Express Stock Ideas + Call Success & Update + Q3FY15 Results Update By Amar Ambani Of IIFL

Express Idea: Infosys Ltd – BUY
CMP Rs2,249, Target Rs2,550, Upside 13.3%

After hitting lows of Rs1,896 in mid-December 2014, Infosys has bounced back and has been going through a consolidation phase. However, after correcting marginally, Infosys finally broke-out from a Cup & Handle pattern, which is considered to be bullish in nature.

If the Cup & Handle pattern breakout unfolds the way it should, then we expect a minimum upside potential for Infosys of around Rs300 which suggests that Infosys would attempt at-least 2,550 in medium term. We advise traders to keep a strict stop loss of Rs2,099 on every long position.

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Jyothy Laboratories – Call Success & Update
Reco Price Rs283, Previous Target Price Rs312, New Target Price Rs344

We had recommended a BUY on Jyothy Laboratories in our Strategy Report – High Conviction Midcap Ideas released on March 24, 2014, with a target price of Rs232. We extended our target to Rs255 in a call update released on August 22, 2014, then to Rs283 in a call update released on September 09, 2014 and then to Rs312 in a call update released on September 10, 2014. The stock has surpassed our target in today’s trading session registering 10.2% returns. We remain positive on the growth prospects of the company and advise investors to hold on to the stock for a revised target of Rs344.

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Larsen & Toubro Ltd (Q3 FY15) – BUY
CMP Rs1,572, Target Rs1,980, Upside 25.9%

• LT’s consolidated numbers were weaker than expected lower margins in infrastructure segment and higher EBIT loss in the hydrocarbon segment
• The Hydrocarbon segment continued to report losses due to under-recovery, cost overruns and close out costs
• Consolidated order inflow for the quarter remained strong at 19% yoy at Rs346bn, largely contributed by domestic orders. Order book for the consolidated entity stood at Rs2,258bn, up 17% yoy
• Consolidated operating profit margin remained flat on a yoy basis as the impact of operating loss in hydrocarbon segment was offset by higher contribution from the other segment
• Operating margin for the standalone entity was lower due to change in job mix in the infrastructure segment
• Decline in EBIT margin by 107bps in consolidated infrastructure segment was a negative surprise for us
• Net debt increased due to higher working capital requirement in the standalone entity. Working capital continued to remain high due to lower customer advances and stagnant customer payments
• Guidance on margins shrink revised higher from 100-150bps yoy in previous quarter to 150-200bps due to weak hydrocarbon segment
• Sharp correction post the results unwarranted; Stock to bounce back in today’s trading session. Maintain BUY rating with a revised 2-yr price target of Rs1,980

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IPCA Laboratories (Q3 FY15) – BUY
CMP Rs640, Target Rs760, Upside 18.8%

• Q3 results weaker than expected as revenues decline ~11% yoy and 5.1% qoq on the back of lower anti malarial sales adding to the shortfall arising from US FDA woes
• Margin declined as expected on negative operating leverage headwinds resulting in to lower than estimated PAT (down 32.3% qoq, ~70% yoy)
• Cut FY16 estimates as Ratlam import resolution takes 18-24 months based on past experience with peers; expect ex-US business to stabilize and upgrade to BUY with revised 9-12mth target of Rs760

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Kalpataru Power Transmission Ltd (Q3 FY15) – Accumulate
CMP Rs228, Target Rs250, Upside 9.6%

• KPTL’s standalone results were inline with our estimates
• Topline of Rs11.5bn was higher by 9.1% yoy led by higher execution in the Transmission & Distribution (T&D) space
• The company continued to report an expansion in margins led by faster execution and diminishing legacy orders
• Order inflow at Rs5.4bn was lower than estimate, but the company is L1 in orders worth Rs21bn
• Management remained confident of delivering margins close to 10% in FY16 and 15% growth in topline for the standalone entity
• Upside limited after the sharp jump in stock price; Downgrade from BUY to Accumulate with a price target of Rs250

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Dhanuka Agritech Ltd (Q3 FY15) – BUY
CMP Rs507, Target Rs800, Upside 57.8%

• Disappointing quarter due to adverse weather conditions led to Q3 performance coming below expectations.
• Revenue stood at Rs.1,791mn, below our expectation of Rs1,895mn.
• Gross margins also contracted 275bps yoy to 34.7% while OPM contracted 51 bps yoy at 15.4% much lower than our expectation of 17.5%.
• New product launches should drive growth in the upcoming Kharif season.
• Maintain Buy with a 24-month price target of Rs800.

