11 November 2012

2013:: Derivatives Picks ::Diwali Picks :: Kotak Securities

Derivatives PicksView detailed report

Idea Cellular (Rs 90.7): Buy:: Business Line


2013:: Technical Picks ::Diwali Picks :: Kotak Securities


Technical PicksView detailed report

Jammu & Kashmir Bank Continues to Deliver, Big earnings upgrade, Maintain BUY ::Prabhudas Lilladher


Q2FY13 results surprised on profitability led by a beat in credit costs and margins.
Operating performance was driven by improving margins and asset quality was
stable despite migration to system‐driven NPA recognition. We increase our FY13
estimates by ~6‐9% driven by higher NIMs, increase our PT to Rs1,400/share (1.2x
FY14 book) and maintain our positive view despite ~35% run up. Details of J&K’s
top‐10 corporate exposures indicate much lower risk than expected by the street.
Also, with our earnings upgrade, J&K Bank will deliver 21‐22% ROEs over FY13‐14
and thus, we believe benchmarking to PSU bank multiples is unwarranted, given a
much superior ROA/ROE profile and lower asset quality risks.

Raymond Ltd Q2 FY13 results: FinQuest


Raymond Ltd Q2 FY13 results were above our estimates both on the topline and bottom-line front. In the
quarter, company's net sales increased 13.6% Y-o-Y and 33.1% sequentially to Rs. 11.15 bn, as against
our expectations of Rs. 10.14 bn. In the quarter, the EBIDTA declined 5.3% Y-o-Y, however, increased
414.7% sequentially Rs. 1.59 bn, as against our expectations of Rs. 1.28 bn, primarily on account of
higher than expected margins in the Textile and Branded apparel business of the company. The Adjusted
PAT came in at Rs. 569.5 mn as against our expectations of Rs. 470.6 mn, primarily on account of better
than expected operating performance.

ShareKhan Diwali Muharat Picks 2012


We list down our best Mahurat picks for Diwali 2012

Bluechip Stock Portfolio
1.

ICICI Bank

2.

Sun Pharmaceutical 

3.

Aditya Birla Nuvo

4.

CMC 

5.

Cairn India



High Beta Stock
1.

Raymond

2.

Mcleod Russel

3.

JP Associates

4.

IndusInd Bank

5.

TV 18 Broadcasting 





TV 18 Broadcasting (TV18):: ShareKhan Diwali Muharat Picks 2012


TV 18 Broadcasting (TV18) is the broadcasting arm of the Network18 group. The company has over the
years scaled up its business substantially and currently owns 27* channels (news, Hindi GEC, music,
and regional channels), up from the single CNBC TV18 channel that it owned ten years ago. Most of the
channels are in top three ranks in their respective segments.
Digitisation – subscribers’ revenue drivers: With the advent of digitisation, we expect the revenues for
the industry to increase on the back of higher subscription revenues as more subscribers are reported
vs the current structure of high level of under-reporting by local cable operators. In our view, the
biggest beneficiaries of digitisation will be leading broadcasters like TV18 as the increasing uptick in
subscription revenues will see a complete flow through to the bottom lines as there is not much
incremental cost involved.
In the recent months, the company has successfully raised Rs2,625 crore through the right issue for the
purpose of funding their recent acquisition of ETv group’s bouquet of regional entertainment channels
and news channel and to reduced the debt by Rs420 crore. We believe as a result, the company will
expand its viewership base and attract more diverse viewer base across our media properties, which
would improve profitability.

IndusInd Bank, :: ShareKhan Diwali Muharat Picks 2012


IndusInd Bank is one of the fastest growing private sector banks with over +400 branches, 796 ATMs and
two international locations at London and Dubai. The bank was incorporated in April 1994 and Hinduja
group was the founding promoters. With a new management team led by Mr. Romesh Sobti from ABN
ARMO in 2008, the bank has turned around significantly in the last four years.
The bank has posted a top line growth of more than 25% and a profit growth of more than 30% during
the first half of the current financial year. On the operational front, its asset quality is one of the best
in the industry with its NPAs at 0.29% on September 2012. The bank’s capitalisation is above the RBI’s
levels; however, it is planning to raise capital through equity in the coming quarters to make it more
comfortable.
In absolute terms, gross non-performing assets (GNPAs) grew 12% quarter on quarter (QoQ) to Rs410
crore, while in percentage terms, GNPAs and net non-performing assets remained flat QoQ at 1% and
0.3%, one of the best in Industry. In absolute terms, the slippages were flat . On the valuation front, at
CMP of Rs366, the stock is trading at 3.2 x FY13 and 2.6x FY2014 P/BV. By looking at healthy NIM
growth and assets quality, we believe the current valuation is attractive.

JP Associates :: ShareKhan Diwali Muharat Picks 2012


Jaiprakash Associates (JP Associates), India’s leading cement and construction company, is all set to
reap the benefits of India’s infrastructure spending. The company has also monetised very well on the
real estate properties of Yamuna Expressway. The marked improvement in the macro environment has
improved accessibility to the capital and thus eased the concerns of liquidity to some extent for the
company.
Since the last couple of months, the company is under the process of selling their stake in two cement
plant located at Gujarat and Andhra Pradesh, with a total capacity of 9.8 million tonne. Any breakthrough
in the selling of these plants will be a positive trigger for the company because we believe this
deal will help the company to raise about Rs 6,000 crore, which will help it to ease burden on leverage
balance sheet. Further the company has successfully raised funds through issue of foreign currency
convertible bond of up to US $ 200 million.
We like JP Associates due to its diversified business model and aggressive expansion plans. In terms of
valuation, we value the stock using the SOTP valuation methodology and arrive at a value of Rs105 per
share.

