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8/4/2019 Market Strategy Report
1/22
Market StrategyMarket StrategyMarket StrategyMarket StrategyMarket StrategySeptember 2011September 2011September 2011September 2011September 2011
Please refer to important disclosures at the end of this report. 1
Global headwinds blowing, India relatively well placed
Global equities have corrected sharply over the past one month on concerns of
slower global growth. The US economy continues to face risks of a double-dip
recession on tepid economic growth and high unemployment. Eurozone countries
also remain on a weaker footing due to concerns regarding sovereign debt crisis.
In the backdrop of these headwinds, we believe India is better placed to weather
the current scenario due to lower dependence on exports for driving economic
growth and benefits arising from lower commodity and energy prices due to slower
global growth.
Inflation expected to moderate on lower global commodity and energy prices :Inflation expected to moderate on lower global commodity and energy prices :Inflation expected to moderate on lower global commodity and energy prices :Inflation expected to moderate on lower global commodity and energy prices :Inflation expected to moderate on lower global commodity and energy prices :
The Reserve Bank of India (RBI) has continued its rate hike spree on account of
persistence of higher inflation. The RBI has raised the key policy rate - the repo
rate - on 11 occasions since March 2010, leading to a sharp 475bp rise in the
operative policy rate. The sticky nature of inflation at higher levels has been partly
on account of a sharp rise in global commodity and energy prices, as economic
recovery in developed economies picked pace. However, with the prospects of
slower-than-anticipated growth in these economies and moderating growth trends
in emerging economies, commodity and energy prices have come off considerably
from their recent peaks. With declining stimulus measures and slower global growth,
we expect prices to remain in check in the near term. Reduced prices are expected
to be materially positive for the Indian economy, as it will aid in a) reducing fiscal
deficit, b) cooling inflationary pressures and c) putting an end to the prolonged
monetary tightening cycle.
Slower domestic growth may also prompt an end to monetary tightening:Slower domestic growth may also prompt an end to monetary tightening:Slower domestic growth may also prompt an end to monetary tightening:Slower domestic growth may also prompt an end to monetary tightening:Slower domestic growth may also prompt an end to monetary tightening: Apart
from reduced inflationary pressures, the slowdown in domestic growth and
heightened risks in the global macro environment are expected to lead to an end to
the monetary policy tightening stance. Domestic growth has slowed considerably,
as evident from the slowing GDP growth rates, tepid IIP growth, moderating growth
in quarterly gross fixed capital formation and declining vehicle sales and cement
dispatches growth rates. Credit sanctions have also slackened substantially in the
recent months. India's manufacturing PMI has slipped to a 29-month low of
52.6 during August 2011. Although recent indications from the RBI suggest
another 25bp hike in the repo rate in the upcoming monetary policy review,
there is an increasing likelihood, due to the above-mentioned reasons, that theRBI may pause after that hike.
VVVVValuations attractive:aluations attractive:aluations attractive:aluations attractive:aluations attractive: Indian markets have fallen by ~20% in CY2011YTD and
have underperformed emerging market peers by ~8% and global peers by ~11%
due to concerns of higher inflation and interest rates. The earnings growth trajectory
for Indian corporates remains moderate despite higher raw-material costs and
interest rates hurting margins over the past few quarters. While FY2012 earnings
growth is likely to be modest, cooling inflation and interest rates should underpin
healthier growth in FY2013. Based on one-year forward earnings, the Sensex is
trading at attractive valuations of 13.5x vis--vis its last five-year average of 15.7x.
We value the Sensex at a conservative 14x target P/E multiple to arrive at a Sensextarget of 19,100. We maintain our positive stance on Indian equities considering
their relative better positioning globally, reasonable earnings growth trajectory and
attractive valuations vis--vis Indias structurally positive outlook.
Note: Investment period - 12 Months
BSE Sensex (16,713) and Price as on September 5, 2011
Angel Portfolio
Sector Weight (%) Stocks
Auto & 6.0 Ashok Leyland,
Ancillaries MRF
Banking 29.0 ICICI Bank,
Axis Bank,
SBI, HDFC BankCap Goods 11.0 L&T, IVRCL,
& Infra LMW
FMCG 3.0 ITC
Hotels 3.0 Taj GVK
Media 3.0 Jagran Prakashan
Metals 12.0 Tata Steel, Hindalco,
Tata Sponge
Oil & Gas 12.0 Reliance Industries
Pharma 3.0 Lupin
Software 12.0 Infosys, TCS, Mphasis
Others 6.0 Greenply,
United Phosphrus
Top Picks
Company CMP (`) TP (`)
LLLLLarge Caparge Caparge Caparge Caparge Cap
Axis Bank 1,116 1,555
ICICI Bank 881 1,193
Infosys 2,264 3,200
L&T 1,621 1,903
Lupin 471 593
Mphasis 358 420
RIL 789 1,099
Satyam 76 89
Tata Steel 495 614United Phosphorus 144 208
Mid CapMid CapMid CapMid CapMid Cap
Finolex Cables 40 59
Greenply 192 311
Jagran Prakashan 109 148
Relaxo 319 399
Tata Sponge 303 429
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September 2011 Please refer to important disclosures at the end of this report. 2
Exhibit 1: US GDP growth continues to be tepid
Source: Bloomberg, Angel Research
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
2.0
4.0
6.0
Dec
-06
Jun
-07
Dec
-07
Jun
-08
Dec
-08
Jun
-09
Dec
-09
Jun
-10
Dec
-10
Jun
-11
(%)
India likely to remain resilient amid the global slowdown:India likely to remain resilient amid the global slowdown:India likely to remain resilient amid the global slowdown:India likely to remain resilient amid the global slowdown:India likely to remain resilient amid the global slowdown: In
our view, India is relatively better placed to withstand the weakerglobal macroeconomic scenario due to its lower dependence
on exports (exports to GDP of ~20% vs. ~40% for peers) and
benefit of lower commodity and energy prices. A recent report
by global rating agency Fitch titled 'What if the US falls back into
recession?' also finds that India is going to be amongst the least
impacted countries if the US falls back into recession as the impact
of the exposure to US will be offset by the benefits of lower oil prices.
