CMP – Rs. 463.15, TP- Rs. 610
JLR volumes and revenues to grow at ~12.5% and 15% CAGR over FY17-19E, driven by continued new product launches. This coupled with mix improvement and full benefit of Fx would drive realizations and revenues. JLR’s EBITDA margins to improve sharply from 2QFY17 levels of ~10.3% to ~17% by FY19 driven by a) realization of Fx benefit, b) mix improvement, c) benefits of modular platform and d) operating leverage. Maintain buy with TP of ~INR610.
CMP – Rs. 251.80, TP- Rs. 337
Strong capitalization (CET1 of ~13%), significant improvement in granularity of the book (~52% retail and SME), sharp improvement in liability profile (CASA ratio of 40%) is helping ICICIBC to build a low risk business without much impact on core earnings. On asset quality, high proportion of incremental disbursement to A and above rated corporate and recognition of actual stress on balance sheet will reduce concerns over asset quality in FY17. Buy with a Target Price of INR337.
CMP - Rs. 1507.55, TP – Rs. 2260
Can Fin Homes Ltd. (CANFIN) is a South India-based home financier focused on Tier 1 and Tier 2 cities promoted by Canara Bank in 1987 which owns 43.5% shareholding. CANFIN is India's sixth largest housing finance company. Low cost funding from NCD/CP/Public Deposits is expected to increase to 60% by FY18E from 35% in FY16. This is expected to translate into expansion of spreads from 2.23% in FY16 to 2.9% in FY18E. CANFIN’s has set a target of achieving a loan book of INR 35,000cr by the year 2020 which translates to a 33% CAGR in loan book which is much higher than the 20-22% growth expected for its peers. We estimate CANFIN’s loan book to compound at 28% CAGR over FY16-18E. We recommend 'BUY' on Can Fin Homes for a target of INR 2,260 (4x Sep 2018).
CMP - RS. 860.00, TP – Rs. 1207
Sterling Tools is one of the largest manufacturers of fasteners in India, with a market share of ~28%. The company is supplier of high tensile (HT) fasteners to Honda Motorcycle Scooter India Private Limited (HMSI) and Maruti Suzuki India Limited (MSIL). In top line 2-wheeler accounts for 25% , passenger vehicles (~15%), commercial vehicles (~25%), and farm equipment (~7%-8%) of total sales. STL has a capacity of 45,000 MT spread across three plants currently running at 70-75% utilisation. The company has started work on the phase-I expansion for a new plant in Gujarat. Total capex for the project will be INR 50cr likely to be commissioned by September 2017. Conducive macro factors like good monsoons, 7th pay commission roll out, passage of GST, increasing localization by OEMs will propel STL on growth path going forward. We expect earnings growth of 20% over FY16-18E. STL trades at 15.1x FY18E EPS of INR 60.3. We initiate coverage on the stock with a 'BUY'. We value the company at 20x FY 18E EPS with a target price INR 1,207, giving an upside of 32%.
APL Apollo Tubes:
CMP – Rs. 893.20, TP – Rs. 1248
APL is the largest manufacturer of ERW pipes in India (Market size INR 300 bn/~7.5 mt) with a capacity of 1.3 mt and enjoys a market share of ~15% in domestic market ahead of Tata steel (MS 6%), DP Jindal group (7%) and Surya Roshni (6%). It has a diversified product portfolio. We expect the domestic ERW pipe market to grow at a CAGR of ~9% over FY16-19E to ~10mn tonnes by FY19E. The bulk of the growth will come from the construction and infra segments (airports, mall & prefabricated structures) using the structural pipes followed by demand from traditional applications (such as transportation of water & sewage and oil & gas). As pipes are the most convenient way for city gas distribution (CGD), increasing investment in the CGD segment and expanding CGD network will support steel pipe demand. : APL is the only player to have pan India presence as it derives 44% of revenues from South, 27% from West and 20% from North. APL has been increasing its market share by expanding capacities over last 5 years by 165% to 1.3 mt in FY16. It is planning to expand its capacity further to 2.0 mt by Q1 FY18. We value the company at 15x FY 18E EPS of INR 83.2 with a target price INR 1,248, giving an upside of 37%.
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