Mcleod Russel :: ShareKhan Diwali Muharat Picks 2012


Mcleod Russel is the world’s largest tea producer with an annual tea production of close to 100 million
kg. With tea estates in India and Africa, it is well poised to take advantage of the current favourable
global demand supply scenario. With the expectations of a substantial improvement in its sales realisation
and a volume growth in mid-to-high single digits (in the domestic market and the international subsidiaries),
the company’s consolidated top line and earnings are expected to grow at CAGR of 18.5% and
20% respectively over FY2012-14.
Mcleod Russels tea production was affected by abnormal weather conditions in north India during the
key tea producing season (July-September). The weather has improved and the tea production was
estimated to be better in October 2012. The management indicated in the conference call that the
positive impact of the increase of ~Rs20 per kg in the blended realisation on the profitability would be
seen in Q3 and Q4 of FY2013.
In view of expectations of normal production in FY2014, we expect Mcleod Russel to post a strong
bottom line growth in FY2014 on account of an improvement in the OPM (due to higher blended
realisation of the stand-alone entity and increased contribution from the African subsidiaries, which
have much better margins than the consolidated entity).
At the CMP the stock trades at 11.1x its FY2013E (consolidated) EPS of Rs27.1 and 8.5x its FY2014E EPS
of Rs35.4. Our price target of Rs356 valuing the stock at 10x its FY2014E earnings, which is in line with
the last six years’ average one-year forward multiple of 10x.

Raymond :: ShareKhan Diwali Muharat Picks 2012


Raymond is present in the fast-growing discretionary and lifestyle category of branded textiles and
apparels. With the growing income, rise in aspirations to lead a luxurious life, greater discretionary
spending and favourable demographics, the segment of branded apparels and fabrics presents a tremendous
growth opportunity and Raymond with its brands and superior distribution set-up is very well
geared to encash the same.
Raymond’s Q2FY2013 results are ahead of expectations, revenues grew by 13.0% year on year (YoY) to
Rs1,115.1 crore (ahead of our estimate of Rs861.7 crore), but the OPM declined by 349 basis points YoY
to 14.3% on account of higher input prices, which we believe will turn in the company’s favour in the
coming quarters due to a fall in the wool prices. The company added 42 stores with an increase of
61,914 square feet in the retail space during the quarter.
With the festive season upon us, we expect Raymond to post a better performance in the coming
quarters. A likely improvement in the macro environment and its positive effect on consumer sentiment
should also help the company to post a strong bottom line growth in FY2014. Any development
with regard to the Thane land in the form of either joint development or disposal would lead to value
unlocking and provide significant cash to the company. At the CMP, the stock trades at 18.5x its FY2013E
EPS (excluding the value of the Thane land parcel) of Rs20.3 and 12.8x its FY2014E EPS (excluding the
value of the Thane land parcel) of Rs29.3.

Cairn India:: ShareKhan Diwali Muharat Picks 2012


Cairn India owns ten oil and gas blocks that include producing, development and exploration assets.
The Rajasthan block, RJ- ON-90/1, in which it has a 70% stake, contributes significant proportion of
Cairn India's total production. The location of the ten blocks is divided into three strategically focused
areas: one in Rajasthan; three on the west coast of India; and five on the east coast of India, including
one in Sri Lanka. Recently, Cairn India acquired one block at South Africa. Exploration activities are at
different stages in some of these blocks.
Cairn India has net cash of US $2.4 billion or Rs65/share, about 20% of its current market cap and
nearly equal to its capital expenditure guidance for the next two years. This leaves room for the
possibility of a higher payout to the shareholders.
Portfolio optimisation in process: Cairn India has identified a high-risk, high-value deeper prospect at
Ravva, capable of extending the field’s economic life; the drilling for the same is scheduled in H1FY14.
Acquisition of 3D seismic data of Sri Lanka is complete with exploratory drilling planned in mid-CY2013.
The Aishwarya field commencing by FY2013-end, and government of India approval to further explore
Rajasthan basin, where besides crude, rich gas finds in southern part can be commercially exploited.

