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Diwali Picks Microsec Research
Tech Mahindra
ICICI Bank
Tata Steel
Exide Ind Cairn India
Rallis India
GMDC
Axis Bank
Pidilite
Diwali Picks
Dear Patrons,
Wishing you A Very Happy Diwali and Prosperous Samvat 2070!
It is a paradoxical end to Samvat 2069 as Indian markets (Nifty) gained 9.45% between last Diwali to 29/10/13,
whereas economic fundamentals have deteriorated during last one year as GDP expectations which was ~6% last year
were cut down to 4.8% now for FY14. Sensex gained 2245 points between last Diwali and Diwali eve this year.
However, the top 5 stocks that contributed to the maximum gains were: Infosys (568 points), TCS (517 points), ITC (243
points), Sun Pharma (228 points) and Tata Motors (225 points), hence contributing to 79% of the index gains.
Contributors to losing side of Sensex in Index points were: SBI (139 points), L&T (100 points), BHEL (96 points), JSP (70
points) and Tata Steel (52 points). This study is relevant in the sense that INR that depreciated sharply helped IT and
Pharma gain, whereas, laggards depicted the woes of the economy. During the same period Microsec Diwali Picks gave
a return of 12% against Nifty returns of 9 percent.
As Markets reflect the ‘hope’ or ‘expectations’, so does this level of Indexes as we hope for a better India with better
domestic and global macroeconomic indicators. However, past one year has seen major shift in perceptions of social
and political class, which can be a stronger foundations for the year to come. As mentioned above, expectations from
“Samvat 2070” would centre on a better governance, the cornerstone to growth and regain lost milestone. The year
ahead will be a roller‐coaster ride for the markets as key events like India’s General Elections, tapering of US Bond
purchases or may be further quantitative easing from US, and situations in Middle East and its relation with US and
others will hog the limelight. However, currently Nifty is trading 12.70 times FY15 EPS (E) of 490, which we believe
towards next Diwali may trade 14times, giving targets of ~6860 for Nifty.
In this context, we select 9 stocks as Diwali Picks, which are fundamentally better placed and reflects the cyclical sectors
which we believe is set for an upturn. The investment objective is for a year.
Company CMP (29/10/13) Target Price (1 Yr) Upside Potential (%)
Axis Bank 1251.20 1458.00 16.53
Cairn India 315.90 415.00 31.37
Exide Ind 124.00 153.00 23.39
GMDC 105.00 133.00 26.67
ICICI Bank 1075.45 1204.00 11.95
Pidilite Ind 265.00 330.00 24.53
Rallis India 153.85 185.00 20.25
Tata Steel 326.00 410.00 25.77
Tech Mahindra 1523.30 1793.00 17.70
Nifty 6220.90 6860.00 10.27
With Warm Regards & Happy Investing,
Team Microsec Research
- 1 -
Microsec Research 30th October 2013
We rate Axis Bank Limited a BUY. Axis Bank is the third largest Private Sector Bank in
terms of business and profitability. As on 31st March 2013, the Bank’s balance sheet size
crossed over INR3.4 trillions with strong distribution network of 1947 branches and 11245
ATMs spread across the country. It also has overseas offices in Singapore, Hong Kong,
Shanghai, Colombo, Dubai and Abu Dhabi. Axis Bank is one of the few Indian Banks, which
has smartly managed to transform itself into a true financial conglomerate with its presence
in core banking besides, Insurance, Asset Management, Mutual Fund, Broking, Home
Finance etc. areas of investment banking, life and non-life insurance, venture capital and
asset management.
Investment Rationale
Growing profitability boosted Return ratios: The Banks rapid business expansion along with
growing profitability (operating profit has grown at a CAGR of ~21% whereas, Profit after
Tax (PAT) grew at a CAGR of ~24% over the period of FY11-13) has helped the Bank to
manage its return ratio better. In FY13, its Return on Assets (ROA) was at historical high of
1.7% and Return on Equity (ROE) stood at 18.5% despite recent capital infusion of
~INR5537 crores. Moreover, it is better placed amongst its top four private peers in terms of
high returns. As on H1FY14, ROA and ROE stood at 1.65% and 16.64% respectively.
Improving asset quality; Strong coverage ratio: Axis’s thoughtful business strategy and strong
risk management with in-depth analysis of borrowers’ profile enabled it to manage its asset
quality problems. In the current challenging environment, where the banking sector is
suffering from asset quality problems, Axis Bank has been able to maintain its asset quality.
Over the past few quarters, the Bank has maintained its NNPA and GNPA ratios. In Q2FY14,
its GNPA and NNPA stood at 1.19% and 0.37%. It is in better placed amongst its peers in
term of superior asset quality. Moreover, it is in well positioned to tame any time liabilities
with 80% of its Provision Coverage Ratio (PCR).