Exhibit 3: India has a lower dependence on exports
Source: World Bank, Angel Research; Note: Data for 2009
CountryCountryCountryCountryCountry Exports as a % of GDPExports as a % of GDPExports as a % of GDPExports as a % of GDPExports as a % of GDP
Brazil 11.1
India 19.6
Indonesia 24.1
China 26.7
South Africa 27.3
Russian Federation 27.7
Mexico 27.8
Korea, Rep. 49.9
Thailand 68.4
Malaysia 96.4
India: Relatively better placed amid global downturn
Economic recovery in the US continues to be weak:Economic recovery in the US continues to be weak:Economic recovery in the US continues to be weak:Economic recovery in the US continues to be weak:Economic recovery in the US continues to be weak: The recent
US GDP growth data, though better than the dismal 0.4%
registered in 4QFY2011, was still considerably lower at 1.0%
(3.8% recorded in 1QFY2011). US Fed in its recent meeting
decided to keep interest rates at exceptionally low levels till at
least mid-2013, which is likely to be favourable for flows into
emerging markets. Economies of Eurozone countries also
continue to face headwinds due to issues regarding sovereign
debt crisis. In our view, there are structural issues facing the
Eurozone due to the inherent conflict between common monetary
policy and independent fiscal policies of member countries.
Exhibit 2: India likely to be resilient amid slowdown
Source: Fitch, Angel Research
Country (%) Slowdown vs. baseline GDP forecastCountry (%) Slowdown vs. baseline GDP forecastCountry (%) Slowdown vs. baseline GDP forecastCountry (%) Slowdown vs. baseline GDP forecastCountry (%) Slowdown vs. baseline GDP forecast
CY11ECY11ECY11ECY11ECY11E CY12ECY12ECY12ECY12ECY12E CY13ECY13ECY13ECY13ECY13E CY11ECY11ECY11ECY11ECY11E CY12ECY12ECY12ECY12ECY12E CY13ECY13ECY13ECY13ECY13E
Brazil (0.3) (0.3) (0.5) 3.7 4.2 4.5
Russia (0.1) (1.5) (1.9) 4.4 2.5 2.1
India (0.1) (0.4) 0.2 7.6 7.8 8.9
China (0.1) (1.5) (1.1) 8.6 7.0 6.9
Singapore (0.2) (2.4) (1.5) 5.8 3.1 4.5
Thailand (0.1) (1.0) (1.1) 3.9 3.5 3.5
Hong Kong (0.1) (1.2) (0.8) 6.0 3.8 4.3
Indonesia (0.1) (0.7) (0.6) 6.1 5.6 5.9
US (0.8) (2.9) (1.4) 1.0 (0.6) 1.5
Euro area - (0.4) (0.3) 1.7 1.4 1.8Japan (0.1) (0.5) (0.5) 0.4 2.2 0.8
UK - (0.5) (0.5) 1.4 1.2 1.6
Inflation expected to moderate, leading to end of
the monetary tightening cycle
Slowdown in global growth likely to keep commodity and energySlowdown in global growth likely to keep commodity and energySlowdown in global growth likely to keep commodity and energySlowdown in global growth likely to keep commodity and energySlowdown in global growth likely to keep commodity and energy
prices under pressure - Materially positive for the Indianprices under pressure - Materially positive for the Indianprices under pressure - Materially positive for the Indianprices under pressure - Materially positive for the Indianprices under pressure - Materially positive for the Indian
economy:economy:economy:economy:economy: Fears of a double-dip recession in the US, sovereign
debt crisis concerns in Eurozone countries and the overall
expected slower global growth had cooled off commodity and
energy prices. During August 2011, the Reuters CRB index had
come off 2011 YTD peaks by ~15% and WTI crude oil prices
had declined substantially by ~30% from CY2011 peak.
However, with the Federal Reserve keeping the door open for
further quantitative easing (QE) in its September meet, prices
have clawed back a bit over the last week. However, with rising
deficit and the failure of the first two rounds of QE in stimulating
economic growth, we do not expect further QE measures from
the Fed, and even if it goes for these measures, the quantum is
likely to be relatively smaller.
Rising global growth concerns and declining fiscal stimulus
measures in developed economies (on concerns of expanding
fiscal deficits and unsustainable public debt to GDP) are likely to
keep commodity and energy prices in check at least in the short
term. Even in the latest meet of the US Federal Reserve at the
Jackson Hole, the Chairman abstained from adopting further
quantitative easing measures despite signs of further weakness
in the economy. Lower prices are expected to be materially positive
for the Indian economy, as they will aid in a) reducing fiscal
deficit, b) cooling inflationary pressures and c) putting an end to
the prolonged monetary tightening stance of the RBI.
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September 2011 Please refer to important disclosures at the end of this report. 3
Exhibit 4: Reuters CRB Index off peaks
Source: Bloomberg, Angel Research
300
320
340
360
380
Jan
-11
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun
-11
Jul-11
Au
g-1
1
Reuters CRB Index
Exhibit 5: WTI crude prices ruling at lower levels
Source: Bloomberg, Angel Research
70
80
90
100
110
120
Jan
-11
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun
-11
Jul-11
Au
g-1
1
Sep
-11
WTI Crude Futures (US$/bl)
Slower domestic growth may also prompt an end to monetarySlower domestic growth may also prompt an end to monetarySlower domestic growth may also prompt an end to monetarySlower domestic growth may also prompt an end to monetarySlower domestic growth may also prompt an end to monetary
tightening:tightening:tightening:tightening:tightening: Apart from reduced inflationary pressures, the
slowdown in domestic growth and heightened risks in the global
macro environment are expected to lead to an end to the
monetary policy tightening stance. Domestic growth has slowed
considerably, as evident from slowing GDP growth rates, tepid
IIP growth, moderating growth in quarterly gross fixed capital
formation and declining vehicle sales and cement dispatches
growth rates. Also, liquidity conditions in the system have eased
off considerably, with deposit mobilisation gaining strong traction
and muted credit offtake. Credit sanctions have also slackened
substantially in the recent months. India's manufacturing PMI
has slipped to a 29-month low of 52.6 during August 2011.
Although recent indications from the RBI suggest another 25bp
hike in the repo rate in the upcoming monetary policy review,
there is an increasing likelihood, due to the above-mentioned
reasons, that the RBI may pause after that hike.
