Core Portfolio Stocks To Buy: Ventura

Mahindra & Mahindra Ltd

We expect Mahindra & Mahindra, the market leader in the SUV and tractor segments to sustain the growth momentum in its core UV portfolio aided by the strong performance of
the existing products and continuous ramp up of its offerings. We do not expect the cyclical downturn in the tractor segment to be a dent on the company’s profitability and expect it to be offset by the strong performance in the UV segment. Further, benefits from the SSangyong acquisition are expected to be witnessed in the medium term. Also, the other subsidiaries of M&M are expected to contribute fairly to the group given the opportunities in their respective fields. At CMP of `863, M&M is trading at 17.3x and 15.0x its estimated earnings for FY13 and FY14 respectively and we recommend a BUY with a target price of Rs. 1,000 over a period of 15 months.

Coal India Ltd

With the recent PMO directive set to resolve power sector woes, we expect CIL to increase its production at CAGR of 7.3%, leading to 11.7% growth in revenues to Rs. 77,923.3 crore over the forecast period. In our view, current headwinds like impending FSAs and pricepooling of imported coal are nearing consensus and likely to have no negative impact on the earnings of the stock.

At the CMP of Rs. 358, Coal India is trading at 8.8x and 7.9x its EV/EBITDA estimates for FY13 and FY14 respectively. The current valuations undermine the immense reserve potential of Coal India and its ability to ramp up production from its existing and new mines.

We have valued CIL, at 9.0x its estimated EBITDA for FY14, and recommend a BUY with a Price Objective of Rs. 442, representing a potential upside of 23.5% over a the period of 12-18 months.

Godrej Consumer Products Ltd

GCPL’s domestic business has consistently clocked double digit revenue growth (in its core product categories) over the past several quarters and we expect this growth to be
maintained on the back of the high growth of the Household Insecticides and Soaps segment.

While the domestic business is the mainstay of GCPL operations, the growth over the next couple of years is expected to be driven by growth of its international businesses and from cross pollination of brands in its portfolio across markets. In the international business,
integration of existing operations with recent acquisitions in Africa (Darling Group) and Argentina (Cosmetica Nacional) is expected to bring synergies and drive revenues over the next few quarters.

With all segments expected to display encouraging growth we expect revenues and earnings to grow at a CAGR of 29.0% & 22.4% to Rs. 8,091 crore and Rs. 962 crore respectively over the forecast period FY12-14. At the CMP of Rs. 677, GCPL is trading at 29.9x and 23.9x its estimated earnings for FY13 and FY14, respectively and we recommend a BUY with a target price of Rs. 764 over a period of 15-18 months.

Cipla Ltd

With a slew of new product launches, improved MR productivity and regained management focus, we expect Cipla to post strong growth in the domestic market, despite its higher base.

Further, with robust product pipeline in inhaler space on the unveil, Cipla’s exports are all set to get a major boost. In addition, the ramp up of volumes at the Indore SEZ would lead to better return ratios and margin growth improving profitability.

Given the strong business model in place and growth drivers in form of inhalers and production ramp up at Indore SEZ we expect sales and earnings to grow at a CAGR of 18.2% & 24.0% to Rs. 9813.0 crore and `1760.6 crore respectively. At the CMP of Rs. 380, Cipla is trading at 21.8x and 17.3x, its earnings and we recommend a BUY with a target price of Rs. 417 (target 19.0x FY14 P/E).

Zee Entertainment Enterprises Ltd

Expected surge in subscription revenues due to the new digitization reforms, higher than expected ad-revenue growth and enhanced reached from the Media Pro venture should help revenues grow at a CAGR of 15.7% to Rs. 4,711.3 crore by FY15 from the current FY12 revenues of Rs. 3,040.5 crore. Further, sharp decline in carriage costs going forward and curtailed losses on the sports business should help lift margins and improve earnings to
Rs. 1,296.8 crore from the current Rs. 589.0 crore over the forecast period FY13-15 (CAGR of 30.2%). At CMP of Rs. 197, ZEEL trades at a PE multiple of 28.2x and 19.8x its estimated earnings for FY13 and FY14 and we recommend a BUY with a target price of Rs. 273 over a period of 24 months.

ICICI Bank Ltd

For the past few years ICICI Bank was in a consolidation phase and during this time it has managed to reduce NPA’s and improve asset quality. Having achieved its objective the bank is now well placed to embark on the next phase of expansion. However the next phase of expansion would see emphasis being laid on asset quality and quality of earnings rather than balance sheet growth.

Led by improving asset quality, higher NIM’s due to longer maturity of deposits and well diversified loan book, we expect the Net Interest Income and earnings to post a CAGR of 14.2% and 6.5% to Rs. 14,003.2 crore and Rs. 7,335 crore respectively over FY12-14. We value ICICI Bank based on a SOTP valuation based Price Objective of Rs. 1,270. At CMP of Rs. 1,051, the stock is trading at 1.9x and 1.8x its Adj B/V for FY13E & FY14E respectively, representing a potential upside of ~20.8% over a period of 15 months.