CMC :: ShareKhan Diwali Muharat Picks 2012


Solid parentage, strong visibility: Under the Tata Consultancy Services (TCS) parentage, CMC has
transformed itself from a low-margin information technology (IT) equipment provider to a well-diversified
IT services and solutions provider and created a niche for itself in the field of large system
engineering and integration projects. CMC initiated its “Joint-Go-To-Market” approach with TCS in
2005, which is paying up handsomely now.
In the last five years, the contribution of the international revenues has tripled from 20% to around
60% of the total revenues in FY2012, whereas the share of the services’ revenues has gone up to almost
90% of the total revenues as compared with 53% in FY2005. The share of revenues achieved through
synergies with TCS has crossed 51% in FY2012 from 43% in FY2007.
CMC has gained a strong foothold in the domestic IT arena by winning large turnkey deals, some on its
own and the others in partnership with TCS. Another favourable factor driving its strong growth and
helping it tap large government projects is its previous status as a public sector undertaking (PSU),
which has given it an edge over the other players. The company counts some of the marquee names in
the domestic market, like RBI, IOC, BPCL, ONGC, coupled with the Indian Railways, other PSUs and
defence sectors.
CMC has set the stage for the next level of growth and is likely to witness a much stronger growth in
the coming years. We expect its earnings to grow at a CAGR of 43% over FY2012-14. At the current
market price (CMP) of Rs1,108, the stock is trading at 13.4x FY2013E and 10.7x FY2014E earnings
respectively. We value the stock at 15x target multiple based on the FY2014 earnings estimate, in line
with its two-year average trading multiple. We have Buy on CMC with a buy rating and a one-year price
target of Rs1,551.

Aditya Birla Nuvo :: ShareKhan Diwali Muharat Picks 2012


Aditya Birla Nuvo (ABN) is amongst the top five players in the insurance, asset management and
telecom (Idea Cellular is the fastest growing telecom company, third in ranking) segments. ABN’s
businesses enjoy strong positioning in their respective fields. Further, the promoter is infusing equity
into the company by subscribing to the warrants that would be convertible into equity shares over the
next 12-15 months. That would aid in soothing the company’s stretched leverage position (stand-alone
net debt/EBITDA at 4x). It also speaks of the promoters’ confidence in the business.
The value businesses of the company (insulators, textiles, fertilisers, carbon black and rayon) have
started witnessing increased efficiency as reflected in the sharp improvement in their operating profit
margin (OPM), while the growth businesses (retail, BPO, life insurance and financial services) are
showing improved revenue visibility and gaining strong market share. The strong internal cash flows
from value businesses coupled with the promoter funding would aid in meeting the funding requirement
of the growth businesses.
Given the diverse businesses in which ABN is present, we value the company on a SOTP basis, giving a
piecemeal value to each business and then adjusting the same with the company’s consolidated debt
to arrive at a price target. We maintain our Buy rating on the stock with a price target of Rs943. Recent
government reforms on foreign direct investments in retail and likely reforms in insurance sector
investment are positive for the company’s business going forward.

Sun Pharmaceutical Industries :: ShareKhan Diwali Muharat Picks 2012


The combination of Sun Pharmaceutical Industries (Sun Pharma) and its subsidiary, Taro Pharma (Taro),
offers an excellent business model. With a stronghold in the domestic formulation market, Sun Pharma
has become an aggressive participant in the para IV patent challenge space. Along with the exclusivities
in the USA, the recent consolidation of the Taro acquisition has provided the much needed boost to the
stock. Recently, the US Food and Drug Administration (USFDA) has cleared the company’s Caraco Pharma
(Caraco) plant, which can resume the production of two key drugs to start with. This will help Caraco
gradually regain the market share in the USA.
Business restructuring and full control of Taro to help sustain the strong growth : Sun Pharma is in the
process of restructuring its business. It has announced a plan to spin-off its domestic formulation
business (which contributes about 22% of its revenues) to its wholly owned subsidiary called Sun Resins
and Polymers Pvt Ltd with effect from March 31, 2012. This is being done with a view to enhance the
focus on the business and to allow for quicker responses to the competitive market conditions. Besides,
the company has announced a plan to acquire the entire stake in Taro, which will give it a
stronger foothold in the USA and Europe.
We expect the domestic formulation business to deliver a better performance after the divestment
and special focus. Besides, synergies from Taro are also likely to back-up the growth. The company has
135 abbreviated new drug applications pending approvals by the USFDA and is increasing its focus on
niche product segments. All this is likely to result in an impressive growth going forward. Accordingly,
our price target stands revised by 14% to Rs743 (implies 23x FY2014E earnings). The stock is currently
trading at 21x FY2014E earnings per share (EPS).

ICICI Bank:: ShareKhan Diwali Muharat Picks 2012


ICICI Bank is India’s largest private sector bank with a network of over 2,500 branches in India and a
presence in around 18 countries. The bank has once again entered an expansionary mode after making
a conscious effort to contract its advances book due to asset quality concerns. The bank offers substantial
value unlocking opportunities with the expected listing of its subsidiaries like ICICI Securities
and ICICI Prudential Life Insurance.
During the first half of FY2013, the bank has posted a top line and a profit growth of over 30%. On the
operational front, the bank’s net interest margins (NIMs) are high at 3.0% during first half. The asset
quality is also good with low non-performing assets (NPAs) and high coverage ratios. In Q2FY2013, the
asset quality of bank remained stable as the gross and net NPAs were at 3.54% and 0.78% respectively.
The bank is adequately capitalised at 18.3% as against the Reserve Bank of India (RBI)’s norm of 12% as
on September 2012.
ICICI Bank continued to report a healthy growth in the balance sheet with an improved asset quality
and stable margins. In view of the strong performance, we expect earnings to grow at a compounded
annual growth rate (CAGR) of 15% over FY2012-14. This should result in a return on asset (RoA) of 1.5%.
Our sum of the parts (SOTP)-based price target is set upwards to Rs1,230.