Exhibit 6: GDP growth slows to lowest in six quarters
Source: MOSPI, Angel Research
4.0
6.0
8.0
10.0
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
Exhibit 7: IIP data continues to be tepid
Source: MOSPI, Angel Research
WTI Crude (US$/bl)
70
80
90
100
110
120
Jan-1
1
Feb
-11
Mar-11
Apr-11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Exhibit 8: Mfg. PMI moderates for forth month in a row
Source: Bloomberg, Angel Research
India - Mfg PMI
55.1
57.258.4
56.7 56.857.9 57.9 58.0 57.5
55.3
53.652.6
45.0
50.0
55.0
60.0
Sep
-10
Oc
t-10
Nov-1
0
Dec
-10
Jan
-11
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun
-11
Jul-11
Au
g-1
1
Exhibit 9: Services PMI tumbles to lowest level since Jun09
Source: Bloomberg, Angel Research
55.6 56.2
60.1
57.7 58.1
60.258.8 59.2
55.0
56.1
58.2
53.8
46.0
50.0
54.0
58.0
62.0
Sep
-10
Oc
t-10
Nov-1
0
Dec
-10
Jan
-11
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun
-11
Jul-11
Au
g-1
1
India Services PMI
Exhibit 10: PV sales growth in negative territory
Source: Bloomberg, Angel Research
(60.0)
(40.0)
(20.0)
-
20.0
40.0
60.0
80.0100.0
120.0
Apr-
99
Nov-9
9
Jun
-00
Jan
-01
Au
g-0
1
Mar-
02
Oc
t-02
May-0
3
Dec
-03
Jul-04
Fe
b-0
5
Sep
-05
Apr-
06
Nov-0
6
Jun
-07
Jan
-08
Au
g-0
8
Mar-
09
Oc
t-09
May-1
0
Dec
-10
Jul-11
Domestic Passenger Vehicle Sales yoy growth (%)
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Market Strategy
September 2011 Please refer to important disclosures at the end of this report. 4
Hence, we believe that we are very close to the peak of the current
interest rate cycle due to a) expected moderation in domestic
inflation on the back of good monsoons and easing off of global
commodity and energy prices due to slowing global growth,
sovereign debt crisis concerns in the Eurozone and possibility of
a double-dip recession in the US and b) slowing domestic growthas evident from considerable moderation in GDP and IIP growth
data, slowing vehicle and cement sales, sharp moderation in
credit offtake and moderating pace of gross fixed capital
formation. The latest 1QFY2012 GDP growth showed
continuance of the moderating trend in growth. Also, the lagged
effects of prolonged monetary tightening are yet to flow through
fully, in our view.
Interest rates have risen sharply over the past one year
(250-300bp hike in base rate). Higher interest rates have slowed
down the pace of capital formation and have impacted earnings
growth of corporates. In fact, the RBI's effort to moderate inflation
by cutting demand side pressures seems to have started taking
effect, as evident from the decline in yoy growth in private
consumption expenditure to its lowest since 4QFY2009 at 6.3%
in 1QFY2012. Accordingly, we believe that we are very close to
the peak of the current interest rate cycle, which should bode
well for the overall market and especially for interest rate sensitive sectors.
Valuations attractive
Indian markets have fallen by ~20% in CY2011YTD and have
underperformed emerging market peers by ~8% and global
peers by ~11% due to concerns of higher inflation and interest
rates. The earnings growth trajectory for Indian corporates
remains moderate despite higher raw-material costs and interest
rates hurting margins over the past few quarters. While FY2012
earnings growth is likely to be modest, cooling inflation and
interest rates should underpin healthier growth in FY2013. We
expect Sensex companies to deliver EPS growth of 13.0% in
FY2012 and improve further to 19.1% in FY2013, translating
into a reasonable 17.0% CAGR over FY2011-13E. Earningsgrowth is expected to be broad-based, with higher contribution
from banking stocks. Oil and gas, metals and IT stocks are
expected to be the other major contributors to growth.
Based on one-year forward earnings, the Sensex is trading at
attractive valuations of 13.5x (12.3x based on FY2013E earnings)
vis--vis its last five-year average of 15.7x. In fact, the valuations
are just ~20% higher than the valuations prevailing post-Lehman
crash, when the entire global economy was in turmoil and
constrained by severe credit crisis; and let us not forget that from
those levels markets rallied more than 100%. However, thescenario is not that gloomy in the current environment, which
makes the current valuations attractive. We value the Sensex at
a conservative 14x target P/E multiple to arrive at a Sensex target
of 19,100. We maintain our positive stance on Indian equities
considering their relative better positioning globally, reasonable
earnings growth trajectory and attractive valuations vis--vis their
structurally positive outlook.
Exhibit 11: India's underperformance vs. world equities
Source: Bloomberg, Angel Research
70
80
90
100
110
Jan-1
1
Feb
-11
Mar-11
Apr-11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
MSCI - India MSCI - EM MSCI - World
Exhibit 12: Sensex EPS expected to grow by 17% CAGR over FY11-13
Source: Angel Research
834
1,014
1,146
1,364
400
600
800
1,000
1,200
1,400
FY2010 FY2011 FY2012E FY2013E
(`)
21.6%
growth
13.0%
growth 19
.1%gro
wth
Exhibit 13: Sensex one-year forward P/E
Source: Angel Research
0.0
5.0
10.0
15.0
20.0
25.0
30.0
M ar-04 M ar-05 M ar-06 M ar-07 M ar-08 M ar-09 M ar-10 M ar-11
(x
)
Sensex 1 -yr f wd P/E Averag e P /E
Exhibit 14: Earnings yield vs. bond yield
Source: Bloomberg, Angel Research
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Apr-04 Apr-0 5 Apr-0 6 Apr-0 7 Apr-0 8 Apr-0 9 Apr-1 0 Apr-1 1
(%)
Bond Yield Earnings Yield
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September 2011 Please refer to important disclosures at the end of this report. 5
BSE 100 Angel
Sector Company CMP (`) Target Price (`) Weightage (%) Weightage (%) Stance
Auto & AncillariesAuto & AncillariesAuto & AncillariesAuto & AncillariesAuto & Ancillaries 7.07.07.07.07.0 6.06.06.06.06.0 UnderweightUnderweightUnderweightUnderweightUnderweightAshok Leyland 26 31 0.2 3.0 Overweight
MRF 6,947 8,710 0.0 3.0 Overweight
