the company as the uncertainty in the profitability of the paper division was one of the major overhangson the stock. Hence, the valuation could get re-rated going ahead.
However, the key concern remains the poor volume offtake in its key market, ie Andhra Pradesh (which accounts for 37% of the total dispatches).
At the current market price of Rs56, the stock trades at a PE of 5.3x and EV/EBIDTA of 4x, discounting its FY2013 earnings estimate.
PRATIBHA IND 47 6.1 5.0 3.8 18.8 14.9 17.0 65 38
Remarks: Pratibha Industries (Pratibha) is one of the fastest growing small construction companies with expertise in water, surface transport and civil construction segments. The orderbook of Rs4,959 crore, which is 3.0x its FY2012E revenues, provides strong revenue visibility. It has gradually moved up the value chain by diversifying into high-marginsegments like urban infrastructure, tunneling and oil & gas.
It is looking at either exiting the HSAW pipe business or roping in a strategic investor for the same, which has been a drag for more than a year. Success on either front will
help the company to reduce its costs and improve its margins. Further, the proceeds from the same will help Pratibha to reduce the debt and improve the return ratios. With the order book standing at 3x its FY2012E revenues, the timely execution of projects remain the key to Pratibhas success. Further, development on the HSAW pipe
business needs to be watched.
At the current market price, the stock trades at 5.0x and 3.8x its FY2012E and FY2013E earnings. We maintain our Buy recommendation on the stock.
SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS
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SUN PHARMA 566 32.3 24.1 21.6 19.2 21.1 19.2 692 22
Remarks: The combination of Sun Pharma and Taro offers an excellent business model for Sun Pharma, as has been reflected in the M9FY2012 performance (its revenue grew 31%YoY in M9FY2012).
Though Taro may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma going forward mainly driven by the resumptionof sales from the US based Cranbury facility, which has been cleared by the USFDA recently. Sun Pharma seeks to acquire the remaining equity in Taro and, if successful, thatwill not only help achieve better synergy but also boost earnings from the first year itself.
We expect 24% and 22% revenue and PAT CAGR respectively over FY2011-13. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growthopportunities. Its debt-free balance sheet insulates it from the negative impact of volatile currency.
At the current market price, Sun Pharma is trading at 24.1x and 21.6x FY2012 and FY2013 estimated EPS respectively. We maintain our Buy recommendation on the stockwith a price target of Rs692, which implies 26x FY2013E EPS.
SELAN EXPLORATION 284 15.2 10.6 7.6 18.7 21.9 23.6 500 76
Remarks: Selan Exploration (Selan) has rights to develop five small discovered (minimal exploration risk) oil fields (Bakrol, Lohar, Indrora, Karjisan and Ognaj) in Cambay Basin(Gujarat) with proven oil & gas reserves.
Between FY2006 and FY2009, Selan ramped up its production by 4x. In the next phase (FY2009-11), with stagnate oil production it did preparatory work to ramp up drilling
in the existing fields and the new field, Indrora (the most prolific one with significant reserves). Currently, the company is waiting for the final approval for drilling which couldramp up its production significantly in the near future.
Based on this, we expect the company to ramp up its production more than two times by FY2014 over that of FY2011. It would lead to an earnings growth (CAGR) of 41%during FY2011-13.
At the current market price, the stock trades at a PE of 7.6x and EV/EBITDA of 3.6x based on our FY2013 estimates. We remain bullish on its production ramp-up plan andrecommend Buy with a price target of Rs500.
TCS 1,217 27.4 22.0 17.9 33.6 33.0 32.4 1,294 6
Remarks: TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most service offerings and is in the process offurther consolidating its leadership position through the organic and inorganic route as well as by winning large deals.
TCS has consistently increased its market share amongst the top 5 Indian outsourcers with market share in terms of revenues increasing from 29.2% in the March 2009quarter to 30.3% in the September 2011 quarter.
We continue to like TCS amongst the offshore IT vendors on account of its mammoth scale of operations and resilient cost model that allows it to withstand headwinds in thesector. On the other hand, at the current juncture TCS is well placed to garner incremental deals in the sector with the organisational structure in place, unlike Wipro andInfosys that are going through a phase of organisational restructuring.
At the current market price the stock trades at 17.9x its FY2013E earnings. We have a Buy recommendation on the stock with a price target of Rs1,294.
NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY11 FY12E FY13E FY11 FY12E FY13E TARGET (%)
SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS
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Sharekhan ValueGuide March 201215
Ahead of the packCOMPANY DETAILS
Price target: Rs173
Market cap: Rs1,413.6 cr
52-week high/low: Rs153/101
NSE volume (no of shares): 1.1 lakh
BSE code: 532622
NSE code: GDL
Sharekhan code: GDL
Free float (no of shares): 6.44 cr
PRICE CHART
SHAREHOLDING PATTERN
(%) 1m 3m 6m 12m
Absolute -1.1 -11.4 -3.5 29.1
Relative -11.8 -10.7 1.7 32.5
to Sensex
PRICE PERFORMANCE
EMERGING STAR BUY; CMP: RS131 FEBRUARY 2, 2012
KEY POINTS
Evolving as an integrated player: With its dominant presence in the container freighstation (CFS) segment and forays into the rail freight and cold chain businessesGateway Distriparks Ltd (GDL) has evolved as an integrated logistic player. Theproposed capex planned in all three segments will strengthen its presence in each othe segment and increase its pan-India presence.
CFSa steady cash cow business: GDL is one of the largest CFS players in India witha capacity of about 450,000 TEUs operating at four locations. The CFS business isthe companys dominant business and contributed about 68% to its EBITDA inFY2011. Growing steadily the business has reached a stage where it continues togenerate cash that can be utilized to not only grow the same business but also forinvestment in other businesses of cold storage and rail container freight. The CFS
business is likely to remain the cash cow for GDL as it has high margins and very lowdebt on its books. Besides, the working capital requirement is not high in this business. Capacity expansion will further strengthen GDLs position in the CFS space.
Foray into rail freight adds to the value chain, time to reap fruits: GDL venturedinto the rail freight business in 2007 after the government opened the sector to theprivate players. Despite its capital intensive nature the business managed to breakeven in Q3FY2011 even though GDLs competitors in this field are still strugglingToday, GDL has emerged as the countrys second largest container rail freight operator after Concor and largest private player. It owns and operates a fleet of 21trains from its three inland container depots (ICDs) and plans to increase its capacity further in terms of both rakes and ICDs. With its Faridabad ICD ready to become operational in a month and more rakes coming in, the business is going tofuel its growth over the coming years. We expect GDLs revenue and net profit togrow at 17% and 11% CAGR respectively over FY2012-14.
Buy with price target of Rs173: We like GDL since it has evolved as an integrated
logistic player. Its CFS business is a cash cow while its investments in the rail andcold storage businesses have started bearing fruits. The expansion in all the busi-ness segments would boost the earnings and support the valuations. The stockcurrently trades at 10.5x and 9.7x its FY2012E and FY2013E earnings. Using theDCF method we have valued all the three divisions, assigning values of Rs139 tothe core CFS business Rs22 to the rail freight business and Rs12 to the cold storagventure. We thus arrive at a total value of Rs173. At our price target, GDL shaltrade at 12.8x its FY2013E earnings, which is lower compared to its five-year average PER of 13.5x. We, therefore, recommend a Buy on GDL.
KEY FINANCIALS
Particulars FY2010 FY2011 FY2012E FY2013E FY2014E
Sales (Rs cr) 516.6 599.1 764.0 877.5 1,051.3
% Y-o-Y growth 14.6 16.0 27.5 14.9 19.8
EBITDA (Rs cr) 124.9 159.7 244.8 271.3 316.1
Margins (%) 24.2 26.7 32.0 30.9 30.1
Adjusted net profit (Rs cr) 79.2 96.8 134.5 146.6 164.4
% Y-o-Y growth 0.0 22.2 39.0 9.0 12.1
EPS (Rs) 7.3 9.0 12.4 13.6 15.2
% Y-o-Y growth -0.2 22.1 38.9 9.0 12.1
PER (x) 17.9 14.6 10.5 9.7 8.6
Book value (Rs) 63.2 64.9 70.3 76.8 85.0
P/BV (Rs) 2.1 2.0 1.9 1.7 1.5
RoCE (%) 9.9 11.5 16.9 17.3 19.0
RoNW (%) 12.3 14.3 18.8 18.7 19.1
GATEWAY DISTRIPARKS
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding
or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
41%
Institutions
15%
Public &
others
10%
Foreign
28%
Corporate
Bodies
6%
90
100
110
120
130
140
150
160
Jan-
11
Apr-11
Jul-
11
Oct-11
Jan-
12
STOCK IDEAEQUITY FUNDAMENTALS
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March 2012 Sharekhan ValueGuide16
Price target revised to Rs140COMPANY DETAILS
Price target: Rs140
Market cap: Rs6,172 cr
52 week high/low: Rs190/1112
NSE volume (No of shares): 5.6 lakh
BSE code: 532418
NSE code: ANDHRABANK
Sharekhan code: ANDHRABANK
Free float (No of shares): 23.5 cr
(%) 1m 3m 6m 12m
Absolute 34.1 -8.7 -21.1 -18.3
Relative to Sensex 19.2 -8.7 -18.4 -16.5
PRICE PERFORMANCE
CANNONBALL BUY; CMP: RS110 FEBRUARY 3, 2012ANDHRA BANK
RESULT HIGHLIGHTS Andhra Banks Q3FY2012 results were in line with our estimates as the net profit at
Rs303 crore showed a decline of 8.4% year on year (YoY) and 4.1% quarter on quarter(QoQ). The decline in the profits was mainly due to a sharp rise in provisions (up 80%YoY).