Cox & Kings: Buy:: Business Line


CENTRUM WEALTH: Top 10 Diwali Picks

Styrolution ABS (India) Ltd. :: CENTRUM WEALTH: Top 10 Diwali Picks


•Styrolution ABS (India) Ltd. (SAL) (formerly known as INEOS ABS India Ltd.) is a 87.33% subsidiary of Styrolution Group GmbH, Germany. Styrolution Germany, a leading manufacturer of an engineering plastic namely styrene monomer, polystyrene and ABS, is a 50:50 joint venture between BASF SE and INEOS ABS. The parent had tried to acquire 100% stake in SAL in the past but has not been successful. We believe there can be a delisting offer in the future as well;
•SAL is the market leader in the engineering plastics industry in India with ~60% market share in ABS resins segment and ~68% in SAN resins segment. Absolac (ABS) is plastic resin produced from Acrylonitrile, Butadiene & Styrene. Its application ranges from home appliances to automobile, consumer durables, business machines. Other product, Absolan (SAN) is also a polymerized plastic resin which is produced from Styrene & Acrylonitrile. Its main applications are in the lightings, stationeries and novelties, refrigerators and cosmetic packing. Some of the prominent clients of SAL include Samsung, LG, Videocon, BPL, Ford, Hero, Cello, Lexi, Bajaj, etc;
•There is a huge demand supply gap for ABS in India which is being met through imports over the years. CRISIL Research estimates that the supply of ABS would grow at 17% CAGR to meet the demand during CY2010-15E. SAL has expanded its SAN capacity from 36,000 tpa to 65,000 tpa, which has helped increasing its capacity of ABS from 60,000 tpa to 1,00,000 tpa. This expansion has been funded through internal accruals. We expect the demand growth to continue and provide steady revenue stream to SAL;
•SAL has been on a steady growth path. Over CY2006-2011, while its net sales increased at a CAGR of 9.9% to Rs.825 crore, its profit increased at a CAGR of 14.8% to Rs.54 crore. SAL reported impressive results for Q3CY2012. While total income grew 26.5% YoY to Rs.263 crore, net profit jumped 165% YoY to Rs.22 crore. Raw material cost which as a percentage of sales declined by 662 bps YoY to 72.6%, helped EBITDA margin to expand by 676 bps to 12.7% thus improving profitability;
•We believe the 5% appreciation in INR from its all time high of Rs.57.32 to Rs54.22 is a positive development for SAL which is heavily dependant on imports (net imports of ~Rs.491 crore in FY2012 which was 60% of its sales) as it is likely to reduce the raw material cost and help improve margins going ahead;
•The stock is current trading at 24% below its 52 week high of Rs.850 and at 15.4x its CY2013E EPS of Rs.42. We believe the parent company might come out with an open offer again for acquiring the remaining stake in SAL. Moreover, the opportunities in the growing engineering thermoplastic industry provides cushion fundamentally. In either case, we expect the company to provide good returns in the medium-long term. We recommend BUY with a fair value of Rs.756, valuing the stock at 18x its CY2013E EPS

State Bank of Bikaner & Jaipur :: CENTRUM WEALTH: Top 10 Diwali Picks


SBBJ, an associate of SBI, has witnessed a solid growth story during the period FY2007-FY2012:
–Achieved about 2.1 times growth in its balance sheet and 2.3 times growth in total business;
–Adj. net profit increased about 2.1 times to Rs.652 crore;
SBI Associate Act has been passed by the Lok Sabha. Now SBI associate banks such as SBBJ will have greater autonomy with respect to rewarding bonus shares and higher dividends to shareholders which will help in creating significant wealth for the shareholders in the long term;
SBBJ is a good dividend paying bank - it paid a dividend of Rs.14.5/share for FY2012. We expect close to 4% dividend yield for FY2013;
In Q2FY2013, the bank posted impressive growth in the net profit by about 51% YoY to Rs.169 crore compared to Rs.112 crore in Q2FY2012. The NII (net interest income) of the bank grew by 42.2% YoY to Rs.679.38 crore compared to Rs.477.61 crore in corresponding quarter of last year. The PPP (pre-operating profit of the bank grew by 48% YoY during the same period. The bank’s asset quality showed considerable improvement with its net NPA% declining by 57bps yoy to 1.91% as on September 30, 2012. The total business of the bank grew by 14% YoY to Rs.115,073 crore as on September 30, 2012;
We believe that this is the ideal time to invest in SBBJ. The stock is currently trading 13% below its 52 week high of Rs.470 at 0.82x its Adj. BV of Rs.496 as on September 30, 2012 and at attractive valuation of 0.65x FY2014E Adj. Book Value of Rs.630. We recommend buy on this wealth creating banking stock of SBBJ, with a fair value of Rs.580, based on a conservative valuation of 0.9x FY2014E Adj. BV with expected return of 43%;

