Eicher Motors Ltd
Eicher Motors Ltd (EML) operates in two wheeler business through Royal Enfield brand and in CV business through VECV Ltd, which is a JV with AB Volvo in which company holds 54.4%. The CV business contributes 90% to its consolidated revenues while 10% come from Royal Enfield. Eicher Motors is currently the 3rd largest M&HCV (medium & heavy commercial vehicles) manufacturer in India with overall market share of 12.2% in the domestic truck market.
Based on the growth potential emanating from its two JVs; with Polaris Inc and AB Volvo and considering the potential uptick in revenues from Royal Enfield and MDEP plant capacity expansions, we believe that there is considerable revenue visibility for the next 2-3 years. We except revenue to grow at a CAGR of 30% from CY11 to CY13, EBITDA to grow at CAGR of 25% with EBITDA margin of 11%. Profit after tax is also expected to grow at a CAGR of 26% during the same period At the CMP of Rs2,524 Eicher Motors is trading at 5.3x its CY2013E EBITDA. However, considering the robust growth potential, we value Eicher Motors at 6.5x EV/EBITDA at its CY14E earnings and arrive at a target price of 2,987, which is a potential upside of 18%.
Godrej Industries Ltd
Godrej Industries Ltd. is one of the leading business conglomerates in India having businesses in varied segments like Oleo chemicals, surfactants, finance & investments and estate management. It has substantial interests in several industries including property development, oil palm plantation, animal feeds and agro-products, poultry, personal care and household care, confectionery, etc., through its subsidiaries, associate companies and joint ventures.
SOTP target price of `471; BUY
We value Godrej Industries at Rs. 471/share, using the sum-of-the-parts (SOTP) methodology. Our target price includes a sum of Rs. 256 for GPL (valued at a 40% holding company discount to the price of Rs. 393) and Rs. 95 for GCPL (40% holding company discount to the price of `146), together accounting for ~74% of our valuation. We value GAVL at Rs. 33 (7x of FY14E earnings), the standalone chemicals business at Rs. 87 (9x on FY14E earnings). Hence we initiate a buy rating with a target price of Rs. 471, an upside by 53%.
Rallis India Limited
Rallis India Limited (Rallis), a Tata Group company, is a subsidiary of Tata Chemicals Limited which owns 50.06% in Rallis. It manufactures pesticides, plant growth nutrients and seeds. Rallis has four direct subsidiaries (Rallis Australasia Pty. Ltd., Rallis Chemistry Exports Ltd., Metahelix Lifesciences Ltd. and Zero Waste Agro Organics Private Limited) and one step down subsidiary (Dhaanya Seeds Ltd.). Rallis has manufacturing plants.
At the Current Market Price (CMP) of Rs. 149, Rallis is trading at 16x its FY14E EPS of `10.41. With the Capital Expenditure at Dahej behind it and revenue ramp up from Metahelix happening, we expect Rallis to report a robust growth in topline (18% CAGR) over FY12-FY14E. Considering the consistent fundamentals and strong business model, we value the stock at 17x its FY14E EPS to arrive at the target price of Rs. 177 with a BUY rating indicating an upside potential of 19%.
Tree House Education & Accessories Private Ltd
Tree House was originally incorporated as a private limited company in 2006 under the name Tree House Education & Accessories Private Limited, to take over the proprietorship of pre-school from its promoter. After witnessing rapid growth, it got listed in August 2011.
Tree House education & Accessories Limited (Tree House), operates in Informal & Ancillary Education segment targeting children from the age group of 7 months to 5 1/2 years, by offering various courses from Mother-Toddler to Senior K.G., making it a complete educational center in Pre-School segment.
As Tree House operates in high growth oriented sector, P/E multiples are bound to be higher to compensate its growth. Hence we have valued the company by discounting Enterprise Value to its sales (EV/Sales) as we believe that education is still the sunrise sector in the Indian markets. We expect revenue to grow at a CAGR of 44% from FY12 to FY14, EBIDTA to grow at CAGR of 36% with EBITDA margin of 43%. Profit after tax is also expected to grow at a CAGR of 39% during the same period. At CMP Tree House is valued at 9.9x as per EV/sales method.
Looking at the secular growth which Tree House is going to witness and aggressive growth drive undertaken by the management, we apply an exit EV/Sales multiple of 6x. With which we arrive at the target Price of Rs. 280, implying the potential upside of 24% from current levels.
TV18 Broadcast Ltd
TV18 Broadcast Ltd (TV18) is part of the Network18 Group, operating one of India’s popular television broadcasting network. It operates five news channels CNBC-TV18, CNBC Awaaz, CNN IBN, IBN-7 and IBN-Lokmat (a Marathi regional news channel in partnership with the Lokmat group). The company has recently launched CNBC-TV18 in high definition i.e. CNBC-TV18 Prime HD. It also operates general entertainment channels – Colors, Colors HD, MTV India VH1, Nick, Sonic and Comedy Central (through Viacom 18, a joint venture with Viacom Inc.) and HistoryTV18 (through AETN18, its subsidiary, in which it holds 51% interest and the remaining 49% interest is held by A&E Television Networks LLC). TV18 also operates in film entertainment business through Viacom18 Motion Pictures, division of Viacom18. The news and entertainment segments are engaged in the programming, production and broadcasting of news and general entertainment and the acquisition, production, syndication, marketing and distribution of films.
The ongoing stress on its profitability is expected to conclude once subscription revenues of the company become substantial, as being recurring in nature, it tends to lend high stability to the overall profitability of the broadcasters in difficult ad spend environment. We value TV18 Broadcast on EV/Sales basis as we believe that media is still the sunrise sector in the Indian markets. Using FY2014 sales estimate post the rights issue completion and the ETV acquisition.
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