Express Stock Ideas With Up To 43% Upside By Amar Ambani Of IIFL

Express Idea – Petronet LNG Limited – BUY
CMP: Rs283, 6-9m Target: Rs360, Upside: 27.2%

On analyzing the bigger picture, after going through huge swings since the 2008 crash, Petronet formed an “Inverse Head and Shoulder” (H&S), during this phase it broke out successfully from its neckline which was placed at Rs218. Since then Petronet has already rallied by 28%. What brings comfort is that after breaking past the neckline, the stock surged higher and went through a whip-saw re-testing the neckline. This further accentuates our bullish stance on the stock as the whip-saw side lines the possibilities of a false breakout.

So if the Inverse H&S unfolds the way it should, then we see Petronet moving towards its conservative target of Rs360 in 6-9 months.

ITD Cementation India Ltd. (Q1CY16): Stellar quarter; outlook bright – BUY
CMP: Rs132, 1-yr Target: Rs155, Upside: 18%

• ITD Cementation India Ltd (ITDC) delivered a whopping 73% growth in topline during Q1 CY16 while managing to gradually improve its profitability. Topline of Rs. 1,016 cr was higher than our estimate indicating very strong execution.
• Operating margin of 6.5% was largely inline with our estimate. Margins improved 104 bps yoy primarily on account of strong revenue growth. The improvement is inline with the company’s objective of achieving nearly 9-10% margins by CY17E.
• ITDC delivered PAT which was higher than our estimates primarily on account of decline in interest costs. This was however partially offset by marginal decline in other income during the quarter.
• ITDC stands L1 in Mumbai Metro 3 project where its share is nearly Rs,1200 cr. As per media reports and government officials, the project is likely to be awarded within the next one month.
• With strong order book in hand and strong order pipeline, ITDC expects to witness nearly 15-20% growth during CY16.
• The recently concluded India Maritime summit has witnessed massive investment announcements to enhance the maritime infrastructure in the country. ITDC being selected few strong players in this space is well positioned to capitalize on the opportunity.
• We increase our estimates factoring in the higher than expected topline and bottom-line performance. We recommend a BUY on the stock with increased price target of Rs.155.

Manappuram Finance (Q4 FY16): Shifting gears – BUY
CMP: Rs42, 1-yr Target: Rs60, Upside: 43.1%

• Strong beat on both NII and PAT led by robust AUM growth and NIM expansion
• AUM growth continues to accelerate; strong show on the non-gold loan portfolio
• Asset quality marginally improves in spite of shift to 120dpd recognition
• Revise earnings estimates upwards to factor higher growth rate and operating leverage; raise target price to Rs. 60

Apollo Tyres (Q4 FY16): Weak performance; valuations attractive – BUY
CMP: Rs159, 1-yr Target: Rs200, Upside: 26%

• Consolidated revenues at Rs. 2,990cr were below our estimates and were lower by 4.1% yoy due to weak domestic performance, Euro depreciation and restructuring of South Africa operations
• Standalone operations see 4.6% yoy decline in revenues to Rs. 2,155cr led by implementation of cuts price and adverse product mix
• European operations continue to see decline in revenues on account of lower volumes, realization fall and weakening of the Euro
• Consolidated OPM was at 16% a decline of 64bps on the back of poor performance in European operations, Standalone OPM was higher by 79bps yoy to 17.4%; Consolidated OPM was lower than estimates
• Retain our BUY rating as valuations look attractive at FY18E P/E of 6.8x, risks to this view arises from further increase in Chinese imports and sharper than expected increase in rubber and crude oil prices

Dr Reddys’ Laboratories (Q4 FY16): Disappointing Q4; subdued outlook – Accumulate
CMP: Rs2,974, 1-yr Target: Rs3,300, Upside: 11.4%

• A Rs.430cr Venezuela write off and margin decline chief reasons for disappointing Q4 show; revenues decline 5.3% qoq
• Generics sales decline across North America (-2.4% qoq), Europe and India (~-9% each) resulting in topline weakness
• Gross margin declined 280bps qoq in addition to higher R&D spends leading to below par margin at 20.8%
• Weak earnings outlook implies Accumulate rating stays with unchanged 1-year target of Rs3,300, based on 20x FY18E EPS

Manappuram Finance Ltd – Call Success & Update
Reco Price: Rs40, Previous Target: Rs48, New Target: Rs60

In our previous Call Success dated Apr 21, 2016 we had mentioned about the extension of our target price to Rs48 on the satisfactory delivery on the outlined strategy of diversifying its lending franchise. The stock has surpassed the target in today’s trading session yielding a return of 20% from the date of extension. Since our coverage initiation on Sept 14, 2015 at Rs22, the cumulative return stands at 118% in 8 months. We continue to remain bullish on the stock as Manappuram is now poised for stronger growth and improved margins, leading to robust profitability as is outlined in our Q4 FY16 Result Update released today. With valuation compelling at 1.2x FY18 P/Adj. BV given the better earnings visibility, we further upgrade 12-month target price to Rs60.

Amar Ambani
Head of Research, IIFL