Higher CASA deposits support margin stability: Notwithstanding challenging environment,
Axis’s NIM has consistently been higher than the industry’s average. In FY13, its NIM
improved by 5bps to 3.18% against industry’s decline by 8bps to ~2.5% primarily because of
the Bank’s low cost deposits base (CASA) which has improved from ~41% in 2011 to ~44%
in 2013. As on H1FY14, CASA ratio stood at 43%. Bank’s key priority towards healthy
growth in Current & Savings account deposits has helped it to cross CASA deposit of over
~INR1.09 trillion in Q2FY14.
Axis Bank Ltd
Sector - Banking
Analyst: Sanjeev Jain
Phone: +91-33-3051-2174
Email Id: [email protected]
Source: ACE Equity, Company, Microsec Research
BUY
Microsec Research30th October, 2013
We rate Cairn India Ltd a ‘BUY’. Our rating underpins the production ramp up from its
Rajasthan field coupled with escalating crude oil prices complimented with depreciating
INR vs. USD and aggressive capex plans are expected to ensure strong business growth in
the future.
Investment Highlights
Production Ramp up is the Key: The production ramp up from its Rajasthan block is the
best possible trigger for the company. Currently the block is operating at the production rate
of 180000bpd which is in line with the envisaged quantum and the exit production of
210000-215000bopd also looks feasible.
Crude Oil Prices: Cairn India is a pure play of crude oil prices as their realization from the
Rajasthan block are calculated by providing discount of ~8-13% to Brent crude oil prices. As
a matter of fact higher the crude oil prices higher the realization for the company. Cairn
India is the key beneficiary for the depreciating INR against USD as well as their realizations
are dollar denominated.
Expansion Plans: Aggressive CapEx plans have been approved by the board of the company
to uplift the current production from the existing block as well as also for new exploration
activities. The company has formulated a comprehensive CapEx programme of drilling > 450
wells over the period of next 3 years. The company targeted over 530 million barrels of gross
recoverable risk prospective resources including gas potential.
Valuation and Outlook: We valued the company on a consolidated basis using EV/EBITDA
method and DCF method where we assigned 75% weightage to the EV/EBITDA
methodology considering the kind of business Cairn India is in and 25% weightage to the
DCF valuation given the fact of the visibility of future free cash flows. We assumed WACC
of 10.97% and a terminal growth rate of 1% for DCF and based on our model we believe we
believe that the projected EV/EBITDA of based on current price is reasonable. Moreover the
scrip is also inexpensive against its domestic as well as international peers in terms of various
valuation parameters.
Cairn India Limited
BUY Sector- Oil & Gas
Analyst: Soumyadip Raha
Promoter &
Promoter
Group, 58.77%
FII, 14.33%
DII, 11.75%
Cairn UK
Holdings
Ltd., 10.27%
Others, 4.88%
Shareholding Pattern
BSE Code 532792
NSE Code CAIRN
Bloomberg Ticker CAIR IN
Reuters Ticker CAIL.BO
Face Value (INR) 10.00
Equity Share Capital (In INR Mn) 4,762.20
Average P/E 6.09x
Beta vs Sensex 0.76
Average Daily Volume 231,201
Dividend Yield 1.9%
PEG Ratio NA
STOCK SCAN
Current Market Price (INR) 315.90
Price Objective(INR) 415.00
Upside Potential(%) 31%
52 Week High (INR) 349.90
52 Week Low (INR) 267.90
Market Capitalization (In INR Mn) 60,344.48
Market Data
Particulars FY2011A FY2012A FY2013A FY2014E FY2015E
Net Sales 10,277.93 11,860.64 17,524.15 18,915.12 19,159.88
Operating Profit 8,254.44 9,254.41 13,033.16 15,703.15 15,687.75
Operating Profit Margins (%) 80.31% 78.03% 74.37% 83.02% 81.88%
Net Profit 6,334.45 7,937.75 11,919.74 14,705.46 14,953.77
Net Profit Margins (%) 61.63% 66.93% 68.02% 77.74% 78.05%
EPS 33.21 41.62 63.11 76.98 78.28
BVPS 210.93 252.81 249.70 313.32 378.24
P/E(x) 10.55 8.02 4.36 4.10 4.04
P/BV(x) 1.66 1.32 1.09 1.01 0.84
EV/EBITDA(x) 7.76 5.68 3.30 3.85 3.85
RoE(%) 15.72% 16.44% 24.99% 24.57% 20.70%
Cairn India's Financial Performance (InINR crores except per share data & %)
Source :Ace Equity,Company data, Microsec Research
80.23
85.23
90.23
95.23
100.23
105.23
110.23
115.23
120.23
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CLOSE(Cairn India Ltd) CLOSE(SENSEX)
Microsec Research30th October, 2013
We rate Exide Industries Ltd (Exide) a ‘BUY’. Our rating underpins the company’s
distribution network, after sales service, usage of product in different sectors and its R&D
and technological framework. However, slowdown in automobile industry impedes our
optimism bit.