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Tata Steel Ltd (Q3 FY15) – BUY
CMP Rs369, Target Rs515, Upside 39.6%

• Tata Steel’s consolidated results were better than our expectations as the impact of weak domestic performance was more than offset by improvement in Europe operations
• Standalone profitability was impacted by both, a sharp correction in blended realisations and higher than estimated increase in iron ore costs
• Standalone blended realisations declined sharply due to inferior product mix and lower contribution from sales of scrap and by-products
• European operations registered a jump in operating profit by 52% yoy due to a combination of superior operational performance and a one-off gain related to employee pension
• Adjusted EBIDTA/ton at Corus increased to US$49, on account of superior product mix, lag effect of contract prices and lower raw material prices
• Performance of South East Asia operations remained weak due to dumping of cheap steel from China and lower steel-scrap spreads
• The company’s debt increased Rs52.5bn due to increase in working capital requirement for iron ore and lower cash profits
• The company has lowered its capex guidance for FY15 due to the uncertainty regarding approvals for Khondbond mines
• The company has managed to restart all its mines (except Khondbond) and expects nil external purchase of iron ore in FY16
• We believe most of the negatives are priced in; Maintain BUY with a revised price target of Rs515

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NMDC Ltd (Q3 FY15) – Accumulate
CMP Rs141, Target Rs152, Upside 8.5%

• Strong realisations boost NMDC’s Q3 FY15 results
• We believe increase in share of lumps of total sales volume led to an outperformance in blended realisations
• Sales volume were lower by 4.7% yoy due to some inventory buildup and impact of cyclone Hudhud; Production increased 11% yoy to 8.1mn tons
• Operating profit of Rs19.5bn was higher than our estimate of Rs17.6bn due to higher realisations and lower exports
• NMDC has decreased its lump ore prices by Rs450/ton and fines prices by Rs300/ton for the month of February ’14
• Iron ore prices have corrected sharply over the last two months due to increase in supply from imports and higher domestic production
• Further price cuts on the cards due to easing domestic tightness and jump in imports; Maintain Accumulate with a revised price target of Rs152

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Godrej Consumer Products (Q3 FY15) – BUY
CMP Rs1,122, Target Rs1,291, Upside 15.1%

• GCPL surpassed our revenue expectations of Rs21.8bn by recording healthy 12.5% yoy growth at Rs22.3bn during Q3 FY15, driven by strong growth in domestic and international business
• Domestic FMCG revenues grew by 12% yoy to Rs11.7bn led by healthy 16% yoy growth in HI business. Soaps registered 11% yoy growth while hair colour recorded volume led 10% yoy growth despite the high base
• International business reported 12% yoy revenue growth (20% yoy constant currency terms) at Rs10.6bn driven by significant outperformance across most geographies except Europe
• OPM expanded by 210bps to 17.9% fuelled by lower raw material and advertising cost. Net profit increased by ~35% yoy to Rs2.6bn led by healthy revenue growth and improved operating efficiency
• We expect GCPL to witness a revenue/PAT CAGR of ~16%/21% over FY15-17. Maintain BUY with a revised 9-mth price target of Rs1,291 (earlier Rs1,145)

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Talwalkars Better Value Fitness (Q3 FY15) – BUY
CMP Rs328, Target Rs405, Upside 23.5%

• Robust YoY momentum with revenue growth of 29% yoy in a seasonally weak quarter; same store sales increased 10.2% yoy
• Posted healthy growth in value added services like Reduce, Transform and NuForm which drove ~50bps yoy rise in margin
• Better YoY operating performance and lower tax rate lead to ~26% increase in PAT
• Retain BUY based on strong traction in earnings and continued rerating potential of the underlying business

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Balrampur Chini Mills (Q3 FY15) – Reduce
CMP Rs57, Target Rs53, Downside 5.6%

• Q3 results continue to be impacted by lower sugar realizations and elevated cane costs
• Sugar realizations down ~5% yoy while sugar EBIT loss widened 82% yoy cushioned by better co-gen and distillery volumes and pricing
• Cane price reform remains the key catalyst to watch out; retain Reduce rating and 9-12mth target of Rs53

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Wipro Ltd. – Call Success & Update
Reco Price Rs555, Previous Target Price Rs652, New Target Price Rs725

We retained BUY on Wipro in our Q3 FY15 Result Update dated January 19, 2015 with a 12-month price target of Rs652. The stock breached the target in Friday’s trading session registering a 17.5% return from recommended price of Rs555. We continue to remain positive on the company and expect incremental valuation re-rating over the medium term driven by growth convergence with the industry and likelihood of strong margin performance given substantial levers at disposal. We increase our 12-month target price to Rs725.