BFSIBFSIBFSIBFSIBFSI 27.227.227.227.227.2 29.029.029.029.029.0 OverweightOverweightOverweightOverweightOverweight
ICICI Bank 881 1,193 5.5 12.0 Overweight
Axis Bank 1,116 1,555 1.7 9.0 Overweight
SBI 2,000 2,547 3.2 5.0 Overweight
HDFC Bank 469 519 4.5 3.0 Underweight
Capital GoodsCapital GoodsCapital GoodsCapital GoodsCapital Goods 9.59.59.59.59.5 11.011.011.011.011.0 OverweightOverweightOverweightOverweightOverweight
& Infrastructure L&T 1,621 1,903 4.5 5.0 OverweightIVRCL Infra 38 64 0.0 3.0 Overweight
LMW 2,032 2,780 0.0 3.0 Overweight
CementCementCementCementCement 2.22.22.22.22.2 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight
FMCGFMCGFMCGFMCGFMCG 10.010.010.010.010.0 3.03.03.03.03.0 UnderweightUnderweightUnderweightUnderweightUnderweight
ITC 203 205 5.3 3.0 Underweight
HotelsHotelsHotelsHotelsHotels 0.00.00.00.00.0 3.03.03.03.03.0 OverweightOverweightOverweightOverweightOverweight
Taj GVK 92 140 0.0 3.0 Overweight
ITITITITIT 10.510.510.510.510.5 12.012.012.012.012.0 OverweightOverweightOverweightOverweightOverweight
Infosys 2,264 3,200 5.9 5.0 Underweight
TCS 1,028 1,368 2.9 4.0 Overweight
Mphasis 358 420 0.0 3.0 Overweight
MediaMediaMediaMediaMedia 0.40.40.40.40.4 3.03.03.03.03.0 OverweightOverweightOverweightOverweightOverweight
Jagran Prakashan 109 148 0.0 3.0 Overweight
MetalsMetalsMetalsMetalsMetals 7.87.87.87.87.8 12.012.012.012.012.0 OverweightOverweightOverweightOverweightOverweight
Tata Steel 495 614 1.6 5.0 Overweight
Hindalco Inds 153 196 1.0 4.0 Overweight
Tata Sponge 303 429 0.0 3.0 Overweight
Oil & GasOil & GasOil & GasOil & GasOil & Gas 12.212.212.212.212.2 12.012.012.012.012.0 EqualweightEqualweightEqualweightEqualweightEqualweight
Reliance Industries 789 1,099 6.9 12.0 Overweight
PharmaPharmaPharmaPharmaPharma 4.64.64.64.64.6 3.03.03.03.03.0 UnderweightUnderweightUnderweightUnderweightUnderweight
Lupin 471 593 0.6 3.0 Overweight
PPPPPowerowerowerowerower 4.04.04.04.04.0 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight
Real EstateReal EstateReal EstateReal EstateReal Estate 0.70.70.70.70.7 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight
TTTTTelecomelecomelecomelecomelecom 3.53.53.53.53.5 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight
OthersOthersOthersOthersOthers 0.60.60.60.60.6 6.06.06.06.06.0 OverweightOverweightOverweightOverweightOverweight
Greenply 192 311 0.0 3.0 Overweight
United Phosporus 144 208 0.0 3.0 Overweight
Angel Model Portfolio
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September 2011 Please refer to important disclosures at the end of this report. 6
Top Picks
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September 2011 Please refer to important disclosures at the end of this report. 7
Axis Bank has increased its CASA market share multi-fold over the last eight years
(4.2% as of FY2011) on the back of robust branch and ATM network expansion
(400 branches opened in FY2011 itself). Annual addition of 250+ branches hereon
is expected to lead to a 30-50bp increment in CASA market share every year.
Fee income contribution across a spectrum of services has been a meaningful
2.0% of assets (almost twice the level in PSBs) over FY2009-11.
We expect Axis Bank to raise capital in the next 12-18 months. (Axis Bank had last
raised capital in 2QFY2010, when its tier-I CAR was 9.4%). Dilution is likely to be
book-accretive and will aid in further enhancing the bank's credit market share
going forward.
Axis Bank is trading at 1.8x FY2013E ABV (~43.4% discount to HDFC Bank). The
bank's ALM position vis--vis HDFC Bank is currently a disadvantage; however,
with the interest rate cycle close to its peak, in our view, the bank will also benefit
more once interest rates cool off a bit in CY2012. Hence, we maintain our Buywe maintain our Buywe maintain our Buywe maintain our Buywe maintain our Buy
view on the stock with a target price ofview on the stock with a target price ofview on the stock with a target price ofview on the stock with a target price ofview on the stock with a target price of `````1,555.1,555.1,555.1,555.1,555.
Axis Bank (CMP: `1,116/ TP: `1,555/ Upside: 39%)
Y/EY/EY/EY/EY/E Op Inc.Op Inc.Op Inc.Op Inc.Op Inc. NIMNIMNIMNIMNIM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS ABABABABABVVVVV RoARoARoARoARoA RoERoERoERoERoE P/EP/EP/EP/EP/E P/ABP/ABP/ABP/ABP/ABVVVVV
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((`````))))) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 12,951 2.9 4,112 96.9 529.0 1.5 19.8 11.5 2.1
FY2013E 16,186 2.9 5,120 120.7 621.8 1.5 21.0 9.2 1.8
ICICI Bank's substantial branch expansion (from 955 branches at the end of
3QFY2008 to 2,533 branches as of 1QFY2012) and strong capital adequacy at
19.6% (Tier-I at 13.4%) have positioned it to gain CASA and credit market share,
respectively. During FY2011, the bank improved its market share of savings deposits
by 10bp over FY2010, capturing a substantial 5.8% incremental market share.
The bank has been able to increase its CASA ratio to 45% as of FY2011 and,
contrary to the overall trend in the sector, we expect this favourable change in the
bank's liability mix to improve its NIM to ~2.7% by FY2013.
The bank's asset quality continues to show further improvement, with a declining
trend in additions to gross as well as net NPAs. We expect the reduction in risk
profile of advances (and the consequent lower yield on advances) to result in a
~90bp decline in NPA provisioning costs by 2013E over FY2011.
The stock is trading at attractive valuations of 1.6x FY2013E P/ABV. Hence,
we maintain our Buy view on the stock with a target price ofwe maintain our Buy view on the stock with a target price ofwe maintain our Buy view on the stock with a target price ofwe maintain our Buy view on the stock with a target price ofwe maintain our Buy view on the stock with a target price of `````1,1931,1931,1931,1931,193, valuing the
core bank at 2.3x FY2013E P/ABV and assigning a value of `191 to its subsidiaries.
