1) Cipla: 12% upside from current levels possible; Buy for target price of Rs 440
Cipla’s proposed acquisition of Cipla Medpro for $512m marks a significant shift in Cipla’s export strategy and would also see it take control of its largest and fastest-growing distributor, which accounts for nearly 8 per cent of Cipla’s revenues or 1/3rd of its exports business.
It is estimated that the proposed transaction will likely to add between 7 and 9 per cent to Cipla’s FY14 EPS on a fully annualized basis (6.4% for 9MFY14), with potential additional earnings accretion due to operational improvements at CMP.
Espirito Santo estimates that with India and SA expected to contribute> 60% of FY14 revenues, Cipla’s business mix is now changing towards higher margin as well as intrinsically higher ROE businesses. The outcome of special general meeting in April is a key catalyst. Maintain buy and Rs. 440 fair value.
2) Gujarat Pipavav Port: 8% upside from current levels possible; Buy for a target price of Rs 51
Gujarat Pipavav (GPPV) is an idea in the infrastructure space because (a) the ramp up in volumes from new shipping lines will be visible from Q1CY13 onwards and aid growth momentum in CY13; (b) clarity on capacity expansion plans provides confidence in long-term volume growth at the port and, (c) EBITDA margins should improve from 44% in CY12 to 48% in CY14E on the back of mechanisation and operating leverage.
Q4CY12 results were a testament to the overall improved performance and the triggers mentioned above will drive a gradual improvement in GPPV’s performance from hereon. GPPV has corrected 20 per cent in the last year and is 35 per cent off its peak, which provides comfort on the valuation front.
3) ING Vysya Bank Ltd: 20% upside from current levels possible; Buy for a target price of Rs 657
ING Vysya is expected to deliver decent Q4FY14 results, driven by strong growth, robust asset quality and operating leverage. These results, coupled with the possible announcement of a capital raising during the quarter, will be a positive catalyst for ING Vysya. Post the 10 per cent correction in the past month, ING Vysya is now trading at an attractive valuation of 1.5x FY14E P/B and should be bought with a fair value of Rs. 657.
4) Jindal Steel & Power Ltd: 60% upside from current levels possible; Buy for a target price Rs 587
JSPL has corrected 20 per cent YTD and 37 per cent over the last 12 months, underperforming the BSE Sensex and metals index because of (a) indefinite delays at its Utkal B1 coal block; (b) uncertainty related to the Justice M B Shah commission’s report; (c) delays in expansion plans and (d) the uncertain fate of the 1000MW Tamnar-1 operations.
The current valuation factors in an extremely bearish scenario and there is limited downside and plenty of potential upside.
5) Motherson Sumi Systems Ltd: 44% upside from current levels possible; Buy for target price of Rs 276
Motherson Sumi (MSSL) is a pick in auto & auto ancillaries because the company will continue to outperform the auto index due to (a) its domestic business growing above the industry average; (b) margin improvements at SMP and SMR as seen in the operationally strong Q4FY13 results and (c) optimistic management commentary for FY14E as well as the announcement of new large orders.
Overall, it is estimated that the consolidated entity will post a 45 per cent CAGR in EPS, reflecting SMP’s turnaround, and improved utilization of plants also enhancing SMR’s profitability.
6) Wipro Ltd: 6% upside from current levels possible; Buy for a target price of Rs 475
Wipro is the only Tier-1 IT services stock in coverage universe that does not price in a recovery, having moved up over 8 per cent YTD vs. 27 per cent for Infosys, 22 per cent for TCS and 19per cent for HCLT. A deal pipeline 1.7x larger than a year ago, growth in focus verticals (70% of its business) and fewer problems from stressed businesses drive the conviction.
Moreover, Wipro has been able to drive revenue productivity better than its competitors which will be visible in the form of better margins when volume growth is strong. This is expected to unfold by Q1/Q2 FY14.
7) L&T Financial Holdings: 29% downside from current levels possible; Sell for a target price of Rs 58
L&T Finance’s valuation has moved too far ahead of the fundamentals, spurred on by euphoria over a possible banking licence.
Q3 results further strengthen that view, with profitability declining on a QoQ basis (excluding one-offs) by 10 per cent. However, none of this has been factored into the stock price. As the banking licence euphoria dies down and amidst a continued slowdown in the broader economy (visible from deteriorating credit quality), the stock is expected to correct closer to fundamentals.
8) Marico: 12% downside from current levels possible; Sell for a target price of Rs 190
Price differentials with regional players have expanded beyond sustainable levels, with limited scope for price cuts as input costs have started firming again. Therefore, the disappointing volume growth of blockbuster products, such as Saffola and Parachute, is likely to continue in the near term.
Overall, the price cuts and higher advertising and sales promotion (A&P) spending will cut into consensus earnings estimates. The estimates are 6 per cent below consensus on FY14E earnings and the new fair value of Rs190, up from Rs185, offers 12% downside from current levels.
Leave a Reply