22 December 2012

Godrej Consumer- All is well… but valuations rich:: Religare research

As per our recent interaction with the GCPL management, the company continues to see strong growth across its Household Insecticides, Soaps and International businesses. In our view, GCPL could see some gross margin improvement in H2FY13, but higher brand investment coupled with product launches is likely to cap EBITDA margins. We marginally pare our FY13 earnings estimate on account of higher A&P and maintain HOLD given rich valuations at 27.1x/22.8x FY14E/FY15E earnings.

JK Cement - Management Interaction - Centrum


Management Interaction Takeaways
JK Cement
Buy
Target Price: Rs465
CMP: Rs333
Upside: 39.6%
We spoke with the management of JK Cements to get an insight into future prospects and volume trend from its South and North plants. Key takeaways from our discussion are given below:-

BRITANNIA INDUSTRIES- Target Rs 540; Sushil research


Britannia Industries Ltd (BIL) is one of the largest food companies in India with presence in bakery and dairy products. It also forayed into the breakfast cereals category in FY11.
BIL – One of the Key Players in the Branded Biscuits Category
BIL is one of the key players with ~1/3rd market share in India’s $2.2 bn branded biscuits category having 7 power brands in its kitty (Good Day, Marie, Tiger, Treat, 50-50, Milk Bikis & Nutri Choice). According to the management, BIL’s household penetration at the moment is ~50% which is more than half of the biscuit category’s overall household penetration in India (90%). Biscuits category contributed ~84% to BIL’s standalone revenue in FY12. BIL’s standalone biscuits sales volume and revenue has grown at a CAGR of 6.6% & 14.9% resp. during FY07-FY12. Considering branded food market is growing faster than overall food & non-food market and biscuits being the largest category in the ~$21 bn branded foods market, we expect BIL’s standalone biscuits sales volume and revenue to grow at a CAGR of 3.5% & 11.5% resp. during FY12-FY14E.

Automobiles CV Goods Segment: Truck Rentals slid 4‐5% in Nov’12 ::Prabhudas Lilladher


After remaining stable till mid-October, Truck rentals on the trunk routes slid by 4-
5% in Nov’12 as cargo offerings slumped in the last fortnight (mainly SME sector)
after peaking during Diwali festival. Consequently, the gains made during Oct'12 by
way of 3-4% increase in rentals were eroded. Despite record discounts and soft auto
finance schemes, M&HCV goods segment declined by 36.0% YoY in Nov’12. YTD
FY13, the M&HCV goods segment declined by 20% YoY mainly on account of low
cargo offering across segments and higher base of last year. LCV goods segment
grew at 11.2% in November, with growth during April-Nov’12 at 18.8% YoY. We
maintain our view that M&HCV goods segment would de-grow by 14-16% in FY13E,
given the drop in freight availability and softening of truck rentals. In our view, LCV
goods segment is likely to grow in the range of 16-17% in FY13E. Key findings of the
IFTRT report are mentioned below:

GSPL- Management Interaction Takeaways - Centrum


Management Interaction Takeaways
GSPL
Neutral
Target Price: Rs74.7
CMP: Rs75.8
Downside: 1.4%
We have recently interacted with the management of GSPL to get their feedback on the applicability of tariffs by PNGRB regulator and current business environment. The key highlights are:

Shree Digvijay Cement Company (Buy @ 16 with a price target of 30)


The story so far ………..
Shree Digvijay Cement Company – SDCC operates a 1.1 million MT cement capacity at Jamnagar – Gujarat and sells cement under the brand name – “Kamal”. Its plant operates at 86% capacity utilization and has a 7% market share in Gujarat. SDCC posted revenues of Rs330crs in CY’11 with an EPS of 0.7 and has accumulated losses of Rs46crs.
In 2008 SDCC was acquired by Portugal based CIMPOR CIMENTOS who now hold 74% in the company. This MNC operates in Portugal, Brazil, Spain, Morocco, Egypt, Turkey, Tunisia and China among others and entered India in 2008 through this acquisition.
The story ahead ………..
Western India accounts for 20% of All India cement consumption and Gujarat forms ~ 40% of consumption in Western India. We expect ~ 60MT of new capacity to come through FY13-15 of which majority would be in South India. All India capacity utilization for the sector is expected to rise from 70% to 75% over the next three years. The industry is witnessing an uptick in EBIDTA per ton during the first half of the current fiscal and realizations have increased by 15%. SDCC realizations have also increased in line with this trend and we expect the company to wipe out its entire accumulated losses of Rs46crs during CY’12 itself and post an EPS of Rs3.4
Gujarat accounts for 8% of All India cement demand and with BJP sweeping the state elections yet again, we forecast the impetus to infrastructure, urban development and housing to continue the momentum thereby boosting cement demand and prospects for SDCC. On a Pan India basis too we believe that cement demand should be good as we anticipate a pick-up in infrastructure spending in the run-up towards the 2014 elections.
SDCC spent Rs45crs in CY’11 on SAP modules and in setting up a waste heat recovery power project which has since then been commissioned this fiscal and at a market capitalization of just Rs225crs this debt-free MNC cement company looks a compelling BUY at current levels of 16 for a one-year price target of 30.

Thanks and Regards
LKP Advisory