ICICI Bank (CMP:`
881/ TP:`
1,193/ Upside: 35%)
Y/EY/EY/EY/EY/E Op Inc.Op Inc.Op Inc.Op Inc.Op Inc. NIMNIMNIMNIMNIM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS ABABABABABVVVVV RoARoARoARoARoA RoERoERoERoERoE P/EP/EP/EP/EP/E P/ABP/ABP/ABP/ABP/ABVVVVV
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((`````))))) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 18,142 2.6 6,397 55.5 509.4 1.4 13.7 15.9 1.7
FY2013E 22,847 2.7 8,146 70.7 549.6 1.5 16.0 12.5 1.6
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L&T (CMP: `1,621/ TP: `1,903/ Upside:17%)
PPPPProxy to India's infra story:roxy to India's infra story:roxy to India's infra story:roxy to India's infra story:roxy to India's infra story: L&T has an order book of >`1.3tn, lending good
revenue visibility. L&T's strong balance sheet, a sound execution engine, wide array
of capabilities, integrated operations tailored to suit India's infrastructure growth
story and multiple, recurring value-unlocking triggers over the medium term lead
us to place faith in this default India infrastructure story.
WWWWWell-ell-ell-ell-ell-capitalised balance sheet funding the expansion:capitalised balance sheet funding the expansion:capitalised balance sheet funding the expansion:capitalised balance sheet funding the expansion:capitalised balance sheet funding the expansion: L&T had a well-capitalised
balance sheet at a debt-equity ratio of 0.3x as of FY2011, despite having a strong
portfolio of assets and having invested in future growth areas. We believe the key
factors for the same are 1) high margins and 2) better working capital management.
Buy L&T with an SOBuy L&T with an SOBuy L&T with an SOBuy L&T with an SOBuy L&T with an SOTP TP ofTP TP ofTP TP ofTP TP ofTP TP of `````1,903:1,903:1,903:1,903:1,903: L&T has outperformed the BSE Sensex by
~10.2% over the last six months on the back of 1) strong quarterly performances;
and 2) robust guidance for FY2012 for both revenue and order booking. Further,
we have discounted margin pressure in our numbers. Ascribing separate values to
its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and
mcap basis, our target price works out to `1,903, which provides 17.4% upside
from current levels. Hence, we recommend Buy on the stock.we recommend Buy on the stock.we recommend Buy on the stock.we recommend Buy on the stock.we recommend Buy on the stock.
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 52,765 12.0 3,965 64.9 16.9 25.0 4.0 16.9 2.0
FY2013E 66,551 12.0 4,885 80.0 18.1 20.3 3.4 13.7 1.6
Infosys strongly focuses on consulting and package implementation services (~25%
of revenue). Globally, license sales for SAP and Oracle services are surging, leading
to higher implementation opportunities for offshore vendors such as Infosys. Further,
key IT spend-thrift verticals such as BFSI (35.4%), manufacturing (20.3%) and retailand CPG (16%) would continue to be the primary growth drivers for the company.
We expect Infosys to record a 21% CAGR in USD revenue over FY2011-13E, with
CAGR in INR revenue, EBITDA and PAT at 19.1%, 15.3% and 15.7%, respectively.
The stock has corrected significantly YTD2011 just on concerns of management
restructuring, which are unwarranted given the company's strong domain focus
with superior clientele, robust business model with the highest margin in the Indian
IT industry and healthy balance sheet with cash of US$3.9bn (1QFY2012). Currently,
the stock is trading at cheap valuations of just 14.2x FY2013E EPS of `159.9 i.e.,
only at ~17% premium to BSE Sensex vs. its five and two-year historical premiums
of 20% and 27%, respectively.WWWWWe value the company at 20x FY2013 EPS i.e., ate value the company at 20x FY2013 EPS i.e., ate value the company at 20x FY2013 EPS i.e., ate value the company at 20x FY2013 EPS i.e., ate value the company at 20x FY2013 EPS i.e., at
`````3,200 and recommend it as one of our top picks with a Buy rating3,200 and recommend it as one of our top picks with a Buy rating3,200 and recommend it as one of our top picks with a Buy rating3,200 and recommend it as one of our top picks with a Buy rating3,200 and recommend it as one of our top picks with a Buy rating.....
Infosys (CMP: `2,264/ TP: `3,200/ Upside: 41%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 32,497 30.9 7,819 136.9 23.6 16.5 3.9 10.9 3.3
FY2013E 39,071 30.6 9,136 159.9 22.7 14.2 3.2 8.7 2.7
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Lupin is amongst the highest filers in the Indian pharmaceuticals industry. As of
FY2011, the companys cumulative filings stood at 148, of which 48 have been
approved. Lupin plans to launch 10 products in the US in FY2012 and another 80
products over the next three years. Overall, we expect the US market to post a
CAGR of 28.8% over FY2011-13E.
In the oral contraceptive (OC) segment, Lupin has filed 22 ANDAs and expects to
get approvals from 2HFY2012. As per management, the OC segment is expected
to contribute US$100mn to the company's top line over the next 2-3 years.
Lupin continues to make strides in the Indian market. Currently, Lupin ranks No.5,
climbing up from being No.11 six years ago. Lupin has been the fastest growing
company among the top-5 companies in the domestic formulation space, registering
a strong CAGR of 20% over the last three years.
Management has given a revenue guidance of US$3bn by FY2013-14. We expect
Lupin's net sales to grow at a 20.4% CAGR to `8,272cr and earnings to grow at a
24.0% CAGR to `29.7/share over FY2011-13E. Currently, the stock is trading at21.1x and 15.9x FY2012E and FY2013E earnings, respectively. Based on the
above-mentioned triggers, we maintain our positive outlook on the company andwe maintain our positive outlook on the company andwe maintain our positive outlook on the company andwe maintain our positive outlook on the company andwe maintain our positive outlook on the company and
recommend a Buy rating on the stock with a target price ofrecommend a Buy rating on the stock with a target price ofrecommend a Buy rating on the stock with a target price ofrecommend a Buy rating on the stock with a target price ofrecommend a Buy rating on the stock with a target price of `````593.593.593.593.593.
Lupin (CMP: `471/ TP: `593/ Upside: 26%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 6,817 18.3 997 22.4 28.2 21.1 5.6 17.6 3.2
FY2013E 8,272 19.7 1,324 29.7 30.8 15.9 4.4 13.2 2.6
Mphasis is witnessing modest growth from the non-HP channel business. The
company's ITO business is witnessing good growth, with open billable position
standing at 600 in 3QFY2011. In fact, this business segment has grown at a
scorching pace of 9.7% CQGR over 1QFY2010-3QFY2011 and is expected to
continue as a growth driver for the company.