Investment Highlights
Wide distribution channels, after sales and warranty services. Exide enjoys strong
distribution network in domestic as well as international markets. Currently, the company is
operating from over 200 locations, which has enabled Exide to market as well as provide
after sales services to customers in Tier II & III cities. The Project Kisan initiative has also
enabled Exide to reach its products to all remote locations. In addition, company’s
performance is likely to be supported by warranty and after sales services.
Strong Research and development. The company has managed to carry out the R&D
activities efficiently and likely to do so in the future. The R&D activity has helped the
company in many ways like – development of new and cost efficient products to meet the
diverse requirements of large number of applications in both automotive and industrial
segments. Specific attention had been provided towards development of new raw materials
for development of new formulation, development of new technique in making process
improvements, Value Addition/Value Engineering on existing products through technology,
design and process up-gradation.
Wide usages of battery in different sectors may boost the top line growth. Apart from
Automotive sector, Exide batteries are used in Railway, Telecommunications, Defense,
Mining, Hospitals, lighting of coach, Airlines Signaling and Communications sectors.
Strong Financial growth with sound ratios. The Company has registered a strong financial
growth in FY13. Its Net sales increased by 19.73% to INR6,372 crore and PAT grew by
23.16% to INR549 crore. Its PAT margin, also, improved from 8.38% to 8.62%. ROE of the
company arrived at 19.10%. The company continues to remain debt free. Exide’s financial
ratios are strong and are very much in line with its nearest competitor Amara Raja batteries.
Valuation: At the CMP of INR124, the stock is trading at a P/E of 15.5x its FY14E EPS of
INR8.0 and 12.3x its FY15E EPS of INR10. The company has sound business model and ROE
of 19.10%. We assigned a P/E multiple of 15.3x to its FY15E EPS to arrive at a Target price
of INR153 for a time period of 12-15 months.
Exide Industries Limited
BUY Sector- Auto Ancillary
Analyst: Saroj Singh
Exhibit 1. Exide Industries financial performance (In INR Cr.except per share data and %)
Particulars FY 2010 A FY 2011 A FY 2012 A FY 2013 A FY 2014 E FY 2015 E
Net Sales (post Excise Duty) 3,979 4,766 5,322 6,372 6,946 7,779
Growth (%) 19.79% 11.67% 19.73% 9.00% 12.00%
EBITDA 977 956 751 859 991 1,169
EBITDA Margins (%) 24.56% 20.06% 14.11% 13.47% 14.27% 15.03%
Net Profit 494 619 446 549 678 853
Net Profit Margins (%) 12.40% 12.98% 8.38% 8.62% 9.76% 10.96%
Net Profit Growth (%) 25.39% -27.92% 23.16% 23.34% 25.85%
EPS 6.2 7.3 5.2 6.5 8.0 10.0
BVPS 23 28 32 36 42 50
P/E 20.0 19.7 28.4 19.1 15.5 12.3
P/BV 5.5 5.1 4.7 3.4 2.9 2.5
RoE 33.9% 28.8% 17.6% 19.1% 20.3% 21.8%
Source: Ace Equity, Microsec Research
Current Market Price (INR) 124
Target Price 153.00
Upside Potential 24%
52 Week High/Low (INR) 151/116
Market Capitalization (In INR Cr.) 10,417
Market Data
Promoter
and
Promoter
Group
45.99%
FII
17.48%
DII
15.76%
Others
20.77%
Shareholding
BSE Code 500086
NSE Code EXIDEIND
Bloomberg Ticker EXIDE IN
Reuters Ticker EXIDE.BO
Face Value (INR) 1.00
Equity Share Capital (In INR Cr.) 85.00
Beta vs Sensex 0.73
Average Daily Volume 1,305,925
Dividend Yield 1.27%
PEG Ratio 1.14
STOCK SCAN
83.58
88.58
93.58
98.58
103.58
108.58
113.58
118.58
Pri
ce
Period
CLOSE(Exide Industries Ltd) CLOSE(SENSEX)
Microsec Research 30th October, 2013
Investment Highlight
GMDC Ltd
BUY Sector – Mineral & Mining
Uptick in volume to bring growth in revenue: GMDC’s lignite mining volume which contributes a
staggering 80% to the total revenue has been growing a CAGR of 7.25% over FY08-12. However, the
company’s lignite volume declined by 3.88% on YoY basis in FY13 because of lower production from
Tadkeshwar and Mata-no-Madh mines which together contribute ~48% to the overall lignite production.
(30% from Mata-no-Madh and 18% from Tadkeshwar mine). The lignite volume has fallen since last 4
quarters due to scarcity of land for dumping of overburden waste and several mines encountering higher
thickness stones resulting in lowering of speed of mining. Despite this, we believe that the company’s
capacity expansion via brownfield expansion at Mata-no-Madh and Bhavnagar mine, is expected to add
production capacities of 1MT and 2MT, respectively, during FY2014e. Further, GMDC has got through
regulatory hurdles for its upcoming Umarsar mine (production capacity 1MT). We expect the mine to start
production in 2HFY14e.