Ramco Industries :: CENTRUM WEALTH: Top 10 Diwali Picks


Ramco Industries (RAMCO) is a part of the Rs.1,200 crore Ramco Group, having diverse business interests in cement, fibre cement products, cotton yarn and Information Technology. RAMCO operates one of the modern fibre cement roofing sheets and pipe plants in India and also has interests in fibre cement pressure pipes in India and Sri Lanka;
The company has 20.7% stake in Madras Cements. The market value of its investments in Madras Cement, Ramco Systems, HDFC, etc, is around Rs.1,130 crore, which is 50% more than the enterprise value of RAMCO at Rs.747 crore The value of investment in Madras Cements alone is worth Rs.1,035 crore, which is 1.4x the Enterprise Value of RAMCO;
Schemes from Government such as Indira Awas Yojna, the Golden Jubilee Rural Housing Finance Scheme, the Pradhan Mantri Adarsh Gram Yojna, the Productive Housing in Rural Area and the Rural Housing Fund, to provide shelter to the rural poor are expected to give boost to the roofing sector and RAMCO being one of the leaders is expected to benefit the most;
The company has adopted a strategy of building satellite plants spread over various regions in India to meet the growing demand for fibre cement roofing sheets and pressure pipes and also reduce the logistics cost;
While Q2FY2013 results appear weak at net profit level as the reported PAT declined by 7% to Rs.10.5 crore. However, the results from operational front is very impressive. Ramco registered 15.7% YoY growth in net revenue to Rs.161.2 crore during Q2FY2013. EBITDA margin expanded by 200bps on a YoY basis to 15.8%. EBT (excluding other income and forex gain/loss) more than doubled to Rs. 11.1 crore compared to Rs.5.5 crores during Q2FY2012. The reported net profit was down due to 1) other income was down to Rs.2.9 crore during Q2FY2013 as compared to Rs.7.1 crore in Q2FY2013 which could be due to lower dividend income arising out of its investments and 2) exceptional item of Rs.1.21 crore due to loss on sale of asset;
The stock is currently trading nearly 15% below its 52 week high at a P/E of 6.9x FY2014 consolidated EPS of Rs.9.23/. Considering positive outlook on industry, sound management and value of investments in book, we recommend BUY on Ramco Industries to investors with a long term perspective

MRF :: CENTRUM WEALTH: Top 10 Diwali Picks


MRF is a thematic play on booming automobile population in India which has almost doubled in the last 10 years. Further, it draws nearly 75% of its sales from the replacement market which remains largely unaffected by fluctuations in the industrial economy. MRF is fast growing and the first Indian tyre company to cross the Rs.10,000 crore mark in revenues. Its branded sales are expected to double to Rs.20,000 crore in next 3 to 4 years;
MRF has the highest market share of 23.2% in the overall domestic tyre industry. For the period FY2006-2011 (September year ended), Net sales have increased 2.6x from Rs.3,724 crore to Rs.9,735 crore and volumes have increased more than 1.5x from 21.6 million units to 34.3 million units. During Q3FY2012, MRF’s revenue grew 17% YoY while its PAT increased 152% YoY on the back healthy margins. NR prices which were down 15.4% YoY during June quarter at around Rs.193/kg, helped improve EBIDTA margins by 450bps YoY to 10.9%;
The average prices of natural rubber (NR), which is a key raw material for tyres was down 16.9% YoY and 9.1% QoQ for the quarter ended September 2012 at Rs.175/kg. Currently, NR prices are quoting around Rs.174 and despite this decline, realizations remained firm with most companies increasing prices by 4%-5% in the September quarter itself. The expected appreciation in INR is likely to apply some further downward pressure on domestic prices of NR through cheaper imports. Also the government has imposed definitive anti-dumping duty on import of non-radial bias tyres (used in buses and trucks) from China and Thailand for a period of 5 years. We expect another 5%-10% fall in NR prices on account of slowdown in the developed countries;
We believe MRF would be the major beneficiary of the fallen prices and expect the company to spend around Rs.3,000 crore in FY2013 on rubber procurement. A 5% fall in rubber prices would improve the company’s earnings by Rs.375 per share. We expect MRF to maintain margins around 10%-11% and report better results for next few quarters;
MRF’s promoter holding is only 26.95% and is highly fragmented with as many as 114 individual holding this stake. Strategic investors (including financial institutions) hold another 28.87% as on September 30, 2012. As such we believe that MRF can be an attractive target for acquisition going forward. An analysis of some of the acquisitions in the tyre industry across the world, reveals that deals have taken place at valuations of around 6x-9x EV/EBIDTA. MRF is currently trading at ~4.5x its FY2013E EV/EBIDTA levels, signaling a significant discount to global valuations;
MRF is trading at low valuations due to poor stock liquidity. We firmly believe that the company needs to expand its existing tiny equity base (42.41 lakh shares for a market cap of Rs.4,200 crore) and improve its liquidity by issuing bonus / share split or both. The stock has fallen by 10.9% from its 52 week high and at the current price of Rs.10,304, is trading at 7.9x its FY2012E EPS of Rs.1,300 and 6.9x its FY2013E EPS of Rs.1,500. We re-iterate buy on the stock with a fair value of Rs.12,750;