The company is looking at an inorganic strategy to supplement its growth further.
Recently, management acquired Wyde, an international software vendor and creator
of Wynsure - an insurance policy administration IP solution - to scale up its insurance
portfolio. This acquisition is expected to be EBITDA accretive, as Wyde enjoys EBITDA
margin of 18%, higher than the company's EBITDA margin.
Going forward, management expects the direct channel (33% to revenue) and HP
non-enterprise solution business (which is currently ~5% of revenue from HP channel)
to drive growth, whereas the HP-ES business is expected to remain sluggish. We
expect the company to record a revenue CAGR of 10% over FY2011E-13E.
WWWWWe value teh company at 11.5x FY2013E (October ending) EPS ofe value teh company at 11.5x FY2013E (October ending) EPS ofe value teh company at 11.5x FY2013E (October ending) EPS ofe value teh company at 11.5x FY2013E (October ending) EPS ofe value teh company at 11.5x FY2013E (October ending) EPS of `````36.4, which36.4, which36.4, which36.4, which36.4, which
gives us a target price ofgives us a target price ofgives us a target price ofgives us a target price ofgives us a target price of `````420 and recommend a Buy rating on the stock.420 and recommend a Buy rating on the stock.420 and recommend a Buy rating on the stock.420 and recommend a Buy rating on the stock.420 and recommend a Buy rating on the stock.
Mphasis (CMP: `358/ TP: `420/ Upside: 18%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
Oct.Oct.Oct.Oct.Oct. (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 5,485 16.2 707 33.7 15.3 10.6 1.6 5.7 0.9
FY2013E 5,924 14.5 719 36.4 13.6 9.8 1.4 5.1 0.7
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RIL reported robust refining margin of US$9.8/bbl in 1QFY2012. With the start of
its FCCU, we expect the company to report robust refining margins in the coming
quarters. Similarly, on the petchem side, we do not expect margins to fall below the
current level consequent to higher demand from emerging economies and recovery
in OECD economies.
The upstream segment still has a significant upside in store, considering the huge
untapped resources. Timely ramp-up in producing fields would bring into picture
other prospective basins also. Although RIL is producing natural gas below its
potential 80mmscmd from KG-D6 due to constraints over reservoir pressure,
we are confident that it will ramp up its production over the medium term with the
help of BPs technical expertise.
RIL has been eyeing inorganic routes for diversifying its asset portfolio by entering
into newer ventures on the back of significant cash pile and treasury stocks. Initiatives
such as shale gas acquisitions, with in-place reserves of ~12TCF, could prove to be
a potential trigger for the stock in the long term.
The stock is currently trading at P/E of 11.6x FY2012E and 9.9x FY2013E. On a
P/B basis, the stock trades at 1.4x FY2012E and 1.2x FY2013E earnings.
WWWWWe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price of `````1,0991,0991,0991,0991,099.....
RIL (CMP: `789/ TP: `1,099/ Upside:39%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 310,994 13.2 22,241 68.0 13.6 11.6 1.4 7.1 0.9
FY2013E 314,718 14.9 26,151 79.9 14.1 9.9 1.2 5.5 0.8
Mahindra Satyam (Satyam) has enterprise business solutions (EBS) (~40% of
revenue) and manufacturing (~32% of revenue) as its anchor service line and
vertical, respectively, which are showing strong traction. Hence, we expect Satyam
to grow at a revenue CAGR of 19.4%, in-line with its peers, over FY2011-13E.
Satyam has adequate margin levers such as 1) employee pyramid rationalisation,
2) strong volume growth expected on the back of a strengthening deal pipeline
expected to improve utilisations to 75% by FY2013 from the current 74%, 3) better
pricing on the back of improvement in business mix and 4) current SGA at 20.5%of sales, which can be brought down to 19.0% by FY2013.
We expect Satyam to maintain its growth momentum as recorded over the past few
quarters and grow at rates comparable to its peers at a 19.4% CAGR in USD
revenue and a 32.5% CAGR in earnings over FY2011-13E. At the CMP of`76, the
stock is trading at 10.2x FY2013E EPS of `7.4 i.e., at a PEG of 0.31x. We value the
stock at 40% discount to Infosys' target FY2013 PE i.e., 12.0x.WWWWWe recommende recommende recommende recommende recommend
Satyam as one of our top picks with a target price ofSatyam as one of our top picks with a target price ofSatyam as one of our top picks with a target price ofSatyam as one of our top picks with a target price ofSatyam as one of our top picks with a target price of `````89.89.89.89.89.
Mahindra Satyam (CMP: `76/ TP: `89/ Upside:18%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 6,115 14.3 803 6.8 14.8 11.1 1.6 7.9 1.1
FY2013E 7,120 15.0 871 7.4 13.8 10.2 1.4 5.9 0.9
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Tata Steel is expanding its capacity by 2.9mn tonnes in Jamshedpur through
brownfield expansion. The project is expected to be commissioned by the end of
FY2012E. From FY2013E, the proportion of sales volume from India, which is a
high-margin centre, is expected to increase substantially, thereby leading tosignificant earnings accretion. We expect sales volume to register a 15.6% CAGR
over FY2011-13E.
Tata Steel is in the process of developing a coking coal mine in Mozambique and an
iron ore mine in Canada to enhance Tata Steel Europe's (TSE) raw-material integration
levels. The projects are expected to be commissioned by October 2011 with lower
offtake initially; full benefit is expected to accrue in FY2013E. However, we have not
factored the savings in our estimates, indicating an upside to our target price.
The company has undertaken various cost-reduction initiatives and restructuring
measures at TSE, which would lead to savings of US$375mn annually. We expect
the current normalised EBITDA/tonne of US$50 at TSE to increase to US$75 on theback of these initiatives in FY2013E.
The stock is currently trading at inexpensive valuations of 5.7x FY2012E and 4.8x
FY2013E EV/EBITDA. On a P/B basis, the stock trades at 1.0x FY2012E and 0.9x
FY2013E earnings.WWWWWe maintain our Buy view with a taget price ofe maintain our Buy view with a taget price ofe maintain our Buy view with a taget price ofe maintain our Buy view with a taget price ofe maintain our Buy view with a taget price of `````614 .614 .614 .614 .614 .
