Indraprastha Gas - Rating: BUY | CMP: Rs818 | TP: Rs1,080
CGD’s margins are likely to remain healthy supported by availability of affordable domestic gas. Global gas prices are likely to remain tepid given abundant new supplies from US and Australia, which in turn will keep domestic prices benign. CGD’s will also benefit from cheaper spot LNG prices as it will support commercial volume growth. For H1, IGL’s spreads were at Rs6.2/scm (Rs5.3 in FY16) despite provision of Rs 167m towards higher rental lease. We value IGL on DCF basis and our 3 year PT is Rs 1,080.
Jubilant Life Sciences - Rating: BUY | CMP: Rs607 | TP: Rs740
With sustainable limited competition in Radiology products (unlike peers) in US and better visibility of utilisation of CMO plants, Jubilant’s EBITDA margin (30-34%) in US generics is currently highest among all Indian peers. Net Debt reduction of Rs7.6bn decreased D/E ratio to 1.1 in Q2FY17 from 1.6 in FY16 and promised better cash flow and return ratios in FY17E-18E. With improving financial metrics, there was partial rerating in valuation as it ran up 116% in Aug-Oct 2016. In our SOTP valuation, we increased EV/EBITDA to 12x from 10x in Pharma and to 5x from 3x in LSI and derive new TP at Rs740 (previously Rs484). The recent run up forces us to downgrade our recommendation to ‘Accumulate’ as upside potential reduced to 22% at current market price. The stock still offers a good upside.
Hexaware Technologies - Rating: Acc| CMP: Rs188 | TP: Rs260
Hexaware (HEXW) reported impressive 4.2% QoQ USD revenue growth, ~60 bps ahead of our expectations. Revenues in CC terms grew by 4.8/8.9% QoQ/YoY respectively. EBITDA came in 3% above our expectations growing at 16.5/7.9% QoQ/YoY, respectively. After reporting sluggish growth in Q4CY15 and Q1CY16, HEXW has come back strongly with robust growth in Q2 and Q3CY16. Company’s robust performance has largely been in line with management commentary. It has signed six new deals with new customer TCV of US$42m, which has almost doubled QoQ and provides good growth visibility.
Sadbhav Engineering - Rating: BUY | CMP: Rs273 | TP: Rs351
The stock is trading at core PER of 12.5x FY18E earnings. We continue to believe SEL will be the key beneficiary of strong outlook in road sector and improving outlook in Mining and Irrigation sector. Healthy balance sheet and strong management gives us additional comfort. We expect company to deliver 26% earning CAGR over FY16-18E. We continue to rate the stock a “BUY” With revised TP of Rs351
Rallis India - Rating: Acc | CMP: Rs183 | TP: Rs236
Rallis India is currently in a sweet spot considering business bouncing back after a washout FY16. Good spatial distribution of rainfall & encouraging Rabi sowing data will help Rallis to get back on earnings growth track from FY17. Factoring in the cash‐flow of almost Rs1.2bn after taxes and regulatory charges on IKEA deal, Rallis now is a net cash company. Rallis is expected to deliver 21% earnings CAGR over FY16-FY18E, stable margins at ~16% and high RoEs in the range of 18%. With the capex cycle behind, Rallis is expected to generate Rs4bn free cash over FY16-FY18E. The stock is trading at a P/E of 17.4x FY18E earnings and an EV/EBITDA of 10.8xFY18E. Strong parentage, new product launches, diversification across Agriculture value chain and a lean balance sheet makes Rallis a compelling “BUY” for the long term. Option value in terms of any sizeable opportunity from the CRAM business is not factored in our earnings.
SpiceJet - Rating: BUY | CMP: Rs59 | TP: Rs115
With strong growth in domestic air passengers and aviation companies performing better on both revenues and profitability, we believe Spicejet is in a strong position to provide the best profitability growth in the sector, coupled with cheaper valuations as compared to the industry leader, Interglobe Aviation. We expect revenue CAGR of 12.7% over FY15-18E and an EBITDAR CAGR of 87.6% over the same period.