KCP Sugar & Inds. Corp. :: CENTRUM WEALTH: Top 10 Diwali Picks


KCP Sugar & Industries (KCPS), the most efficient producer of sugar in the country, made profits and paid dividends almost consistently over the last 14 years despite the industry going through severe cyclical downturn several times. Only in FY2003, it posted some loss and skipped dividend as the sugar realization touched a 14-year low at Rs.12.9 per kg. It is also the least leveraged sugar company with debt being just 35% of total capital employed;
Over the last 3 months, domestic sugar prices have seen a sharp increase of ~20% to Rs.34.7/kg currently, after touching a peak of Rs.37.70/kg. Also, global sugar prices are up ~3% over the last 3 months to $19.5/lb. The sugar prices are expected to remain firm for next 2 years as the domestic production is expected to fall to 23 million tonne (MT) in CY2013 as compared to around 24.5 MT in CY2012;
KCPS reported 27% YoY growth in net profit while Net sales grew by 12% YoY in Q1FY2013 as EBITDA margin improved by 400 bps to 17% as against 13% in Q1FY2012. Company closed the year FY2012 with a record high sugar inventory of over Rs.200 crore which was valued at cost price – since March 2012, the domestic sugar prices have gone up by 23%, hence, we expect over 60% YoY growth in net profit in the current fiscal;
We believe that the company holds surplus land bank worth over Rs.350 crore in Chennai which is alone more than its enterprise value of Rs.329 crore In addition, it has major manufacturing assets like sugar plants, acetic acid plant and co-generation of power. The value of its land bank and plants are worth about Rs.1000 crore, which is about 3 times its current enterprise value. Considering the huge gap between its enterprise value and value of its assets, and also promoters’ lacking majority control (holding of about 39%), we believe that there exist a possibility of its takeover. For the last few years, the promoters have also been regularly buying the stock from the market, which enhances our conviction;
KCPS declared a 70% dividend for FY2012 and we expect the company to declare a dividend of Rs.0.85 for FY2013 which at the current market price would offer an yield of 4.3%. The stock trades at an attractive valuation of 5x FY2014E EPS of Rs.4. We believe the stock could be a multi-bagger in 1 to 2 years considering recent turnaround in the sugar cycle and acquisition possibility. Hence, we recommend a BUY on the stock with a fair value of Rs.32 to investors with a medium to long term investment horizon

JB Chemicals & Pharma (JBC) :: CENTRUM WEALTH: Top 10 Diwali Picks


JB Chemicals (JBC), a mid-sized pharmaceutical company, had sold off its OTC business in Russia/CIS last year for ~Rs.1,155 crore. It is one of few companies to share the cash proceeds with the shareholders which boasts of a good management -it gave out a hefty special dividend of Rs.40/share to shareholders from the proceeds of this sale;
Post the sale of Russian OTC business, JBC is now focusing on domestic formulations and has taken various initiatives to bring down its high cost structure of the residual Russian prescription business and expand the domestic pharma business;
The latest quarterly results of JB Chemicals indicate progress made by the company in improving the margins as well as in expanding the business:
–The company’s net revenue grew by 32% YoY to Rs212 crore adjusting to other operating income in Q2 FY2013;
–PBIT came at Rs25.7 crore as compared to Rs.40.7 crore during Q2FY2013. This is very impressive considering that the company registered Other Operating Income (OOI) of Rs.5.12 crore in Q2FY2013 as compared Rs.32.9 crore in Q2FY2012. If we adjust for the variation in OOI, the PBIT has grown by 87% YoY;
–Net profit was Rs.39 crore during Q2FY2013 – quarterly EPS is alone Rs.4.6;
The company has net cash of Rs.469 crore (cash & current investments of Rs.515 crore minus debt of Rs.46 crore), which is 2.95 times its Net Enterprise Value of Rs.159 crore (Current market Cap of Rs.628 crore less net cash of Rs.469). Its book value is at Rs.997 crore as of September 2012, which is Rs.117.7 per share or 1.6 times the current market price;
Considering current margin and growth, the company can achieve Rs.12 EPS in FY2014, implying a P/E of 6x at current market price. Further, its has cash and equivalents of Rs.55 per share which is 74% of current stock price. The stock can easily double in a year’s time. We therefore recommend Buy on the stock with a fair value of Rs.96 at 8x FY2014E EPS;

Engineers India Ltd.(EIL) :: CENTRUM WEALTH: Top 10 Diwali Picks


Engineers India (EIL), a PSU with 80.4% government stake, is the only player in India providing complete ‘concept to commissioning’ engineering project services across hydrocarbon value-chain. India needs investments to the tune of Rs.27 lakh crore by 2030, in order to become self reliant in the hydrocarbon sector (ASSOCHAM), which is expected to provide stable order inflows for EIL;
EIL is closely working with the government’s ambitious Rs.55,000 crore project for creating additional 12.5 million tonne (MT) strategic crude oil storage facilities, which would increase India’s total strategic crude oil storage capacity to 17.8MT. EIL also has a contract from GSPL India Transco Ltd, for its 2,000-km natural gas pipeline project and a consultancy contract from Cairn Energy Pty Ltd. for its Mangala Polymer Project. In July, 2012 it secured a Rs.720 crore consultancy contract from BPCL for its $2.6 billion Integrated Refinery Expansion Project at Kochi. EIL’s total order inflow was Rs.938 crore during Q2FY2013 taking the outstanding order book to Rs.4,353 crore, which provides revenue visibility for more than one year;
We believe the Finance Ministry’s new roadmap to boost investment, along with cash-rich public sector companies (PSUs) utilizing surpluses for expansion and overseas acquisition, would be a positive development for EIL;
EIL’s revenue and PAT are expected to grow by 23% and 17% CAGR respectively for FY2012-14E. The company is in a position to earn higher margins (~22%-24%), as its turnkey orders are on Open Book Estimates Basis, wherein the entire raw material cost is borne by clients, resulting in huge cash flow generation at the operating levels;
On a standalone basis for Q2FY2013, while revenues declined by 19.3% YoY to Rs.668 crore, the net profit grew by 10% YoY to Rs.161 crore. The increase in profitability of the company was contributed by higher contribution from high margin – consultancy business (PBIT margin of 43.3%) as compared to 8.3% margin in turnkey business. Revenue from consultancy & engineering projects increased by 24% YoY to Rs.353 crore while that from turnkey projects declined by 42% YoY to Rs.315 crore for Q2FY2013;
EIL is a ‘zero debt company’ with cash and liquid investments of Rs.2,300 crore (~30% of market cap) which translates into cash per share of Rs.68 as on September 30,2012. EIL had a negative working capital (Rs.784 crore for FY2012) due to milestone based payments and back-to–back credit lines from suppliers available to the company. Adjusted for the Rs.4 final dividend in August 2012, the stock is trading at about 20% below its 52 week high price of Rs.289 and at current price trades at 10.6x FY2013E EPS of Rs.21.70. We recommend Buy with a target price of Rs.349 valuing the stock at 16.1x its FY2013E EPS;