Tata Steel (CMP: `495/ TP: `614/ Upside:24%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 130,317 12.8 6,786 69.5 26.1 7.1 1.0 5.7 0.4
FY2013E 138,260 13.9 7,699 78.8 15.4 6.3 0.9 4.8 0.3
United Phosphorus (UPL) figures among the top-5 generic agrichemical players in
the world, with a presence across major markets such as the US, EU, Latin America
and India.
Total off-patent market is worth US$29bn, of which a mere US$16bn is currently
being catered by generic players. Furthermore, 61% of the same is controlled by
the five largest generic players, including UPL. Moreover, entry of new players is
also restricted, given the high entry barriers by way of high investments. Thus,
amidst this scenario and on account of having a low-cost base, we believe UPL
enjoys an edge over competition and is placed in a sweet spot to leverage the
upcoming opportunities in the global generic space.
Over FY2011-13E, we expect UPL to post a CAGR of 13% and 14% in sales and
PAT, respectively. At current valuations of 9.0x FY2013E EPS, the stock is attractively
valued vs. its global (10x) and domestic (17x) peers and historic average (15x).
WWWWWe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price ofe maintain our Buy view on the stock with a target price of `````208.208.208.208.208.
United Phosphorous (CMP: `144/ TP: `208/ Upside:44%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 6,935 19.7 686 14.9 17.1 9.7 1.5 6.1 1.2
FY2013E 7,424 19.7 739 16.0 16.1 9.0 1.4 6.0 1.1
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Finolex Cables is poised for strong growth over the next few years, owing to entry
in the verticals of high tension (HT) and extra high voltage (EHV) cables and market
share expansion in the existing low tension (LT) cables segment.
The rapid ramp-up of production at the Roorkee plant has already started delivering
results. The proximity to the growing North Indian markets and tax benefits from
this plant are expected to boost the turnaround of the company. We expect the
companys profits to increase to `151cr in FY2013E from `87cr in FY2011.
Finolex Cables has registered substantial derivative losses over FY2009-11. The
companys derivative losses are expected to decline further going ahead.
By FY2013, these losses are estimated to decline to`13cr from `34cr in FY2011.
At the CMP, the stock is trading at attractive valuations of 4.0x FY2013E EPS and
0.6x FY2013E BV. We have valued the stock at P/E of 6.0x FY2013E EPS and
arrived at a target price of `59.WWWWWe have a Buy rating on the stock.e have a Buy rating on the stock.e have a Buy rating on the stock.e have a Buy rating on the stock.e have a Buy rating on the stock.
Finolex Cables (CMP: `40/ TP: `59/ Upside:47%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 2,332 8.7 121 7.9 15.8 5.1 0.7 2.6 0.2
FY2013E 2,584 8.8 151 9.9 17.1 4.0 0.6 1.9 0.2
Greenply Industries (GIL) is a leading plywood and laminates brand, supported byad spend as high as 4.0% of sales (around 10% of laminates revenue). The company
also has the largest distribution network of over 15,000 dealers in the industry.
GIL increased its laminates capacity by 88% in FY2010 and is witnessing strong
demand for its products. The company achieved 98% capacity utilisation in
1QFY2012 and ended FY2011 with 94% capacity utilisation. We expect utilisation
to further improve to 110% in FY2012, which will boost its revenue going ahead.
GIL forayed into the lucrative, high-growth MDF market in FY2011, with the largest
MDF plant in India (1,80,000m3/year capacity). The MDF opportunity is especially
huge as it constitutes 20% of wood panel consumption in India, while plywood
constitutes 80% the reverse holds true globally. In 4QFY2011, the segment reportedfirst-time revenue of around `32cr, which further improved to `46cr in 1QFY2012
due to higher utilisation, which increased to 49.3% for the quarter. We expect the
segment to achieve 45% capacity utilisation by FY2012, which would further bolster
the companys revenue and improve its margin.
Currently, the stock is trading at 4.9x FY2013E earnings, which is at the lower end
of its historical average of 4.3x-17.0x one-year forward EPS.WWWWWe maintain our Buye maintain our Buye maintain our Buye maintain our Buye maintain our Buy
rating on the stock with a target price ofrating on the stock with a target price ofrating on the stock with a target price ofrating on the stock with a target price ofrating on the stock with a target price of `````311.311.311.311.311.
Greenply Industries (CMP: `192/ TP: `311/ Upside: 62%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 1,426 12.5 69 28.4 19.3 6.8 1.2 5.5 0.7
FY2013E 1,574 13.0 95 38.8 21.7 4.9 1.0 4.4 0.6
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September 2011 Please refer to important disclosures at the end of this report. 13
Jagran Prakashan (JPL) continues to remain the leader in UP (Indias largest state)
and stands at No. 2 in Bihar (the second-largest state), with overall readership of
~5.4cr and covering ~70% of Hindi speaking readers. During 1QFY2012, the
company successfully launched Punjabi Jagran (now JPL caters to five differentlanguages). JPL also launched the 11th edition of The Inquilab, the largest read
Urdu newspaper in UP and New Delhi, through its subsidiary Mid-Day Infomedia Ltd
during 1QFY2012. Further,City Plus launched four more editions, now totaling 30 editions.
We expect JPL to post a 9% CAGR in its top line over FY2011-13E, driven by the
~10% CAGR in advertising and a ~3% CAGR in circulation revenue. The other
businesses and MML are estimated to record a CAGR of ~11% and 13%,
respectively, over FY2011-13E on better traction. In terms of earnings, we expect
JPL to report a 10% CAGR over FY2011-13E, driven by top-line growth and various
cost-curtailment measures and improving profitability in its nascent businesses.
The underperformance of the stock and attractive valuations (at the CMP, the stock
trades at 13.5x FY2013E EPS) provide a good entry point for investors. Hence,
we maintain our Buy view with a revised target price ofwe maintain our Buy view with a revised target price ofwe maintain our Buy view with a revised target price ofwe maintain our Buy view with a revised target price ofwe maintain our Buy view with a revised target price of `````148148148148148, based on a
P/E multiple of 18x FY2013E (in-line with its historical valuations).
Jagran Prakashan (CMP: `109/ TP: `148/ Upside:36%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 1,339 29.4 229 7.2 33.2 15.0 4.8 8.4 2.5
FY2013E 1,453 29.5 255 8.1 34.4 13.5 4.5 7.7 2.3
Relaxo Footwears (CMP: `319/ TP: `399/ Upside: 25%)
Relaxo Footwears is estimated to report a 21.8% revenue CAGR, aided by a 16%
CAGR in volumes, leading to a 41.0% CAGR in net profit over FY2011-13E.