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Petronet LNG (Q3 FY15) – Accumulate
CMP Rs183, Target Rs200, Upside 9.3%

• Net sales at Rs111bn was in line with our estimates; represented a growth of 19.4% yoy and 2% qoq
• Total volumes were at 139.6 TBTUs as compared to 123.6 TBTUs in Q3 FY14 and 150.5 TBTUs in Q2 FY15, mix however changed substantially with tolling volumes jumping from 18.8 TBTUs in Q3 FY14 to 28 TBTUs in Q3 FY15
• OPM at 3% was substantially below our and street expectations
• PAT at Rs1.6bn was lower than our estimates on the back of a weak operational performance
• While Kochi ramp up continues to be a concern recent developments such as stakeholders meeting by state government, leasing out of storage tanks and trucking of gas have been positive
• We maintain our Accumulate rating as clarity should emerge on Kochi terminal in medium term and current soft LNG prices should ensure robust demand for LNG

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Tata Motors (Q3 FY15) – BUY
CMP Rs589, Target Rs685, Upside 16.3%

• Consolidated net sales grew by 9.5% as JLR sales grew by 10.3%
• Growth in JLR revenues was driven by 5.3% yoy rise in volumes and 4.8% rise in realizations
• JLR OPM was at 18.6% was lower than our estimates, margins were lower by 45bps and 76bps qoq, favorable geographic mix, better product mix was offset by less favorable realized hedges
• OPM for standalone business were lower than estimates at a negative 9.6% and was down 371bps yoy mainly on back of operating de-leverage
• Maintain our BUY rating as we believe JLR is set to see sustained momentum in volumes from Q4 FY15 onwards

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Magma Fincorp (Q3 FY15) – BUY
CMP Rs99, Target Rs198, Upside 100.0%

• Disbursement growth continues to be healthy; asset growth to improve gradually
• NIM continues to expand; outlook remains strong
• Sustained asset quality pressure depresses the bottomline
• RoA/RoE to improve sharply over FY14-17; Retain BUY with 24-month target of Rs198

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Greaves Cotton (Q3 FY15) – BUY
CMP Rs143, Target Rs232, Upside 60.8%

• Revenues at Rs4.3bn was higher by 1.8% yoy; lower than our estimates, Robust growth in three-wheeler engine sales was offset by weakness seen in other segments
• OPM at 11.9% was higher by 76bps yoy but saw a decline of 80bps qoq, yoy expansion was driven by cost cutting initiatives implemented
• Recurring PAT was at Rs424mn as compared to a profit of Rs391mn in Q3 FY14, exceptional item of Rs407mn mainly pertaining to exit from the infrastructure segment resulted in a PAT of Rs18mn
• Maintain our rating to BUY with a 2-year price target of Rs232

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KEC International Ltd (Q3 FY15) – BUY
CMP Rs86, Target Rs120, Upside 28.9%

• KEC Q3 FY15 operational results were quite lower than our expected on account of weaker execution and depreciation of currency
• Topline for the quarter was lower by 6.7% yoy to Rs20.5bn as contribution from SAE was lower and domestic T&D remained sluggish
• Margins contracted 135bps yoy and 47bps qoq due to operating loss at SAE and slower execution
• Order inflow at Rs11bn was quite lower than estimate on account of delay in order finalization; KEC has indicated that it is L1 in orders worth Rs40bn
• Bottomline jumps 3x on a yoy basis due to proceeds from sale of land
• Receivables days reduced on a qoq basis from 194 days to 188 days
• Management remained confident of delivering margins close to 8% in FY16 and 10% growth in topline
• Maintain Buy on the stock with a revised price target of Rs120

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Bharti Airtel (Q3 FY15) – BUY
CMP Rs365, Target Rs450, Upside 23.3%