Balmer Lawrie & Co. :: CENTRUM WEALTH: Top 10 Diwali Picks


Balmer Lawrie & Co (BLC), a 100-year old zero-debt, cash & asset rich company, is a rare player in the logistics segment with huge real estate & land assets spread over more than 30 locations mainly in metros in India. It has major presence in industrial packaging, lubricants, logistics services, travel and tours;
BLC has declared a dividend of Rs.28/share for FY2012 and we expect it to declare a minimum dividend of Rs.30/share in FY2013 thus giving a dividend yield of 4.7% at the current market price. Cash on books of Rs.316 crore as on March 31, 2012 is around 30.5% of the current market cap of BLC – hence, being a PSU, there exists opportunity for possible special dividend;
BLC has posted impressive growth during the period FY2002-FY2012, while BLC’s total income increased nearly 3.4 times to Rs.2,671 crore, but net profit increased more than 7 fold to Rs.148 crore. BLC has consistently increased the dividend 16-fold from Rs.1.80 for FY2002 to Rs.28 per share for FY2012;
Balmer Lawrie Investments Ltd. (BLIL), the holding company for BLC, has given an undertaking to the regulator (RBI) that it will divest its stake in BLC (source: www.blinv.com). Being asset-rich, this provides multi-bagger opportunity in long term;
BLC in its AGM has declared that it plans to invest Rs.300-500 crore in next 2-3 years in new projects like a container manufacturing facility at Navi-Mumbai (~Rs.100 crore), a multi-modal logistic hub at Visakhapatnam (~Rs.150 crore), an independent facility for producing construction chemical in Chennai (~Rs.40 crore) and a travel portal (~Rs.25 crore);
BLC has aggressive expansion plans:
–Earmarked $7 million for in-organic growth and foraying into the Rs.1,800 crore construction chemical business
–Focus on branding by launching new packaging for ‘Balmerol’, with its goal to emerge as a globally competitive, transnational lubricants solution and service provider
–Its subsidiary, Balmer Lawrie (UK) is proposing acquisitions outside India
–Set to launch online booking portal & focused packages for its high growing Travel & Tours business, which contributes ~40% to the revenues and 13% of the PBIT
We believe BLC is well placed to benefit and can emerge as a multi-bagger if the divestment takes place. Considering that it is a high-dividend yield, zero debt-cash rich company and is currently trading at a low PE of 5.5x FY2014E EPS of Rs.116.2, we recommend a BUY on the stock with a fair value of Rs.750, offering a potential return of 17.2% from the current levels;

Akzo Nobel :: CENTRUM WEALTH: Top 10 Diwali Picks


Akzo Nobel India (previously known as ICI India) is a strong player in paints and chemicals business with over 100 years of presence in India. In 2008, Akzo Nobel NV, Netherlands took equity ownership of Imperial Chemical Industries, UK. At present, the company has two division namely paints and surface chemical;
During FY2012, Akzo commissioned two new plants – one in Hyderabad for decorative paints and another in Bangalore for coil coatings increasing its total facilities to 5 plants. The company is further looking to add one more Greenfield plant at Gwalior for decoratives and has planed a capex of Rs.150 crore over the next one year;
Akzo merged three parent owned unlisted entities in India with itself which led to increase in promoter holding to 68.9% from 59.6%. The company believes that the merger has created an integrated coatings and chemicals company, with significant synergies in several segments, namely, premium decorative, industrial and automotive coatings;
In July 2012, the company completed buyback of 13 lakh equity shares at Rs.920 per share which further increased the promoter stake to 70.8%. We believe that consolidation in the business and increasing promoter stake signals a strong case for de-listing;
The company registered 81.2% YoY growth in net revenue to Rs.1,988 crore and net profit grew by 14.3% YoY to Rs.202 crore during FY2012. During Q2FY2013, the growth momentum continued and the company reported 65% YoY increase in revenue to Rs.563 crore. However, the net profit declined by 10.4% to Rs.60.9 crore due to merger of companies (Akzo Nobel Coatings Pvt Ltd, Akzo Nobel Car Refinishes India Pvt Ltd and Akzo Nobel Chemicals India Ltd) which registered lower margins;
It has cash of Rs.1,077 crore or Rs.230 per share at the end of FY2012 which is around 24% of current market capital. We believe that the company may go for another round of buyback before eventually going for de-listing. Even if the company considers recent buy back price of Rs.920 per share, the stock can see 5.9% upward movement from current levels;
The company has increased the dividend payout to Rs.20 per share for FY2012 on the expanded equity base from Rs.18 in FY2011. At the current price of Rs.952, the stock is available at 22.7x FY2012 EPS of Rs.42 and 20.3x its FY2013E EPS of Rs.47 with a fair value of Rs.1,100 which is an upside of 15.5% from the current levels. We believe there will continue to be a significant upside in the stock considering higher dividend and possibility of de-listing;

