ASHOK LEYLAND: BUY, Target Price -Rs. 76 (38% upside)
The commercial vehicle (CV) segment took a hit for a couple of months to absorb pre-buying due to new emission norms, effective October 1, 2010. The domestic truck segment picked up momentum since December 2010 on strong economic growth. Further, increased production at Ashok Leyland’s Uttarakhand facility is expected to boost margins.
1) In FY12, Ashok Leyland is expected to record volume growth of 11% to 105k units.
2) Due to fiscal benefits available at the Pantnagar unit, Ashok Leyland is expected to realize significant savings per vehicle produced at the facility. Production is expected to ramp up at Pantnagar facility.
3) Ashok Leyland entered into a JV with Nissan to capture high growth in the LCV segment. The JV is likely to commence production by H2 CY11. Commissioning of this JV would boost the earnings estimate for FY12.
|Company||Sector||CMP (Rs)||Recom.||TP (Rs)||Upside (%)||Market Cap (Rs bn)||P/E (x)||EV/EBITDA (x)||Earnings gr. (%)||ROE (%)||ROCE (%)|
|HCL Tech||IT services||497||BUY||615||24||345||20.9||15.6||10.2||7.7||28.4||19.9||23.0|
|Indraprastha Gas||Oil & Gas||313||BUY||370||18||44||17.2||15.5||9.7||8.3||14.7||27.9||31.9|
|IRB Infra||Const & Infra||212||BUY||269||27||70||14.2||12.5||11.8||10.1||20.8||22.0||23.4|
|Mahindra & Mahindra||Auto||728||BUY||920||26||412||20.1||16.5||14.2||12.4||15.0||30.9||28.0|
|NIIT Tech||IT services||190||BUY||300||58||11||6.1||5.7||4.7||3.8||24.9||27.6||21.1|
|Phoenix Mills||Real Estate||199||BUY||240||20||29||24.4||14.0||21.6||11.2||82.5||7.2||5.3|
BAJAJ AUTO: BUY, Target Price -Rs 1,649 (18% upside)
With the success of Pulsar 135 and Discover twins (100cc and 150cc), Bajaj Auto‘s brand-centric strategy has been validated. The high-margin brands, Pulsar and Discover, now account for 70% of Bajaj Auto‘s motorcycle sales. In addition, continued demand for three-wheelers and robust exports would help Bajaj Auto achieve volume growth of 13.8% in FY12. Bajaj Auto‘s profitability is expected to be maintained at current levels of 20%.
1) Despite increasing competition, Bajaj Auto is expected to maintain its market share with domestic volume growth of 14%, in line with industry growth.
2) Bajaj Auto‘s export outlook continues to be stable with total exports expected to touch 1.4mn in FY12.
3) Increased proportion of high-margin motorcycles and continued contribution of three-wheelers would enable Bajaj Auto to maintain margins at current levels.
4) Bajaj Auto is expected to launch the new Discover 125cc in Mar,10. This is expected to provide a further boost to Discover volumes
5) Management expects to improve its market share with growth of 22% to 4.8mn units during FY12 as against volume estimates of 4.5mn units.
GODAWARI POWER: BUY, Target Price-Rs 272 (46% upside)
Godawari Power is expected to benefit from earnings CAGR of 41% over FY10-FY12E on volume growth and margin expansion. This would be driven by higher output from the Ari Dongri mines, 0.6 mntpa pellet plant, and 20MW biomass power plant that started providing results from Q3FY11. Further, production at Godawari Power‘s 0.6 mntpa pellet plant of the 75% subsidiary, Ardent Steel, has stabilized and is expected to provide earnings upside (not factored in the earnings estimates and target price).
1) Stabilization of Godawari Power‘s newly commissioned 20MW biomass power plant;
2) Higher output from the Ari Dongri iron ore mine and 0.6mntpa pellet plant to help revenue growth and margin expansion;
3) Contribution from Ardent Steel to consolidated earnings expected from Q4FY11 onward;
4) The Boria Tibu mines that were impacted by delay in handover of forest area are now expected to commence mining from Q1FY12;
5) Completion of amalgamation of group companies (received court approval, not factored in estimates).