Thyrocare Technologies Rating: BUY | CMP: Rs616 | TP: Rs1,067
Thyrocare operates in a segment which has strong growth potential as preventive health checkups and health awareness will continue to drive growth as the current penetration levels is low at 5%. While diagnostic segment is dominated by the unorganised players with a share of 85%, there is a consolidation and shift towards the organised sector resulting in growth in the organised diagnostic segment. The sector is expected to grow with a) improved healthcare services and awareness, b) accessibility with rising income (per capita income: 7.6% CAGR in 2014-19) and c) favourable demographic mix (elderly population to be 169m by 2026 from 98.9m in 2014). Being the smallest among the top-4 diagnostic players with core competency in costs, Thyrocare aspires to grow at 30% till CY30. With purported increase in lifestyle diseases, Thyrocare aims at 80% contribution from B-2-C segment and reaching out to unorganised segment for drawing B-2-B revenues.
Navneet Education - Rating: BUY | CMP: Rs105 | TP: Rs132
Navneet Education enjoys a strong foothold in the publication industry with a market share of ~65-70% in both Gujarat and Maharashtra. Navneet’s stint of more than five decades in the publication segment has not only enabled strong relationships with educational institutions, but has also created a strong brand recall and trust factor with teachers, parents and retailers. Traditional publishing business is growing @10- 12% CAGR with margins north of 33%. Buoyed by its success, Navneet ventured into Stationery business which, though is not as profitable as Publishing (9-12% margins), but helps leverage distribution reach and branding of the entire portfolio. Off-late, Navneet is targeting the digital opportunity by offering B2B animated versions of syllabus to schools and other B2C products like Cloud (TOPSCORER),pen drives and APP based product. Navneet has been a value stock over the years with a payout ratio of ~48%. However, considering RoE of 23% and consistent earnings over FY16-FY18E period, Navneet is well-positioned to deliver superior returns. Strong management bandwidth with proven track record, high visibility on operating cash-flows, superior return ratios and strong balance sheet, makes Navneet a preferred ‘BUY’ in the Education space with a TP of Rs132.
NIIT Technologies - Rating: BUY | CMP: Rs397 | TP: Rs590
NIIT Technologies’ (NIIT Tech’s) Q2FY17 revenues and margins were better than expectations. Revenue growth was driven by growth in Travel & Transport vertical and the Insurance business. Company expects insurance product business (~7% of revenues), which is mostly UK based, to remain muted in FY17, as Brexit may cause delay in decision‐making. NIIT Tech has guided for a softer Q3 due to seasonality in the business. Barring insurance, all the services business has a steady outlook for FY17 and company has guided for a better H2FY17 on the back of strong order bookings. Order bookings were ahead of company’s average at US$143m and executable order book is at US$309m.
VRL Logistics - Rating: BUY | CMP: Rs263 | TP: Rs338
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VRL Logistics (VRL) is the largest pan-India surface logistics and parcel delivery service provider with an experience of four decades in the Indian markets. The company owns and operates Pan-India fleet of Commercial Vehicles (3904) in goods transportation (GT), while Bus operations (425 buses) are concentrated in Southern and Western regions of India. VRL is expected to have earnings CAGR of 17% over FY16-FY18E period led by strong performance in Goods and Bus Transport Segment. However, if reforms like New Road Transport and Safety Bill & GST Bill gets implemented by Apr-17, then VRL may emerge as a key beneficiary with almost double-digit volume growth as we anticipate 20% increased availability of GT vehicles which are currently having high idling times at border crossings and tax collection check posts. Further, VRL is much better placed to garner any volume shift from unorganized to organized segment. VRL trades at 17x FY18E PER and 7.9x EV/EBITDA FY18E. The valuations are attractive considering: 1) Strong management pedigree with proven track record 2) High visibility on operating cash-flows 3) Superior returns ratios (above 23% RoE) amidst listed logistics players 4) Steady margins on the back of lower fuel prices and efficient use of Biodiesel 5) Strong balance sheet (Net D/E of 0.4x FY16) and 6) Strong recovery potential if economic activity perks up. We would like to highlight that volumes in the Goods Transport segment for FY17 are looking down due to the ongoing disruption which can hurt our earnings projections for FY17, however we are pretty confident of growth returning back from FY18 and recommend VRL as a portfolio stock with a TP of Rs338.