INDOCO Remedies Ltd (IRL):: CENTRUM WEALTH: Top 10 Diwali Picks


Indoco Remedies Ltd (IRL) has a strong brand portfolio of 120 products across various therapeutic segments with its top 10 brands contributing about 60% to its domestic sales. IRL is looking to expand its presence in other regulated markets like US and has tied up with Watson Pharma, US (19 sterile products targeting US$1.9bn). So far, IRL has filed 13 ANDAs, of this, 8 were filed under the Watson deal. It is planning to further file 4-5 ANDAs in FY2013. IRL has also got into an agreement with Aspen Pharma for Emerging Markets (30 markets). IRL has entered into an alliance with DSM, a €9 billion company, for marketing & distribution of APIs. Further, IRL is also looking at additional supply tie ups coming in from Australia and expects exports business to grow between 25-30% CAGR over the next 2-3 years and contribute close to 50% of the revenues;
IRL intends to increase its presence in the rural market and launch around 25 new products every year, largely on the chronics side, taking the revenue contribution in chronic segment from 10% to 20% in few years. IRL expects to post better than industry growth rates at a CAGR of 16% over the next 2-3 years and has undertaken certain cost cutting measures in the domestic business which would improve profit margins by about 200bps going forward;
IRL is investing Rs.55 crore in the Patalganga facility and is expecting an FDA approval in this year, which would be an additional growth trigger for the firm as it would enable the company to grow its API business in the higher margin regulated markets. At full capacity IRL expects this increased capacity to yield close to Rs.200 crore in revenues post the approval;
IRL currently has close to Rs.94 crore of debt on its balance sheet. Of this Rs.35 crore is long term (mainly dollar denominated) in nature while Rs.59 crore is short term debt (a mix of INR and USD loans). The current debt/equity ratio is a comfortable 0.23x as on September 30, 2012;
We believe that the firm is well poised to grow its revenue CAGR at 15% plus for the period FY2012-14E and with expected improvement in margins we believe that the PAT CAGR would be in excess of 15%. Improved traction in the domestic business coupled with growth driver in international business coming from new tie ups and new facility at Patalganga would help IRL to re-rate closer to the large-cap pharma companies which are trading at an average of 18x one year forward earnings. We believe that IRL could re-rate close to 10x multiple which based on EPS estimate of Rs.8.5 for FY2014E, results in a target price of Rs.85/share which implies 28.8% upside from current market price;

Wipro De‐merger of consumer business ::Prabhudas Lilladher


Wipro announced demerger of the Wipro Consumer Care & Lighting (including
Furniture business), Wipro Infrastructure Engineering (Hydraulics & Water
businesses), and Medical Diagnostic Product & Services business (through its
strategic joint venture), into a separate company to be named Wipro Enterprises
Limited. Wipro Limited will remain a publicly listed company that will focus
exclusively on IT. We see demerger a ROCE accretive for the IT business. However,
we do not expect material upside due to demerger.

Shriram Transport Finance Stable operating performance but risks remain:: Prabhudas Lilladher,


SHTF’s Q2FY13 PAT of Rs3.4bn was in line with expectations, with relatively stable
asset quality and better‐than‐expected pick up in used/new CV disbursements.
Operating performance seems to be stabilising now, with stable margins and credit
costs. Though growth has surprised and valuations at 1.6x FY14 book is reasonable
considering SHTF’s used CV book facing lower competitive intensity, we are not as
sanguine as the management on the CV cycle and there is a possible impact from
impending regulations and hence, maintain our ‘Accumulate’ rating with a PT of
Rs650/share

Year 2013: Goldman Sachs bets on emerging markets, India (Money control)


For the global economy, as a whole, we are looking at 3.1 percent growth this year in Purchasing Power Parity (PPP) terms. We think that it will rise to about 3.5-3.6 percent next year. Timothy Moe, Goldman Sachs

Post office discount is no golden deal:: Business Line


Technicals: BASF, Suzlon, Balrampur Chini, IRB, Gujarat NRE Coke, Alok Ind:: Business Line


Shoppers Stop: Book Profits:: Business Line


India-focused hedge funds achieve 10% returns in Sept:: Business Line


MFs asset base grows 7% in Oct: Business Line


Index outlook: Quiet optimism in Diwali week:: Business Line


Asian Paints:: Some sequential improvement -- Nomura research,


Some sequential improvement
Volume growth pickup still
awaited; maintain Neutral on
rich valuation

2013:: Fundamental Picks ::Diwali Picks :: Kotak Securities


Fundamental Picks
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