The net interest income (NII) growth was slightly higher than our estimate as it grewby 17.1% YoY. The growth in the NII was contributed by a sequential growth inadvances (up 6.3% QoQ) and stable net interest margins (NIMs; ie 3.81% in Q3FY2012vs 3.82% in Q2FY2012).
Led by a strong growth in recoveries the asset quality improved on a sequential basis asthe gross and net non-performing assets (NPAs) were at 2.38% and 1.21% comparedwith 2.67% and 1.48% respectively in Q2FY2012. The bank restructured Rs1,200crore of advances in Q3FY2012 (outstanding restructured advances at Rs3,676 crore).
The non-interest income registered a growth of 18.4% YoY and 32.3% QoQ contributedby a growth in the fee income (up 11.9% YoY and 24.7% QoQ). The cost-to-incomeratio declined to 37% from 39.2% in Q2FY2012.
Valuations: We expect the earnings of the bank to grow at a CAGR of 11.5% (FY2011-13) leading to a return on asset of approximately 1.1%. Therefore, due to the improvingtrends on the asset quality front and the attractive valuations (0.7x FY2013 book value)we revise our price target to Rs140 (0.9x FY2013E earnings). We upgrade the rating onthe stock from Hold to Buy.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Price target revised to Rs450COMPANY DETAILSPrice target: Rs450
Market cap: Rs134,053 cr
52 week high/low: Rs447/309
NSE volume (No of shares): 57.3 lakh
BSE code: 532454
NSE code: BHARTIARTL
Sharekhan code: BHARTIARTL
Free float (No of shares): 119.6 cr
(%) 1m 3m 6m 12m
Absolute 14.5 -4.7 -8.7 13.7
Relative to Sensex 3.0 -5.1 -10.7 14.8
PRICE PERFORMANCE
APPLE GREEN BUY; CMP: RS354 FEBRUARY 8, 2012BHARTI AIRTEL
RESULT HIGHLIGHTS
Results below expectations: Bharti Airtel (Bharti)s Q3FY2012 earnings fell short ofour as well as the Streets expectations. The adjusted net profit for the quarter stood atRs1,003 crore (down 15.7% quarter on quarter [QoQ]), which was 23% lower thanour expectation. The biggest negative surprise for the quarter came in the form of a140-basis-point sequential contraction in the operating profit margin (OPM). Theconsolidated OPM for the quarter came in at 32.2% vs our expectation of 34.4%.
Non-mobile business the biggest reason behind the underperformance: The core business(India mobile business + Africa business), which forms approximately 90% of thecompanys total business, performed decently on the revenue as well as margin fronts.
The performance of the non-mobile business deteriorated during the quarter Incorporating results; adjusting earnings estimates for FY2012 and FY2013: We have
adjusted our FY2012 and FY2013 earnings estimates downwards by 19.2% and 13%respectively.
Steady performance of core business and likely improvement in competitive environmentkeep us bullish: The core business continued to deliver well. There were signs ofimproving competitive intensity in the market place too (read Supreme Court verdicton cancellation of the licence of 122 competitors). Further, the potential in the Africabusiness keeps us bullish on Bharti. We maintain our Buy rating on the stock with arevised price target of Rs450 (8.1x FY2013 EV/EBITDA).
