CMP: Rs 525 TP: Rs 646 Buy
PI’s complementary business model – domestic agri business and custom synthesis focused on export market, positions it well to capture the structural opportunity playing out in the Agrochem space in India and globally. We also view this model as good hedge and achieve to earnings stability with strong visibility on high margin CSM business.
We expect uptick in volume growth in the Agri-inputs business to further accelerate for the rabi season (2HFY13E). The Jambusar SEZ (CSM exports) is expected to commercialize in Q3FY13E and we estimate a contribution of ‘ 500mn to the topline in FY13E.
We expect 27% revenue CAGR over FY12-14E, aided by rising contribution from CSM (from 43% in FY12 to 50% of sales in FY14E).
We however have built in a conservative view on the Agri-inputs segment, given the underlying market conditions.
The management aims to replicate its success story over Nominee Gold with gradual new molecule additions which primarily shall be tie up based (65% of agri sales). Some of the other established brands are ROKET, SIMBAA, CLUTCH and BIOVITA (PGN)
We expect 33% earnings growth over FY12- 14E assuming a nondilutive Capex. At CMP, the stock trades at 11.9x FY13E and 8.9x FY14E earnings. Recommend ‘Buy’ with a target price of Rs 646 (11x FY14E earnings).
CMP: Rs. 1826 TP: Rs. 2100 Accumulate
We continue our preference for Hero Motorcorp in the two wheeler space even as the stock has had under performance over the last three months (+2% vs 12%). We believe the valuations at 14.0xFY14E are attractive at an absolute and relative level (Bajaj Auto trades at 17.8xFY14E). We recommend BUY.
The Indian market predominantly favors 100cc motorcycles; almost 70% of total sales belong to this category. Splendor and Passion continue to drive Hero’s sales, contributing ~45% to volumes.
Hero’s total distribution network in the country (including dealers, sales and service network) numbered over 6,000, covering over 100,000 villages. This we believe shall be an advantage for the next two to three years to Hero before competition catches up in these markets.
We believe that the performance of Hero in the scooter segment is an evidence of the management capability on branding and distribution.
From being a marginal player in the segment, Hero Motocorp has emerged to become the second largest player in the segment, with a 17% market share. Scooter sales were also up 23% YoY in FY13 till October). The current run rate of scooter sales stands at 45000 units per month.
We also believe that Hero has strong potential to explore export markets. It currently exports 165,000 motorcycles annually, compared to Bajaj Auto’s 1.2 mn units. Bajaj Auto’s offering in global markets is a value proposition (USD500-600 price range). Notably, the company was unable to export earlier because of non-compete clause with Honda. Post split, we believe exports shall be one of the key drivers of growth for the company.
CMP: Rs 148 TP: Rs 175 Buy
We continue to prefer paints sector over other consumer segments on back of sustained volume growth and huge opportunity of consumer up-trading. And our preference for Berger continues driven by management to focus on ‘premiumising’ its product categories, and improving margins.
We estimate revenue and net earnings CAGR of 15% and 20% respectively during FY12-15E. The stock trades at 19.7x FY14E EPS of Rs 7.5 and 16.6x FY15E EPS of Rs 8.9. We have a price target of Rs 175 (20x FY15E).
Berger Paint is focusing on converting its product portfolio towards the premium category from the current mid range segment. This focus on improving brand communication through new advertising campaign, shall in our opinion, improve its positioning in the premium segment.
Berger Paint is expanding its capacity 250,000 tonnes to half a million tonnes over the next three years. This shall be internally funded, and help it to sustain market share.
CMP: Rs 160 TP: Rs 180 Accumulate
Petronet LNG (PLL) shall be the key beneficiary of the structural play on India gas consumption over the medium term. The supply crunch in domestic gas market due to decline in KG D6 gas volumes as well as lack of new supply from domestic sources shall drive demand for spot RLNG volumes.