We expect the company's operating profit margin to improve by 158bp from 10.5%
in FY2011 to 12.1% in FY2013E on the back of an estimated price rise of 8% yoy
in FY2011 and increased proportion of higher-value brands such as Flite and
Sparx in the revenue mix.
Relaxo is now more focused on the branding of its high-value brands (Flite andSparx) and establishing its name in footwear other than Hawaii slippers. The
company has increased its advertisement expense by 55% to `20cr in FY2010
from `13cr in FY2009, which is expected to result in increased RoE of 24.2% in
FY2013E as compared to 19.8 in FY2011.
At `319, the stock is trading at attractive valuations of 10.4x and 7.2x for FY2012E
and FY2013E earnings, respectively. WWWWWe maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with a
target price totarget price totarget price totarget price totarget price to `````399, based on a target PE of 9x FY2013E earnings.399, based on a target PE of 9x FY2013E earnings.399, based on a target PE of 9x FY2013E earnings.399, based on a target PE of 9x FY2013E earnings.399, based on a target PE of 9x FY2013E earnings.
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 876 10.9 37 31 21.7 10.4 2.3 6.1 0.7
FY2013E 1027 12.1 53 44 24.2 7.2 1.7 4.6 0.6
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Tata Sponge Iron Ltd. (TSIL) is an associate company of Tata Steel, which holds a
39.7% stake in the company. TSIL is a leading manufacturer of sponge iron, which
is used as a raw material in steel manufacturing, with an installed capacity of
3,90,000mtpa and a 26MW captive power plant.
The company gets 100% supplies of iron ore from Tata Steel with a 20-25% discount
from market prices, thus leading to at least 5% higher margins from other
non-integrated sponge iron players.
TSIL has a 45% stake in Talcher coal block in Orissa with estimated reserves of
120mn tonnes for captive consumption. The company has deposited money for
the first phase of land acquisition with the Government of Orissa. Forest clearance
for the block is pending.
At the CMP of `303, the stock is trading at PE of 4.2x its FY2013E earnings and
P/B of 0.7x for FY2013E. The company is debt free with cash reserves of `299cr
and RoIC of 62.2% for FY2013E. WWWWWe maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with ae maintain our Buy view on the stock with a
target price oftarget price oftarget price oftarget price oftarget price of `````429 and a target P/E of 6x for FY2013E429 and a target P/E of 6x for FY2013E429 and a target P/E of 6x for FY2013E429 and a target P/E of 6x for FY2013E429 and a target P/E of 6x for FY2013E.....
Tata Sponge Iron (CMP: `303/ TP: `429/ Upside: 42%)
Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales
MarchMarchMarchMarchMarch (((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((````` cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)
FY2012E 813 20.5 109 71.0 66.2 4.3 0.8 1.2 0.2
FY2013E 820 20.8 110 71.5 62.2 4.2 0.7 0.8 0.2
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Stock Watch
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May 2011 Please refer
PPPPPowerowerowerowerower
CESC Buy 299 383 3,758 4,453 4,817 24.5 23.8 42.3 44.8 7.1 6.7
GIPCL Buy 81 96 1,223 1,512 1,542 28.6 27.6 10.6 11.2 7.6 7.2
NTPC Buy 164 202 135,432 63,539 71,207 24.9 25.2 12.2 13.5 13.5 12.2
PTC India Neutral 73 - 2,146 11,109 13,430 2.0 1.9 6.5 7.1 11.2 10.2Real EstateReal EstateReal EstateReal EstateReal Estate
Anant Raj Buy 64 90 1,877 697 1,110 60.1 55.9 7.5 11.5 8.5 5.5
DLF Neutral 208 - 35,288 10,466 11,702 43.6 44.5 9.8 11.9 21.3 17.5
HDIL Buy 107 175 4,459 2,875 3,206 53.8 55.0 26.0 30.0 4.1 3.6
TTTTTelecomelecomelecomelecomelecom
Bharti Airtel Accum. 406 451 154,100 71,710 81,885 33.7 35.0 15.7 23.1 25.8 17.6
Idea Cellular Neutral 101 - 33,334 19,014 21,166 26.8 27.0 2.6 3.3 38.3 30.9
Rcom Neutral 88 - 18,143 20,881 24,528 32.8 33.5 3.9 6.8 22.6 13.0
OthersOthersOthersOthersOthers
Bajaj Electrical Neutral 176 - 1,753 3,302 3,956 8.0 9.0 15.1 21.1 11.7 8.4
Blue Star Neutral 253 - 2,271 3,406 3,972 5.9 7.4 14.5 22.1 17.4 11.4
CRISIL Neutral 8,018 - 5,693 766 926 34.8 35.0 282.7 343.9 28.4 23.3
Finolex Cables Buy 40 59 613 2,332 2,584 8.7 8.8 7.9 9.9 5.1 4.0
Greenply Buy 192 311 463 1,426 1,574 12.5 13.0 28.4 38.8 6.8 4.9
Page Industries Neutral 2,584 - 2,881 658 822 18.6 18.6 64.0 79.1 40.4 32.7
Sintex Buy 151 212 4,118 5,296 6,256 18.3 17.4 20.8 23.6 7.3 6.4
Siyaram Silk Mills Buy 305 422 286 982 1,150 12.2 11.6 65.1 70.4 4.7 4.3
SpiceJet Neutral 26 - 1,067 4,327 5,703 0.0 2.3 (0.4) 1.3 (72.7) 20.1
Taj GVK Buy 92 140 577 310 360 40.4 40.6 9.5 11.7 9.7 7.9
Company Name Reco CMP Target Mkt Cap Sales (`cr) OPM (%) EPS (`) PER (x)
(`) Price (`) (` cr) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E
Source: Company, Angel Research, Note: *estimates for CY11E and CY12E; September year end; $Recurring EPS taken for calculations; Price as on September 5, 201
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Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision.
Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations
as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this
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Note: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the importantNote: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestStock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latestupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investmentupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investmentupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investmentupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investmentupdate on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment
positions in the stocks recommended in this report.positions in the stocks recommended in this report.positions in the stocks recommended in this report.positions in the stocks recommended in this report.positions in the stocks recommended in this report.
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Ratings (Returns) :
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