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoter
58%
MF & FI15%
Foreign
13%
Public & others
14%
Foreign
18%
Institutions8%
Promoters
68%
Public & Others
2%
Non-promoter
corporate
4%
STOCK UPDATE EQUITY FUNDAMENTALS
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Sharekhan ValueGuide March 201217
Price target revised to Rs405COMPANY DETAILS
Price target: Rs405
Market cap: Rs3,391 cr
52 week high/low: Rs364/186
NSE volume (No of shares): 1.9 lakh
BSE code: 500084
NSE code: CESC
Sharekhan code: CESC
Free float (No of shares): 6 cr
(%) 1m 3m 6m 12m
Absolute 30.7 3.2 -14.0 3.3
Relative to Sensex 19.0 0.8 -17.3 0.2
PRICE PERFORMANCE
UGLY DUCKLING BUY; CMP: RS270 FEBRUARY 13, 2012CESC
RESULT HIGHLIGHTS Results below estimate on lower sales and higher provisioning: CESCs sales in
Q3FY2012 grew by 11% year on year (YoY) but declined by 17% quarter on quarte(QoQ) to Rs1,032 crore, 5% lower than our estimate. The fuel cost as a percentage ofsales surged from 36% in Q3FY2011 and 37% in Q2FY2012 to 42% in Q3FY2012Moreover, the company is awaiting tariff order for 2011-12; hence it has made someprovision for higher operational and maintenance costs, translating into higher operatingcost compared with the last year. The operating profit margin (OPM) contracted by656 basis points YoY to 23%. The profit before tax (PBT) reported at Rs92 crore isdown 33% YoY and 35% QoQ. The net profit recorded a decline of 33% YoY and35% QoQ to Rs74 crore, against our estimate of Rs113 crore.
We fine-tune estimates and price target: We have revised down our sales estimate by3% each for FY2012 and FY2013. We have trimmed our operating profit estimate by8% and 6% for FY2012 and FY2013 respectively. Effectively, we have cut our neprofit estimate by 15% for FY2012 and by 13% for FY2013. Consequently, we havcut our price target from Rs413 to Rs405.
Spencers sustained profitability at store level: The total number of Spencers outlets bythe end of M9FY2012 stood at 195 and the total trading area remained at 1,017,000square feet (sq ft) by the end of M9FY2012. The same-store sales have increased by15.9% YoY to Rs1,000 per sq ft in M9FY2011. It recorded EBITDA of Rs35 per sq fper month in M9FY2012 against Rs31 per sq ft in H1FY2012.
Valuation and view: We revise down our price target from Rs413 to Rs405. Howeverwe continue to rate CESC as a Buy as we believe it is one of the cheapest utility stockavailable (0.6x FY2012 BV) in the Indian market.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Stellar performance in a seasonally strong quarterCOMPANY DETAILSPrice target: Rs298
Market cap: Rs1,923 cr
52 week high/low: Rs277/124
NSE volume (No of shares): 3.0 lakh
BSE code: 533261
NSE code: EROSMEDIA
Sharekhan code: EROSMEDIA
Free float (No of shares): 2.02 cr
(%) 1m 3m 6m 12m
Absolute 4.0 -21.3 1.5 36.4
Relative to Sensex -5.6 -23.9 -4.3 34.1
PRICE PERFORMANCE
EMERGING STAR BUY; CMP: RS210 FEBRUARY 14, 2012EROS INTERNATIONAL MEDIA
RESULT HIGHLIGHTS
Strong performance: For the quarter ended December 2011, Eros International MediaLtd (EIML) reported a strong set of numbers powered by a strong box office performanceof its releases like Ra.One, Rockstar and Desi Boyz. The three releases takentogether had a box office collection of about Rs330 crore. For the quarter, the companyrevenues jumped by 46% year on year (YoY) to Rs408.4 crore Overall, the companyreleased 19 films in the quarter including six in Hindi, 12 in Tamil and one in Punjabi
Impressive margin performance: The EBITDA margin improved by 250 basis pointsYoY to 24.7% on the back of the strong revenue performance and higher cataloguesales in the Tamil film business. On a reported basis, after the prior-period taxprovisioning of Rs2.3 crore the net profit grew by 61.4% YoY to Rs69.1 crore.