Lignite based power plant’s operational performance to improve and result in higher profitability: GMDC’s
250MW lignite based power plant at Nani Chher, which had been facing operational issues in past due to
lower PLF and higher fixed cost, has been outsourced to a Korean company, KEPCO at a fixed cost payout
of INR320mn pa till Aug’13 and thereafter payment will be performance based with PLF threshold of 75%.
The KEPCO team is currently controlling plant operations and running at PLF of 50-55% and is expected to
start delivering the required PLF target of 75%. We believe that with the plant likely to achieve
stabilization by FY14e and PLF also expected to rise to around 75%; it would lead to gains for GMDC in
FY14e and FY15e.
Wind power plants continue to support profits; planning to expand it further by 250MW: Currently, wind
power capacity stands at 121 MW and another 29 MW (14 towers of 2.1MW each) is expected to be on-
stream by H2FY14e end. 50 MW of capacity addition during FY14e is largely on track. Hence, this is likely
to support growth in profits going forward.
Valuation: At the CMP of INR105 per share, the stock is trading at EV/EBITDA of 4.16x its TTM EBITDA
of INR789 crore. At current level, GMDC is trading at EV/EBITDA of 4.09x and 3.40x to its FY14e and
FY15e earnings, respectively, which is attractive for a company with 20% expected RoE and debt-free
status. Considering current attractive valuation, we recommend “BUY” on the stock with a target price of
INR133 per share.
We recommend GMDC a “BUY”. GMDC is the largest merchant miner of lignite in India, supplying lignite
to various industrial units, including textiles, chemicals, ceramics, bricks, and captive power plants. The
company operates 5 lignite mines in Gujarat. Apart from lignite, it also produces bauxite, fluorspar, and
manganese ore and operates a 250MW lignite-based power plant. The company also operates a 150MW
wind power plant. With expected uptick in volume to bring growth in revenue, lignite based power plant’s
operational performance to improve and wind power business to support profits, GMDC is a safe play in the
mining sector.
Current Market Price (CMP) 105
Target Price 133
Upside Potential 27%
52 Week High Low 222 / 76
Market Cap (INR in Cr) 3339
Market Data
Scrip ID GMDC Ltd
Scrip Code (NSE) GMDCLTD
Scrip Code (BSE) 532181
Bloomberg Ticker GMDC.BO
Reuters Ticker GMDC IN
Industry Mining
Face Value ( INR per share) 2.00
Equity Share Capital ( INR in Cr) 63.60
Avg 5 years P/E (x) 16.53
Avg daily volume (Last 1 Year) 173,096
Beta Vs Sensex 0.66
Dividend Yield 2.86%
Stock Scan
Promoters
74.00%
FIIs
5.18%
Other
Institutions
13.95%
Non-
Institutions
6.87%
15000
16000
17000
18000
19000
20000
21000
22000
60
100
140
180
220
2-Ja
n-1
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2-M
ar-12
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p-1
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GMDC Ltd Sensex
Particulars FY09A FY10A FY11A FY12A FY13A FY14E FY15E
Net Sales 978 1065 1421 1631 1675 1686 2020
Growth -0.3% 9.0% 33.4% 14.7% 2.7% 0.7% 19.8%
EBITDA 455 473 651 760 947 801 963
EBITDA Margin 46.59% 44.37% 45.78% 46.59% 56.55% 47.52% 47.68%
Adj Net Profit 231 280 375 487 601 533 636
Adj Net Profit Margin 23.67% 26.27% 26.39% 29.85% 35.88% 31.62% 31.49%
Adj Net Profit Growth -12.32% 20.94% 34.01% 29.78% 23.44% -11.29% 19.32%
Adjusted EPS 8.8 11.8 15.3 18.9 18.9 16.6 19.8
Adjusted P/E(x) 4.60 11.91 8.95 9.64 8.77 6.32 5.30
BVPS 38.0 81.7 91.0 97.5 79.7 92.8 108.7
P/BV(x) 1.07 1.72 1.51 1.87 2.08 1.13 0.97
ROE 20.4% 20.17% 24.5% 26.2% 26.2% 19.5% 19.8%
EV/EBITDA(x) 3.28 8.93 6.37 6.88 5.59 4.09 3.40
Financial Performance of GMDC Ltd (All figures in INR Crores except % and per share data)
Source: Microsec Research, Company Data
Analyst: Neha Majithia
+033 30512177
Microsec Research 30th October 2013
We rate ICICI Bank Limited a BUY. The Bank was promoted in 1994 by ICICI Ltd, an
Indian financial institution. Presently, ICICI Bank is India’s largest Private Sector Bank with
total assets of INR6.74 trillions at March 31, 2013. The Bank has a strong distribution
network of 3514 branches and 11063 ATMs. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail customers through a variety of
delivery channels and through its specialised subsidiaries in the areas of investment
banking, life and non-life insurance, venture capital and asset management.
