Symphony Ltd: Target price Rs 1100
Symphony is a buy because of:
1. Its strong value and volume leadership in India’s organised air cooler market;
2. Low 5% penetration in air coolers alongside a marked consumer shift away from the unorganised sector (70% of value/80% of vols.);
3. A 400bps margin upswing expected over FY13-FY16 from higher volumes and a richer product mix, driving a 37% earnings CAGR; and
4. A sound, zero-debt balance sheet with 3.7 per cent FCF yield (FY15E). Symphony valuations too are reasonable at 24x/17x FY15/FY16E P/E.
Bata India Ltd: Target price Rs 1250
BATA India is likely to show a recovery in same-store-sales growth in CY14 to 8-9 per cent (from 5-6% in CY13), improving operating leverage led by a better product mix and traction from new large-format stores, and reasonable valuations at 23.6x/19.4x CY15E/CY16E earnings.
Bata India is expected to post strong 23 per cent earnings CAGR over CY13-CY16 and high return ratios of 25 per cent.
Ashok Leyland Ltd: Target price Rs 30
Ashok Leyland’s aggressive capex cycle is nearing completion and this, in conjunction with non-core asset divestment, would temper the company’s debt profile. In addition, Ashok Leyland strong launch pipeline along with relative political stability post-elections is expected to support a volume revival in FY15/FY16.
Ashok Leyland is expected to show a healthy 17 per cent revenue CAGR over FY14-FY16, with a sharp PAT turnaround in FY16. Macro concerns are largely in the price and valuations at 1.5x FY16E P/B are inexpensive.
Firstsource Solutions Ltd: Target price Rs 50
Firstsource is a turnaround story with
1. Strong BPM US healthcare assets
2. Expected margin expansion of 220bps in the next two years,
3. Cash generation of US$ 60mn in FY16E (FCF yield of 18%) along with 85% net debt reduction by FY16
4. A 3-year EPS CAGR of 35%
5. Cheap valuations at 8x forward P/E – a 40% discount to peers.
Firstsource’s continued execution on margins/cash generation will drive an earnings recovery and re-rating.
Elgi Equipments Ltd: Target price Rs 120
Elgi Equipments is a buy because of (a) its evolving product profile and success in addressing key product gaps, driving continued market dominance (29% mkt share); (b) rising revenue contribution from the international business to 48% in FY14 (vs. 33% in FY13); (c) expected ROCE recovery to ~15% (vs. ~8%) as losses in the international business (~Rs 0.2bn in FY13) trend lower; and (d) ability to leverage on an improving investment cycle (short-cycle product plays like compressors are typically early beneficiaries in a macro recovery).
Finolex Industries Ltd: Target price Rs 300
Finolex Cables’ substantial operating leverage in PVC pipes, best-in-class receivables management, improving balance sheet, and resultant margin/ROE upside make it one of the best mid-cap plays amid the cyclical macro/structural agri transformation.
Finolex Cables’ margins are expected to rise 110 bps in the next two years and ROE to reach 29 per cent (+400bps) by FY16, which should drive a valuation re-rating to 13x vs. the last 5-year avg. of 9x.
Gateway Distriparks Ltd: Target price Rs 215
Gateway Distriparks is a buy because it would be a key beneficiary from
1. A recovery in container traffic with an improved macro and better rail infra;
2. Ramp-up/start of new capacities unlocking held-up capital;
3. Better rail margins.
Gateway Distriparks’ FY15/FY16 estimates by are raised 3 per cent (incl. 47% minority stake of Blackstone in GRFL from Sep’15) and revenue/PAT CAGR of 15%/18% over FY14-FY16 is expected. Also, Gateway Distriparks’ current valuations at 12x/10.8x FY15E/FY16E are attractive.
Grindwell Norton: Target price Rs 380
Grindwell Norton is a ‘BUY’ because it is a part of Saint Gobain’s global market-leading abrasives franchise, with strong business fundamentals in the form of:
1. Sustainable market leadership (30% market share) and consistent growth
2. Likely uptick in utilisation amid a broader demand recovery, supporting a 28% earnings CAGR over FY14-FY16E
3. Strong dealer network
4. Low threat of import replacement
5. A debt-free balance sheet, with major capex behind us.
Gulf Oil Corp: Target price Rs 200
GULF Oil Corp is a buy because it is aiming to restructure its businesses by Q2FY15, a move that would unlock value and drive a re-rating.
GULF Oil Corp is attractive because:
1. Improvement in operating margins over FY15-FY16 on impairment of the loss-making Mining-consult business,
2. 8-fold ROE expansion in the Lubricants business along with ~40% earnings CAGR (FY14-FY16) post-demerger/listing,
3. Aggressive brand building, and
4. Unlocking of embedded value in real estate.
Indoco Remedies Ltd: Target price Rs 190
Indoco Remedies is a ‘BUY’ because its’ increased share of high-margin exports (from 32% now to 44%), mainly to the US, would drive 310bps EBITDA margin expansion and a 48% surge in EPS over FY14-FY16 (vs. 13% in FY11-FY14E).
Indoco Remedies’ valuations (40% discount to sector) on improving cash flows and return ratios are compelling. Clearance of USFDA observations for the Goa facility (sterile) and ANDA approvals (ophthalmic products) would be key near-term catalysts.
Muthoot Finance Ltd: Target price Rs 220
Muthoot Finance is a ‘BUY’ because with easing of the LTV cap and a level-playing field with banks, Muthoot Finance’s loan per branch is set to increase by 9 per cent CAGR, driving a 14 per cent CAGR in loans over FY15-FY16.
With a 61bps improvement in ROA over FY14-FY16, Muthoot Finance’s valuations at 1.4x FY15 BV appear inexpensive. Despite hiccups, the business model of gold NBFCs like Muthoot is sustainable given their long-term growth potential. While the sharp volatility in gold prices could impact profitability, lower LTVs and a higher focus on recoveries are likely to offset this risk.
Repco Home Finance: Target price Rs 410
REPCO’s niche focus is on lower ticket-size loans and smaller geographies is likely to aid growth, with minimal competition from banks in this segment. Repco Home Finance is expected to show 25 per cent earnings CAGR over FY14-FY16 driven by a 27% CAGR in the NII.
With stable operating costs and rising financial leverage, ROE could improve to 18 per cent by FY15/FY16 from 15 per cent in FY14E. The P/B premium to larger peers has been driven by better profitability and may sustain.
Sunteck Realty Ltd: Target price set Rs 510
Sunteck Realty is a ‘BUY’ because it is one of the best plays on Mumbai’s super-luxury realty segment, with ~80% of its land bank located in and around the city.
Sunteck is attractive because of: 1. Its tangible valuation wherein two major projects in BKC and Goregaon contribute 76% of our GAV;
2. High cash flow visibility with post-tax cash flows of Rs 15bn over FY15-FY17E vs. its current market cap of Rs 18bn; and
3. Strong revenue/PAT CAGR of 30%/29% for FY14-FY16E