Big releases lined up for CY2012: EIML has lined up strong releases for CY2012including Agent Vinod, which is to be released in March 2012, and Housefull 2to be released in April 2012. As per the current plan, the company has ten Hindi filmsthe Rajnikanth starrer Tamil 3D film Kochadaiyaan and the Vijay starrer Yohan(due for release in Q3FY2013) lined up for CY2012.
Valuation: We remain positive about EIMLs growth prospects for the coming yearand derive comfort from the strong execution expertise of its management. The growingtraction in the satellite rights and other media segments would provide furtheopportunity to de-risk its business model. At the current market price of Rs210, thestock is attractively available at a reasonable valuation of 9x FY2013 earnings estimateWe maintain our Buy rating on the stock with a price target of Rs298.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
52%
Foreign18%
Institutions
17%
Others
13%
Promoters
78%
Foreign
9%Institutions
3%
Non-promoter
corporate
3%
Public & Others
7%
STOCK UPDATEEQUITY FUNDAMENTALS
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March 2012 Sharekhan ValueGuide18
PAT largely in line with expectationsCOMPANY DETAILS
Price target: Rs3,000
Market cap: Rs11,100 cr
52-week high/low: Rs2700/1972
NSE volume (no of shares): 16,678
BSE code: 500676
NSE code: GSKCONS
Sharekhan code: GSKCONS
Free float (no of shares): 2.4 cr
(%) 1m 3m 6m 12m
Absolute 5.4 11.9 10.5 30.0
Relative to Sensex -4.7 11.0 12.1 34.3
PRICE PERFORMANCE
EVERGREEN BUY; CMP: RS2,637 FEBRUARY 6, 2012GLAXOSMITHKLINE CONSUMER HEALTHCARE
RESULT HIGHLIGHTS GlaxoSmithKline Consumer Healthcare (GSK Consumer)s net sales grew by 18.6%
year on year (YoY) in Q4CY2011 with the overall volume growth standing at 11%YoY. The price-led growth during the quarter stood at 8% YoY. The raw material costinflation for the quarter stood at 13%. However, the price hikes in the portfolio aidedin mitigating the cost pressure and hence the gross profit margin stood almost flat at64.4%. However, a substantial increase in the advertisement spend and other expensesresulted in the operating profit margin (OPM) declining by 127 basis points YoY to10.2%. Hence, the operating profit grew by just 5.5% YoY to Rs61.6 crore. However,a 33.3% growth YoY in the business auxiliary income and a 37.5% growth YoY in theinterest resulted in a 21.2% growth YoY in the profit before tax. The adjusted netprofit grew by 23.0% YoY to Rs66.0 crore, which was largely in line with ourexpectation of Rs63 crore for the quarter.
Outlook and valuation: We have broadly maintained our earnings estimates for CY2012
and CY2013. We expect GSK Consumers top line to grow at a CAGR of 20% overCY2011-13E with the sales volume growth standing in the range of 10-12% over the sameperiod. With the OPM likely to be in the range of 16-17%, we expect the bottom line togrow at a CAGR of 20% over the same period.
We like GSK Consumer largely on account of its market leadership in the lowly penetratedmalted food drinks segment, strong balance sheet with cash of more than Rs1,000 croreand good dividend pay-out policy. We maintain our Buy recommendation on the stockwith a price target of Rs3,000. At the current market price the stock is trading at 25.8x itsCY2012E EPS of Rs102.0 and 21.7x its CY2013E EPS of Rs121.7.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
43%
FIIs
15%
Others
25%
Domesticinstitutions
17%
Price target revised to Rs105COMPANY DETAILSPrice target: Rs105
Market cap: Rs2,887 cr
52 week high/low: Rs105/62
NSE volume (No of shares): 9.3 lakh
BSE code: 530005
NSE code: INDIACEM
Sharekhan code: INDIACEM
Free float (No of shares): 23.0 cr
(%) 1m 3m 6m 12m
Absolute 35.0 17.1 41.3 4.2
Relative to Sensex 22.1 16.1 43.3 7.6
PRICE PERFORMANCE
UGLY DUCKLING HOLD; CMP: RS94 FEBRUARY 6, 2012INDIA CEMENTS
RESULT HIGHLIGHTS India Cements in its Q3FY2012 results delivered an impressive performance and posted a
177.4% year-on-year (Y-o-Y) growth in its adjusted net profit to Rs56 crore which is wellahead of our as well as the Streets estimates largely on account of better than expectedoperating profit margin (OPM) and much lower than expected effective tax rate.