Investment Rationale
Strong Balance Sheet and improving returns: ICICI Bank’s continued focus on balancing
growth helped it to strengthen its business size and returns. It has given more than double
return on its behemoth ~INR6.74trillion worth of assets within 5 years. Return on Assets
(ROA) of the Bank stood at 1.57% in FY13 as compared to 0.70% in FY09. Moreover, Bank’s
Return on Equity (ROE) has also improved by 662bps to 14.01% over the same period. We
anticipate that company to deliver ROE of more than 16% within a year, backed by healthy
loan growth coupled with stable credit cost and expenses.
Improving assets quality with healthy PCR: Despite the pressure on asset quality which the
entire banking sector is suffering from, ICICI Bank has improved its asset quality with
healthy Provision Coverage Ratio (PCR). In Q2FY14, It has improved its GNPA by 15bps
QoQ and 46bps YoY to 3.08%. Moreover, the Bank is in well positioned to absorb any
substantial shock with ~73% of its PCR. We believe asset quality to remain impressive going
forward.
Healthy CASA; improving margin: Customer convenience and high quality services backed
by strong distribution and innovative use of technology coupled with focus more toward
retail banking continued to be the bedrock of Bank’s growth strategy. In Q2FY14, the
Bank’s low cost deposits base (CASA ratio) improved by 260bps YoY to 43.30% which has
helped it to improved its Net Interest Margin (NIM) by 4bps QoQ and 31bps YoY to 3.31%.
We believe, ICICI Bank may maintain its margin going forward and may be benefited more
with the improving health of the Indian corporate.
Valuation: At the CMP of INR1075, the stock is trading at TTM P/BV of 1.70x. The current
valuation of 1.59x FY14E and 1.38x FY15E Book Value looks attractive. We recommend a
BUY on the stock with a target price of INR1204 (1.55x FY15E BV) with an upside potential
of ~12% from the current level with an investment horizon of 12 months.
ICICI Bank Ltd
Sector - Banking
BUY
Analyst: Sanjeev Jain
Phone: +91-33-3051-2174
Email Id: [email protected] Source: ACE Equity, Company, Microsec Research
Microsec Research 30th October, 2013
We rate Pidilite Industries a BUY. Pidilite, incorporated in 1959, has been a pioneer in the
Consumer and Specialities Chemicals in India. Pidilite Industries is the market leader in
adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in
India. Its brand named Fevicol has become synonymous with adhesives to millions in India
and is ranked amongst the most trusted brands in India.
Investment Highlights
Established Brand name: Pidilite has strong brands like Fevicol, Dr.Fixit, Fevi Kwik, m-seal,
hobby ideas, moto max, Fevi stik etc. Fevicol has become the household name in india and
is the largest selling white adhesive brand in india. With established brand name in the field
of adhesives and construction chemical, the prospect of the company appears promising in
the future.
Strong Financials with Consistent Growth: The company’s net sales and profit have grown
at 10 year CAGR growth of 18% and 21% respectively. With Strong ROE of 28.5%,and D/E
ratio of 0.03, the fundamental of the company looks strong.
Strong Growth in H2FY14: The company Net Sales increased by 16.6% to INR2224 crore
and its EBITDA increased by 25.9% to INR419 crore . EBITDA margin of the company
increased from 17.4% to 18.8%. Adjusted PAT EX Forex increased by 20% to INR278 crore.
Valuation
At the CMP of INR265, the Stock is trading at a P/E of 25.6x its FY14E EPS of INR10.0 and
22.5x its FY15E EPS of INR11.8. With Consistent financial growth, Strong ROE and
innovated product line, the prospect of the company looks bright. The Stock has historically
traded at a 3Yr average P/E of 28x as per Bloomberg. We Assign a P/E multiple of 28x to its
FY15E EPS of INR11.8 to arrive at the target price of INR330 for the stock.
Exhibit 1. Pidilite Industries – Historical Financials and Projections
Particulars FY2011A FY2012A FY2013A FY2014E FY2015E
Net Sales 2,657 3,127 3,678 4,311 5,078
Growth (%) 18% 18% 17% 18%
EBITDA 469 493 601 750 884
EBITDA Margins (%) 17.64% 15.76% 16.33% 17.40% 17.40%
Net Profit 310 333 424 513 607
Net Profit Margins (%) 11.67% 10.66% 11.52% 11.90% 11.96%
Net Profit Growth (%) 8% 27% 21% 18%
EPS 6.1 6.6 8.3 10.0 11.8
BVPS 21 26 32 40 50
P/E 43.2 40.3 32.0 26.5 22.5
P/BV 12.6 10.2 8.3 6.6 5.3
RoE 31.7% 27.7% 28.5% 27.6% 26.2%
Source: Company, Microsec Research (In INR crore)
Pidilite Industries Ltd – ‘Growing Consistently’
BUY Sector – Consumption
Analyst: Naveen Vyas
Email id: [email protected]
Current Market Price (INR) 265
Target Price 330
% Upside 24.5%
52 Week High / Low (INR) 303/ 188
Market Capitalization (In INR cr) 13,584
Market Data
80.00
100.00
120.00
140.00
160.00
30-Oct 30-Jan 30-Apr 30-Jul
Pidilit e SENSEX
Shareholding
DII
5.28%
Others
11.00%
FIIS
13.66%
Promoters
70.06%
Microsec Research30th October, 2013
We rate Rallis India Ltd. (Rallis) a ‘BUY’. Rallis, a TATA group company, deals in Agri
business & has emerged as one of the leaders in the industry. It has plants located at Akola,
Ankaleshwar, Bharuch & Ratnagiri. The company is also in Institutional business providing
technical knowhow & bulk of various types of molecules to companies like Bayer Cropscience,
Syngenta, UPL, etc & has launched products for pests control of public health importance.