We believe PLL’s ability to double its capacity over next four years shall be a key driver of revenue growth. Given the business model, PLL does not carry the risk of rupee depreciation and neither the gas price as both the re-gasification margin and the off-take of re-gasified gas is fixed for the confirmed off-take volumes. This combined with the operational efficiencies (expected to be 10% over name plate capacity) would enable PLL to take advantage of the market demand by bringing in spot cargoes, and earn better margins as well.
We also believe that the recent notification by Oil Ministry to set aside 20% of the re-gasification capacity for spot / short term cargoes would not have any impact on any terminal (Dahej and upcoming Kochi) of PLL.
Key risks to our stance shall include a cap on re-gasification margins and delay in capacity ramp-up.
At CMP, the stock trades at 10.8x FY13E and 9.9x FY14E earnings. We have a positive view on the stock with a DCF based price target of Rs. 180.
CMP: Rs 1099 TP: Rs 1309 Accumulate
ICICI Bank continues to be on our preferred list on the back of sustained earnings growth, well capitalized balance sheet to capture uptick in credit growth and credit costs in control.
We estimate loan book growth 19% CAGR for FY12-14E. We expect it to record NIMs of 2.8-2.9%, backed higher yield on investments, reduction in losses on securitized book and stability in CASA deposit share
On non-interest income front, we expect core fee income to improve on the back of higher credit book expansion (14% CAGR in FY12-14E)
One of our key arguments to favor for ICICI Bank has been the well managed credit costs. We factor gross slippages ratio to come down 18 bps yoy to 135 bps for FY14
Valuations at 2.1x P/ABV FY13E and 1.9x P/ ABVFY14E have scope for an upgrade over next few quarters. Our SOTP price for core banking business implies a 2xFY14E P/ABV, and Rs. 293 for other businesses.
Based on this, our SOTP value comes to Rs 1,309 per share
CMP: Rs 1312 TP: Rs 1500 Accumulate
Remains one of our preferred picks, even as it has had sustained outperformance over the year led by better revenue CQGR of 5.4% over Q1FY11-Q2FY13 (Infy – 4%; Wipro – 3.5%). We expect this momentum to carry it through for next few quarters at least
The management continues to remain overall confident in its commentary, and has witnessed uptick in the discretionary demand primarily in the BFSI segment. It is also seeing incremental spend in the digital space but sees some time gap for platform driven revenues picking momentum. Healthy pipeline and strong deal win ratio provide the much needed comfort for medium term visibility.
TCS has managed to maintain its OPM in a narrow band of 26-28% over last ten quarters indicating strong margin resilience capability despite volatile forex, wage hikes through productivity gains, utilizations improvement (80% plus throughout the period).
We maintain TCS as our Top Pick among Tier I IT space and expect it maintain its outperformance over peers in the near term with a Target price of INR 1500 valued at 19xFY14E.
CMP: Rs 591 TP: Rs 620 Accumulate
Lupin continues on the top of our preferred plays on India pharma. We anticipate limited competition generic launches in US (gYaz, gYasmin and gTricor) to lead the growth trajectory. We expect the US segment to contribute USD 740mn to consolidated revenues.
Our FY 14 estimates factor in contribution from OC launches and Tricor generic (limited competition) at USD 85mn & USD 35mn respectively to US sales. Overall, we anticipate 26% earnings growth over FY12-14E and return ratios of over 25%.
The recently acquired I’rom Pharma (Japan) adds specialty injectable product line to its existing portfolio of oral formulations and allows further penetration in DPC hospitals. We expect increased contribution from Japan (15% of sales in FY14E; 30% CAGR over FY12-14E) and improvement in profitability aided by India API sourcing.
The chronic-led domestic formulations portfolio is expected to grow at 17% over FY12-14E. The marketing agreement with Eli-Lilly for antidiabetic products complements its existing product offerings and is expected to aid growth momentum. We do not expect the pricing policy if implemented, in its current form to dent earnings materially in FY14E.
At CMP of Rs. 591, the stock trades at 23x FY13E and 19x FY14E earnings.
Recommend Accumulate, with target price of Rs. 620 (20x FY14E EPS).
Dolat Capital Stock Picks For 2013