The net sales of the company grew by 20.6% YoY to Rs941.5 crore (much in line withour estimates). The net sales also include revenues from the Indian Premier League (IPL)franchise, wind power and shipping businesses. The revenue from the cement divisionhas improved by 24% YoY driven by a 15.7% growth in the average cement realisation.
On the margin front the OPM expanded by 450 basis points YoY to 20.7% due to a15.7% increase in realisations. The blended EBITDA per tonne has increased by 89%YoY to Rs861.
The effective tax rate worked out to just 9.2% as compared to 35% in the correspondingquarter of the previous year on account of tax paid on redemption of foreign currencyconvertible bonds (FCCBs).
A power plant of 50MW capacity at Tamil Nadu for captive requirement has beencommissioned during the month of January 2012. Hence the positive impact in termsof regular power supply and cost savings will reflect in FY2013.
We are incorporating better than expected average realisations and upgrading ourearnings estimates for FY2012 and FY2013. The revised earnings per share (EPS) nowstands at Rs9.7 and Rs11.9 respectively.
We maintain our Hold recommendation on the stock with a revised price target ofRs105. At the current market price the stock trades at a price earning (PE) of 8xdiscounting the EPS for FY2013E and EV/EBITDA of 4.5x its FY2013E earnings.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
26%
Foreign
27%
Public & others
31%
Institutions
16%
STOCK UPDATE EQUITY FUNDAMENTALS
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Sharekhan ValueGuide March 201219
Strong traction in international businessCOMPANY DETAILSPrice target: Rs389
Market cap: Rs7,944 cr
52 week high/low: Rs351/230
NSE volume (No of shares): 1.3 lakh
BSE code: 524494
NSE code: IPCALAB
Sharekhan code: IPCALAB
Free float (No of shares): 6.8 cr
(%) 1m 3m 6m 12m
Absolute 8.2 17.8 -8.7 -0.7
Relative to Sensex -2.9 21.1 -3.8 4.3
PRICE PERFORMANCE
UGLY DUCKLING BUY; CMP: RS316 FEBRUARY 1, 2012IPCA LABORATORIES
RESULT HIGHLIGHTS Impressive operating performance, but high fixed costs and forex losses eat into profit
During Q3FY2012, Ipca Laboratories (Ipca) reported a 29% year-on-year (Y-o-Ygrowth in net sales to Rs601.8 crore. The growth was mainly driven by the export oformulations, which grew 73% year on year (YoY) to Rs290 crore during the quarteron the back of favourable currency movement and increase in the uptake in the tenderbusiness (up 312% YoY). The operating profit margin (OPM) improved by an impressive346 basis points to 23% during the quarter, mainly on a better product mix andfavourable foreign exchange (forex) position. However, a 93% Y-o-Y rise in the interescost and a 223% jump in depreciation, coupled with a forex loss of Rs40 crore (vs again of Rs11.2 crore in Q3FY2011), led the net profit to flatten during the quarter toRs63.9 crore. Excluding the impact of the forex losses, the adjusted net profit wouldhave grown by an impressive 97% YoY to Rs104 crore.
We fine-tune our estimates: We have upped our revenue estimates by 5.3% and 4.8%
for FY2012 and FY2013 respectively to factor in the better than expected revenuefrom the institutional tender business, the ramp-up in US sales and the pick-up in thedomestic formulation market. Besides, a better than expected other operating incomeand lower depreciation prompt us to revise our earnings estimates by 14% and 7% foFY2012 and FY2013 respectively.
Maintain Buy with a revised price target of Rs389: The stock is currently trading a12.1x and 10.7x FY2012E and FY2013E earning per share (EPS) respectively. We maintainour Buy rating on the stock with a revised price target of Rs389 (13.2x FY2013E EPS).
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Foreign
9%
Promoters
46%
Institutions
23%
Non-promoter
corp 10%
Public and
others 12%
Price target revised to Rs36COMPANY DETAILSPrice target: Rs36
Market cap: Rs439 cr
52 week high/low: Rs60/22
NSE volume (No of shares): 57,886
BSE code: 532479
NSE code: ISMTLTD
Sharekhan code: ISMTLTD
Free float (No of shares): 7.1 cr
(%) 1m 3m 6m 12m
Absolute 6.2 -13.5 -10.2 -39.4
Relative to Sensex -5.9 -15.9 -15.4 -41.1
PRICE PERFORMANCE
UGLY DUCKLING BUY; CMP: RS30 FEBRUARY 10, 2012ISMT
RESULT HIGHLIGHTS
Steady revenue growth: ISMT reported steady revenue numbers for Q3FY2012 withits net sales rising by 22.5% year on year (YoY) to Rs464.5 crore on the back of avolume growth and an improvement in the realisation. The tube segment reported a14.7% volume growth and a 6.8% improvement in its realisation YoY. The steel segmenreported a 13.9% growth in its volume and a 7.4% improvement in its realisation YoYin the same quarter.