Besides, the company is also having a significant presence in International Business & Contract
Manufacturing.
Investment Highlights
Untapped Domestic Agrochemical Market: Rallis India is a well placed agrochemical company
in the Indian market. The company presently holds 10% market share in the industry firmly
placing it to acquire the emerging opportunities in agrochemical market backed by its robust
distribution network, well-known branded farm solutions & frequent launches of new
products in the segment. In the current fiscal, the company has come up with few new
products to strengthen its product gallery which will in turn help the company to garner new
markets. Besides, newly commissioned DAHEJ SEZ facility is expected to boost exports of the
company; thus making it less dependent solely upon the domestic market.
Exploring Hybrid Seeds & Organic Farming: The Hybrid Seed market in India is expected to
grow @10-15% CAGR in future years. The country at present has merely 2mha of the total
40mha available in hybrid seed category for paddy, which leaves the company with enough
room to penetrate deep in this sector. After acquiring Bangalore based seed company
Metahelix Lifescience, Rallis is well groomed to capitalize on the former’s strong & impressive
R&D capabilities & sturdy product pipeline. Rallis has also increased its stake to 27.75% in
Zero Waste Agro Organics Ltd & is concentrating on exploring opportunities in Organic
farming sector.
Good Kharif season & promising Rabi season: The Company posted good Q2FY14 results
owing to good Kharif season & the management is expecting the same outcome for the Rabi
season which would be reflected in the Q3FY14 results. The well spread monsoon has
brighten the prospects of good sowing season for the farmers for both summer & winter crops.
Valuations & Outlook: Rallis India is currently trading at P/E multiple of 25x times at the
current market price of INR 153.85. The TTM EPS of the company is INR 6.12. We expect the
company to post healthy numbers in the future periods also with above mentioned rationales
being fulfilled.
Rallis – Financials at a glance (all data in INR Crores unless specified)
Rallis India Limited
BUY Sector- Agro Chemical Industry
Analyst: Kapil Bhati
Source: Company Data, Microsec Research
Indian
Promoters
50%
Institutions
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Non-
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Microsec Research 30th October, 2013
Investment Highlight
Tata Steel Ltd
BUY Sector – Steel & Steel products
Greenfield coupled with brown-field expansions to boost volume growth in Indian Operations: Tata Steel
India is set to deliver strong volume growth over FY14-17e on full ramp-up of 2.9MTPA brown-field plant
at Jamshedpur. Tata Steel commissioned its 2.9MTPA Jamshedpur brown field expansion project in FY13
and it is expected that full benefit will come in FY15. The company is likely to consider another 3MTPA
expansion at Orissa after commissioning of this facility. Further, some of the project facilities are being
constructed keeping in mind the eventual expansion to 6mtpa. The capex for the next 3mtpa phase of this
project would only be 50-60% of the first 3mtpa phase. Accordingly, the highly profitable Indian
operations would drive strong volume growth for several years.
Turnaround in Europe Operations to be the key trigger: With the recent encouraging signs of improving
economic conditions in Europe, the UK in particular, the management expects the demand in Europe
(where it derives 2/3rd of its 27MT of annual capacity) to recover by the end of FY14e. Also, the company’s
restructuring initiatives like launching new products to boost value addition and improve product mix,
write down of $1.6 bn due to weak demand, cost-cutting measures, reducing headcount, shutdown of high
cost facilities, selling of non-core assets and disinvestment of non-profitable subsidiaries have already
started showing positive results for last couple of quarters. We believe the company is poised to capitalize
the improvement in Europe if it translates more strongly into increased demand from steel-intensive
sectors. Following the above measures with the support of recovering demand, we believe the European
operation to post better results in future.
Management’s view of timely capex completion and de-leveraging the balance-sheet a positive move:
With the timely capex completion and company’s strategy to de-leverage the balance sheet by going for
refinancing of debt (which is expected to go record high in FY14e due to the on-going investment in
Odisa phase-I expansion) and selling non-core assets is a positive move.
