Gateway Distriparks – high EBITDA, ROE, low debt & beneficiary of GST:
The first stock idea is Gateway Distriparks, the company which is in the logistics space and which has been operating in the ICDs and CFS that is inland container depots and container freight stations and also in the segment of cold chain Snowman Logistics. The company’s bulk of revenues come from railway which operates through ICD inland container depots and the company can be a big beneficiary as the dedicated freight corridor (DFC) that the government has been promising is constructed and also the Krishnapatnam Port which is expected to be operational by second half of FY17.
It should be another big trigger for the revenue pick up for the company. And also from the cold chain point of view, the Snowman Logistics which is an associate company where the company owns about 40 per cent, that can also be a huge value addition. So the company enjoys a fairly strong balance sheet with virtually 0.1 debt equity ratio and EBITDA margins as high as 20-25 per cent and ROE in the range of 13-15 per cent. So return ratios are good, EBITDA margins are good and debt equity is less and the company is in a nice space. If the government is able to eventually unfold GST that should be helping the overall logistics as an industry and Gateway Distriparks as well. So keeping all the things into account we are bullish on Gateway Distriparks and we have initiated coverage with a target price of Rs 340.
Bata India – strong brand, high RoE, beneficiary of rising disposable income:
Bata India is the oldest and the largest shoe retailer in India with a household brand, with a very strong brand. The company has about 1,400 stores with pan India presence. The company is planning to add about 100 stores more in the type-2, type-3 markets. The company is also trying to carve out a niche like a youth brand because it has traditionally been associated with an adult, elderly image. Now they want to shape it more towards a youth brand. The rising disposable income in India and the working population should be some macro indicators which should be helping the overall demand for the company. The company has been enjoying extremely good EBITDA margins in the rage 13-15 per cent. ROE is in the range of about 20 per cent and debt equity is also very less. So keeping their balance sheet strength and the brand strength and margins in mind, we have initiated a positive view on the company with a target for Rs 700.
SML Isuzu – leader in school bus segment & special vehicles:
Automobile is a clear proxy to the overall economic revival and SML Isuzu in the special vehicle segment and the segment has been doing well and a clear leader in the school bus segment. Also, the company has overall been doing well and even though December quarter results were not up to the mark, it is more a case of inventory built up kind of quarter. So they are preparing themselves for this March quarter and the June quarter demand that will be inspected with couple of school buses. So the company is well prepared for the overall growth and we are expecting 15 per cent CAGR growth in FY17. The EBITDA margins and return ratios are right and the debt levels are also very low. So it makes a prefect case for buying.
NRB Bearings – high RoE, beneficiary of industrial and automobile growth:
NRB Bearing is positioned well. The company which takes part in industrial management activity in the overall country with the GDP growth, should be benefiting the overall business for the NRB Bearings. Auto industry revival could add to the demand and the company is a clear leader in the rural bearing segment and the company has been exploring new markets to increase the profitability. The needle bearing market itself is about Rs 440 crore and the company with its leadership position can cash most of it and we are expecting that the company stock can reach at least around Rs 141. The ROEs are in the good mid 25-30 per cent kind of range. So I think it is a perfect company to be in the portfolio. There is a good chance that the stock can be getting closed on 40.