INDRAPRASTHA GAS: BUY, Target Price-Rs 370 (18% upside)
Indraprashtra Gas (IGL) is a play on the growing city gas distribution business in India. With robust capex of ~Rs30bn in five years, Indraprashtra Gas (IGL) is increasing coverage in Delhi, Noida, Greater Noida and Ghaziabad. Given the strong parentage of GAIL, Indraprashtra Gas (IGL) should be able to meet challenges in sourcing gas. Indraprashtra Gas (IGL)‘s customer profile gives it the ability to pass on price increases to make up for increasing LNG in its portfolio, which would maintain margins in absolute terms.
1) CNG and PNG segments are expected to grow at 13% and 49% CAGR over FY10-FY15 respectively;
2) Indraprashtra Gas (IGL) would make regular price increases for CNG and PNG to maintain margins, with increasing LNG volumes in its portfolio (EBITDA/scm would remain robust at ~Rs5/scm);
3) Although higher depreciation and interest due to aggressive capex (~Rs21bn from FY11 to FY13) would impact Indraprashtra Gas (IGL)‘s net profit, ROCE and ROE are expected to remain strong at ~24%
LUPIN: BUY, Target Price – Rs 537 (30% upside)
Lupin is one of the best plays in the pharma space, given its strong execution capabilities, improving financial performance and diversifying business model. The high-margin branded generic business of Lupin has been the key differentiator. Lupin‘s strong growth on the US front (both branded generic and generic segments) and improvement in operating margins would maintain the growth momentum.
1) Lupin‘s strong traction in the high-margin Suprax product (chewable tablets approved; double strength tablets now enjoy more than 50% of total Suprax prescription share) and gradual pick up in Antara prescription.
2) Lupin‘s approval of less competitive OC products (generic market size of >US$ 1bn) in 2HFY2012 and launch of 10-12 generic products (other than OC) in next 12 months.
3) Lupin‘s commencement of API supplies from Goa facility to Kyowa to boost margins.
4) Given its strong balance sheet, Lupin can be expected to choose inorganic growth (Latam market, US branded generic the key target segments).
MAHINDRA & MAHINDRA: BUY, Target Price – Rs 920 (26% upside)
With a significant rural presence, Mahindra & Mahindra (M&M) benefitted from strong monsoons this year. Continuing forward, the automobile segment is expected to record growth of 13.2% in FY12, led by new product launches. Mahindra & Mahindra (M&M)‘s tractor segment too is expected to grow by 5% in FY12, underpinned by higher crop output.
1) The creditors for Ssangyong have approved Mahindra & Mahindra (M&M)‘s offer of taking a haircut of USD 100mn. Mahindra & Mahindra (M&M) has made the balance 90% payment for 70% ownership stake. The acquisition would enable Mahindra & Mahindra (M&M) to make a 2-3 year leap in product development. Two SUVs from the Ssangyong Motors‘ portfolio (Rexton and Korando) would be assembled at Mahindra & Mahindra (M&M)‘s Chakan facility.
2) Production and marketing of MHCVs has begun in a JV with Navistar. Mahindra & Mahindra (M&M) is currently in the roll-out phase and is increasing its geographical spread.
3) Mahindra & Mahindra (M&M) launched the Genio pickup in Jan’11 which would help it expand its pickup portfolio. A new SUV is expected to be launched by the year end.
4) Demand for small commercial vehicles (SCVs), the fastest-growing CV segment, is strong; Mahindra & Mahindra (M&M) recently entered this space with the launch of Maximmo and Gio.
5) Mahindra & Mahindra (M&M) is expected to roll out capacity expansion plans considering current growth in the tractor segment.
SINTEX INDUSTRIES: BUY, Target Price – Rs 220 (33% upside)
Sintex has a diversified business model marked by low volatility in sales, profit and cash flows. Sintex is a market leader in the Monolithic and Prefab segment.
(1) Sintex‘s Monolithic and Prefab segment are expected to show CAGR of 25% and 27% during FY11-FY13E respectively;
(2) Sintex acquired overseas and domestic subsidiaries likely to show operational improvement with 300bps increase in margin to 12.2% in FY13e vs. FY10;
(3) Sintex‘s emerging cash flow positive in FY12-FY13e through better management