Tata Steel Odisha unit's phase-I to start operations in Q4FY14e: The work on the first phase of Tata Steel's
Kalinganagar project in Odisha, entailing an investment of the INR25,164 crore, is in full swing and
operations are likely to commence in the last quarter of 2014. We believe that timely commission of the
unit would improve volume growth from Q4FY14e onwards. Tata steel has a major capex programme in
Odisha to set up a 6MT steel plant, which has been planned in a phased manner.
Valuation: At the CMP of INR326 per share, the stock looks attractive at its forward EV/EBITDA of 6.01x
its FY14e EBITDA of INR14,822 crore and EV/EBITDA of 5.44x its FY15e EBITDA of INR17,154 crore.
Hence, we recommend “BUY” on the stock with a target price of INR410 per share.
Analyst: Neha Majithia
+033-30512177
We recommend a “BUY” on Tata Steel Ltd. The company is the world’s sixth-largest steel company with
an existing annual crude steel production capacity of ~30MTPA. Post the Corus acquisition; it has
diversified business spread across Europe, South East Asia and pacific-rim countries. Hence, with
Greenfield and brown-field expansion to boost volume in Indian operations, turnaround in Europe
operations, timely completion of capex and moves to de-leverage the balance sheet bodes well for the
fortune of the company on a longer period of time.
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Tata Steel Ltd Sensex
Scrip ID Tata Steel Ltd
Scrip Code (NSE) TATASTEEL
Scrip Code (BSE) 500470
Bloomberg Ticker TATA IN
Reuters Ticker TISC.BO
Industry Steel/Sponge Iron/Pig Iron
Face Value ( INR per share) 10.00
Equity Share Capital ( INR in Cr) 971.21
Avg 5 years P/E (x) 5.93
Avg daily volume (Last 1 Year) 4,912,400
Beta Vs Sensex 1.25
Dividend Yield 2.45%
Stock Scan
Promoters
31.35%
FIIs
13.08%
Other
Institutions
26.39%
Non-
Institutions
26.52%
Others
2.66%
Current Market Price (CMP) 326
Target Price 410
Upside Potential 26%
52 Week High Low 448 / 195
Market Cap (INR in Cr) 31661
Market Data
Particulars FY09A FY10A FY11A FY12A FY13A FY14E FY15E
Net Sales 147329 102393 118753 132900 133417 141464 152781
Growth 12.0% -30.5% 16.0% 11.9% 0.4% 6.0% 8.0%
EBITDA 18113 7999 16747 12366 12321 14822 17154
EBITDA Margin 12.29% 7.81% 14.10% 9.31% 9.23% 10.48% 11.23%
Net Profit 4951 -2009 8983 5390 -7058 2691 3470
Adj Net Profit 856 -3693 12028 8752 332 2697 3550
Adj Net Profit Margin 0.58% -3.61% 10.13% 6.59% 0.25% 1.91% 2.32%
Adj Net Profit Growth -95.42% -531.23% -425.69% -27.24% -96.20% 711.71% 31.63%
Adjusted EPS 66.3 -23.2 93.7 55.5 3.4 27.8 36.6
Adjusted P/E(x) 3.11 -27.29 6.62 8.48 91.32 11.74 8.92
BVPS 303.3 257.3 369.2 428.5 351.9 358.9 396.3
P/BV(x) 0.68 2.46 1.68 1.10 0.89 0.91 0.82
ROE 19.1% -9.44% 30.4% 12.9% -19.6% 7.6% 9.2%
EV/EBITDA(x) 3.99 10.68 6.27 6.78 6.76 6.01 5.44
Financial Performance of Tata Steel Ltd (All figures in INR Crores except % and per share data)
Source: Microsec Research, Company Data
Microsec Research30th October, 2013
We rate Tech Mahindra Ltd (TechM) a ‘BUY’. Our rating underpins integration of Satyam
in its operations, depreciation of INR versus USD, and its attractive valuations vis-à-vis peer
group. However, uncertainty regarding US immigration bill and the company’s contingent
liabilities impede our optimism a bit.
Investment Highlights
Integration of Satyam boosts prospects: TechM completed the acquisition of Satyam
Computer Services Ltd (Satyam) on 25 June 2013. Satyam, which was already contributing
to the company’s bottom line, helped the company to diversify its revenues at consolidated
levels. As a result, the contribution from Telecom and related services to revenues reduced
to just 48% in Q1 FY2014 compared with more than 80% of the pre merged entity’s top line
in FY2013. Furthermore, complementary services portfolio of the acquired entity will equip
the company with competitive strength while bidding for the large deals. In addition,
elimination of overlapping overheads and effective marketing efforts, being a combined
entity, could lead to expansion of the company’s operating margins, going forward.
Additionally, the integration placed TechM as the fifth largest company in the Indian IT
space.