OPM declines: Despite the volume growth and realisation improvement, the EBITDAmargin contracted by 510 basis points YoY to 11.4% mainly due to input cost pressuresThe raw material cost as a percentage of sales increased from 45.2% in Q3FY2011 to51.4% in Q3FY2012 which led to a 16.5% fall YoY in the EBITDA to Rs53.6 crore
Bottom line affected by forex charge: On the back of the rupees depreciation againsthe dollar, the company booked a foreign exchange (forex) loss of Rs6.9 crore againsa gain of Rs2.9 crore in the previous quarter. On the back of a tax credit of Rs4.5crore, against tax provisioning of Rs10 crore in the corresponding previous quarterthe fall in the net profit was restricted to 87.9% at Rs1.8 crore against a 111% fall inthe profit before tax.
Valuation and view: In view of the cost pressures we have lowered our margin estimateto 12.7% and 14.3% for FY2012 and FY2013 respectively. We have downgraded ouearnings estimates by 33% and 14.3% for FY2012 and FY2013 respectively. At thecurrent market price, the stock is available at 5x FY2013 estimated earnings. Wemaintain our Buy rating on the stock with a revised price target of Rs36.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Institutions
10%
Promoters
52%
Public &
Others
27%
Foreign
7%
Non-promotercorporate
4%
STOCK UPDATEEQUITY FUNDAMENTALS
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March 2012 Sharekhan ValueGuide20
Price target revised to Rs138COMPANY DETAILS
Price target: Rs138
Market cap: Rs3,069 cr
52 week high/low: Rs131/79
NSE volume (No of shares): 1.2 lakh
BSE code: 500260
NSE code: MADRASCEM
Sharekhan code: MADRASCEM
Free float (No of shares): 23.3 cr
(%) 1m 3m 6m 12m
Absolute 22.2 19.1 39.7 38.4
Relative to Sensex 8.6 19.1 44.5 41.5
PRICE PERFORMANCE
CANNONBALL HOLD; CMP: RS129 FEBRUARY 3, 2012MADRAS CEMENT
RESULT HIGHLIGHTS Madras Cements in its Q3FY2012 results delivered an impressive performance and posted
an adjusted net profit of Rs76.8 crore (up 76.7% year on year [YoY]) which is wellahead of our as well as the Streets estimates. The impressive performance during thequarter was on account of a healthy growth in its volume as well as average realisation.Further the company has also benefited in terms of a better operating leverage.
The overall revenue of the company increased by 27.9% YoY to Rs741 crore. Therevenue growth has been driven by a strong volume growth of 15.9% YoY and increasein average realisation by 11.7% YoY. The demand environment in the southern regionhas partially recovered particularly in Tamil Nadu and Kerala.
The operating profit margin (OPM) expanded by 243 basis points YoY to 28% onaccount of increase in the realisation by 11.7%. However, cost pressure has partiallyoffset the benefit arising from increase in realisation. The EBDITA per tonne for the
quarter increased by 27.2% YoY to Rs1,161. We are upgrading our earnings estimates for FY2012 and FY2013, mainly to factor in
higher than expected cement realisation. The revised earnings per share (EPS) for FY2012now stands Rs14.9 and for FY2013 we estimate the EPS to be Rs16.3.
We maintain our Hold recommendation with a revised price target of Rs138. At thecurrent market price the stock trades at a PE of 7.9x and EV/EBITDA of 5.2x itsFY2013 estimated earnings.