• Bharti Q3 a mixed bag with India wireless EBIDTA momentum intact even as Africa disappoints yet again
• Domestic wireless EBIDTA up 5.8% on 1.4% volume growth and data share gain of 170bps qoq; voice pricing marginally down qoq
• Africa margin slips further to 21.8% amongst the lowest since acquisition though capex spending ramped up to 26% of revenues
• A well rounded spectrum portfolio and an effective play on the robust ongoing data growth supports our BUY reco for revised 9-12mth target of Rs450

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Company Report – National Aluminium Co Ltd.: Alumina to drive earnings – BUY
CMP Rs48.5, Target Rs62, Upside 27.8%

NALCO has corrected 30% from its peak hit in September ’14 on account of a slide in aluminium prices, cancellation of coal block and subdued demand for metals. We believe the correction in the stock is overdone as we expect the impact of lower realisations on earnings would be offset by a sharp correction in raw material prices and higher external alumina sales. We expect operating margin to improve from 13.8% in FY14 to 20.6% in FY15 and 23% in FY16. NALCO currently has ~Rs61.5bn of cash and cash equivalent, implying Rs23.9/share or 49% of the CMP. We expect earnings CAGR of 29.9% over FY14-17E led by a combination of higher volumes and lower costs. At the CMP, the company is trading at 3.1x FY16 EV/EBIDTA, which is at huge discount to its historic average and is also lower than its international peers. We do not see much downside from the current levels and upgrade our recommendation from Accumulate to BUY with a revised price target of Rs62.

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Kalpataru Power Transmission Ltd – Call Success
Reco Price Rs225, Call Closure Price Rs250

We had recommended a BUY on Kalpataru Power Transmission Ltd in our Diwali Dhamaka 2014 picks released on October 22, 2014 with a target of Rs180. We extended the target to Rs199 in a call update released on November 17, 2014, Rs225 in a call update released on December 10, 2014 and to Rs250 in a call update released on January 01, 2015. The stock surpassed our target in today’s trading session. We advise investor to book their profits at current levels. We would take a call on the company post its Q3 FY15 results tomorrow.

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Alembic Pharma (Q3 FY15) – BUY
CMP Rs430, Target Rs550, Upside 27.9%

• Alembic Pharma Q3 disappointed on all counts driven by sequential decline in domestic and international branded businesses; international generics growth tepid at ~3% yoy
• Weak topline performance (-6.5% qoq, +5.4% yoy) led to margin pressure on YoY basis and translated in to sluggish PAT vs last year
• We look beyond a weak Q3 and retain our confidence on the stock on the back of expected traction in US business which can drive 30% earnings cagr over FY15-17; retain BUY

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GSK Consumer Healthcare (Q3 FY15) – BUY
CMP Rs5,660, Target Rs6,517, Upside 15.1%

• GSK Consumer registered healthy 16.2% yoy growth in revenues at Rs9.8bn – above our expectations of Rs9.4bn, driven by re-launch of Base Horlicks and Junior Horlicks, 20% price hike in sachets and market share gains
• After two consecutive quarters of weak performance, the company recorded domestic volume growth of 5%
• Operating margin expanded by 30bps to 10.9% aided by lower raw material and staff cost. Sharp 270bps increase in advertising cost restricted further margin expansion. Net profit beat expectations by recording ~21% yoy growth at Rs964mn
• We revise our EPS estimates for FY16 and FY17 upwards by 3-4%, to factor in higher than expected gross margin led by softening key raw material prices and premiumisation. Upgrade to Buy with a 9-12 month revised price target of Rs6,517

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JK Lakshmi Cements Ltd (Q3 FY15) – BUY
CMP Rs386, Target Rs445, Upside 15.1%

• JK Lakshmi revenues grew by ~11%yoy to Rs5.6bn was below our estimate
• Realizations dipped by 6%qoq to Rs3,695/ton as recommencement of Binani plant has changed dynamics of demand supply in the northern region.
• Dispatch volumes growth of 6% was in-line with estimates.
• Margins stood at 13.6% (against our expectation of 17%). Maintain Buy with 12-month price target of Rs445.

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Bharti Infratel (Q3 FY15) – Accumulate
CMP Rs378, Target Rs390, Upside 3.5%

• Bharti Infratel posted lower than expected revenues at +0.6% qoq though margins at +170bps qoq amply offset the miss; rental income up 2.8% qoq
• Energy reimbursements declined 1.9% qoq on lower fuel costs though energy margins now approach 10%; strong operating performance drive PAT beat
• Revise up our estimates and DCF-based assumptions but retain accumulate with revised 9-12mth target of Rs390

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