Depreciation of INR versus USD bodes well: Rise in treasury yields in the US and
expectations to taper the bond buying under QE3 led to a sharp depreciation in INR versus
USD during the latter half of Q2 FY2014. The local currency touched all time low of
INR68.825 per USD during the quarter. Although, post that it rose sharply against the
greenback, at current levels of over INR61 per USD, the Rupee is considerably weaker than
its year earlier levels. As a weak INR results in higher Rupee realizations per USD for
exporters, this factor is likely to aid TechM’s top line growth. Moreover, the factor may help
the company to report notable expansion in operating margins during FY2014E.
Valuation remains attractive: TechM is currently trading at Price-to-Earning (PE) of 15.1x
based on its FY2013 earnings compared with average peer group PE of 18.9x. Furthermore,
based on FY2014E and FY2015E EPS as well, the company is attractively priced. On
FY2015E EPS of INR123.84 and target PE of 14.48x, we arrived at the target price of
INR1,793, upside of 17.7%, for the stock.
TechM – Financials at a glance (all data in INR Crores unless specified)
Particulars FY2011A FY2012A FY2013A FY2014E FY2015E
Net Sales 5,140.20 5,489.70 6,873.10 18,044.59 20,249.40
Growth (%) 11.13% 6.80% 25.20% 162.54% 12.22%
EBITDA 1,038.40 938.40 1,452.80 3,926.86 4,223.19
EBITDA Margins (%) 20.20% 17.09% 21.14% 21.76% 20.86%
Net Profit 646.20 1,099.10 1,307.40 2,692.17 2,877.97
Net Profit Margins (%) 12.57% 20.02% 19.02% 14.92% 14.21%
Net Profit Growth (%) -8.11% 70.09% 18.95% 105.92% 6.90%
EPS 51.14 86.25 100.85 115.85 123.84
BVPS 266.08 317.75 423.48 539.33 663.17
P/E 12.50 12.58 9.92 13.15 12.30
P/BV 3.04 2.44 2.69 2.82 2.30
RoE 20.7% 29.6% 27.2% 24.1% 20.6%
EV/EBITDA 9.06 10.56 9.88 9.21 8.57
Tech Mahindra Limited
BUY Sector – Information Technology
Analyst: Nitin Prakash Daga
[email protected] Source: Bloomberg, Microsec Research
Promoter and
Promoter Group
36.46%
FII32.59%
DII15.13%
Non Institutions
15.82%
Shareholding
BSE Code 532755
NSE Code TECHM
Bloomberg Ticker TECHM IB
Reuters Ticker TEML.BO
Face Value (INR) 10.00
Equity Share Capital (In INR Mn) 2,323.91
Average P/E 10.8x
Beta vs Sensex 0.70
Average Daily Volume 125,843
Dividend Yield 0.3%
PEG Ratio 0.91
STOCK SCAN
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Retu
rn (
%)
TechM Sensex
Current Market Price (INR) 1,523.20
Target Price 1,793.00
Upside (%) 17.7%
52 Week High / Low (INR) 1,594.00 / 865.25
Market Capitalization (In INR Mn) 353,978.03
Market Data
Microsec Research15th October, 2013
Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]
Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]
Fundamental Research
Name Sectors Designation Email ID
Nitin Prakash Daga IT, Telecom & Entertainment VP‐Research [email protected]
Naveen Vyas FMCG, Midcaps, Mkt VP‐Research [email protected]
Sutapa Roy Economy Research Analyst s‐[email protected]
Sanjeev Jain BFSI Research Analyst [email protected]
Neha Majithia Metal, Mineral & Mining Research Analyst [email protected]
Soumyadip Raha Oil & Gas Executive Research [email protected]
Saroj Singh Auto, cement Executive Research [email protected]
Kapil Bhati Fert, Chem & Agri Executive Research [email protected]
Technical & Derivative Research
Vinit Pagaria Derivatives & Technical Senior VP [email protected]
Ranajit Saha Technical Research Sr. Manager [email protected]
Institutional Desk
Puja Shah Institutional Desk Dealer [email protected]
Abhishek Sharma Institutional Desk Dealer [email protected]
PMS Division
Siddharth Sedani PMS Research VP [email protected]
Ketan Mehta PMS Sales AVP [email protected]
Research‐Support
Subhabrata Boral Research Support Asst. Manager Technology [email protected]
Recommendation
Strong Buy >20%
Buy between 10% and 20%
Hold between 0% and 10%
Underperform between 0% and ‐10%
Sell < ‐10%
Expected absolute returns (%) over 12 months
MICROSEC RESEARCH IS ALSO ACCESSIBLE ON BLOOMBERG AT <MCLI>
Microsec Research15th October, 2013
Microsec Research15th October, 2013
Disclaimer: This document is prepared by the research team of Microsec Capital Ltd. (hereinafter referred as “MCL”) circulated for purely information purpose to the authorized recipient and should not be replicated or quoted or circulated to any person in any form. This document should not be interpreted as an Investment / taxation/ legal advice. While the information contained in the report has been procured in good faith, from sources considered to be reliable, no statement in the report should be considered to be complete or accurate. Therefore, it should only be relied upon at one’s own risk.
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