SHAREHOLDING PATTERN
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holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
42%
Institutions
21%
Foreign
8%
Public & others29%
Price target revised to Rs740COMPANY DETAILS
Price target: Rs740
Market cap: Rs42,164 cr
52 week high/low: Rs875/585
NSE volume (No of shares): 22.9 lakh
BSE code: 500520
NSE code: M&M
Sharekhan code: M&M
Free float (No of shares): 45.8 cr
(%) 1m 3m 6m 12m
Absolute 5.5 -17.5 5.6 4.7
Relative to Sensex -5.1 -17.9 3.2 5.7
PRICE PERFORMANCE
APPLE GREEN HOLD; CMP: RS687 FEBRUARY 8, 2012MAHINDRA & MAHINDRA
Q3FY2012 PAT in line, adjusted for one-time exchange reversal: Mahindra and Mahindra(M&M) reported a stand-alone profit after tax (PAT) of Rs662 crore for Q3FY2012. Thisincludes a one-time gain of Rs39.86 crore related to the reversal of an exchange differencecharge. Adjusting for this the company reported a PAT of Rs635 crore, marginally higherthan our estimate.
Highlights of Q3FY2012 performance
A 30-basis-point sequential improvement in the earnings before interest and tax (EBIT)margin for the tractor business has surprised us. Our concerns of deterioratingprofitability of the tractor division were unfounded.
A favourable operating leverage was witnessed in the staff cost, which moderated to 5.4%
of sales, the lowest in six quarters. The other expenses after adjusting for the Rs39.86 croreof exchange reversal were the lowest ever for any quarter at 8.6% of the sales.
The operating profit margin (OPM) adjusting for the exchange reversal was the lowestin two years at 11.7% on account of a sharp increase in the raw material cost.
Outlook and valuation: We value the M&M stand-alone company at Rs550 a share,discounting the FY2013E earnings by 13x. We have given a lower discount as we expectthe parent companys margin to drop to lower double digits in FY2013 as the proportionof the traded products manufactured by Mahindra Vehicle Manufacturers Ltd (MVML)increases. We have valued MVML separately at Rs55 a share. The total value of thesubsidiaries including MVML is estimated at Rs190 a share. We arrive at a price target ofRs740 and recommend Hold on the stock.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article. For further details, please visit the Research section of our website, sharekhan.com.
Promoters
25%
Institutions
20%Foreign
30%
Non Corp Holdings
10%
Public & Others
15%
STOCK UPDATE EQUITY FUNDAMENTALS
7/30/2019 ValueGuide_Mar2012
21/61
Sharekhan ValueGuide March 201221
Price target revised to Rs186COMPANY DETAILSPrice target: Rs186
Market cap: Rs9,960 cr52 week high/low: Rs174/117
NSE volume (No of shares): 2.7 lakh
BSE code: 531642
NSE code: MARICO
Sharekhan code: MARICO
Free float (No of shares): 22.9 cr
(%) 1m 3m 6m 12m
Absolute 8.7 11.1 4.3 31.2
Relative to Sensex -3.6 2.9 -3.9 29.9
PRICE PERFORMANCE
APPLE GREEN BUY; CMP: RS162 FEBRUARY 16, 2012MARICO
RESULT HIGHLIGHTS Maricos Q3FY2012 consolidated net sales grew by 29.4% year on year (YoY) to
Rs1,057.8 crore, driven by a mix of volume growth (of 20% YoY) and a price-ledgrowth in Q3FY2012. The gross profit margin (GPM) improved by 114 basis pointYoY and 518 basis points sequentially to 48.5%. However the operating profit margin(OPM) was down 68 basis points YoY to 11.5% mainly on account of a higher thanexpected surge in the advertisement spends during the quarter. The operating profigrew by 22.1% YoY to Rs121.7 crore. However, higher depreciation charges and ahigher incidence of tax YoY resulted in a 12.9% growth YoY in the adjusted net profito Rs78.5 crore.
Marico will acquire Set Wet, Livon, Zatak and certain other personal care brands fromReckitt Benckiser (RB) for an undisclosed sum (media reports put the deal value in therange of Rs450-500 crore). These brands are the top three in the domestic hair gelleave-on hair serum and male deodorant categories respectively, and are growing a
around 25% per annum. The brands collectively are expected to achieve around Rs150crore of revenues in FY2012. The GPM of these brands is much higher than MaricoGPM. Though this acquisition is positive from longer-term perspective, we dont expecthe same to add to the bottom line of Marico in the near term.
Outlook and view: We have revised the price target for the stock to Rs186 (22x itsFY2014E EPS of Rs8.4). At the current market price the stock trades at 22.8x itsFY2013E EPS of Rs7.1 and 19.2x its FY2014E EPS of Rs8.4. We rec