Century Plyboards – Structural shift…new thrust to growth…
Century Plyboard (India) (CPIL) is India’s leading plywood player with the largest plywood capacity and enjoys ~23-30% share of the country’s organised plywood market (~25-30% of total plywood market). With a pan-India distribution network and security over raw materials, CPIL is likely to benefit from the structural shift towards the organised pie (currently stands at ~Rs. 3500-4500 crore) on account of the rollout of GST and Myanmar’s ban on timber export. Consequently, we anticipate CPIL’s earning will grow exponentially at 52.0% during FY14-17E. We initiate coverage on CPIL with a BUY recommendation and a target price of Rs. 254 (24x FY17E EPS, implying a PEG of 0.5x).
Ratnamani Metals & Tubes Ltd – Niche pipe player
Ratnamani Metal and Tubes Ltd (Ratnamani) is the largest manufacturer and exporter of customized industrial steel pipes, commanding a market share of ~40% in the domestic stainless steel pipes market. We believe it is best suited to benefit from the revival in industrial capex cycle. Ratnamani’s structural growth story is expected to continue for the next two to three years, given an increase in spends in key industries like irrigation, oil & gas, nuclear and thermal power considering its expertise in manufacturing customized pipes. We estimate revenue and PAT CAGR of 24% and 27%, over FY2014-17E. We expect Ratnamani to maintain high margins on the back of good order-inflows in the stainless steel segment. At the current price, the stock trades at 10.8x FY2017E EPS of Rs62.4. We recommend BUY with a target price of Rs874.
Zee Entertainment – Firing on all cylinders
Zee’s 3QFY15 numbers were ahead of ours and consensus estimates. The company’s ad revenue growth continues to surprise positively, growing at 9% YoY with annual ex-sports ad revenue growth in the range of 12-16%. This was the key reason for EBITDA beat, which grew 22% YoY notwithstanding a sharper than expected sports loss of Rs 270mn. Consolidated net sales grew by 15% YoY, EBITDA by 22% and APAT by 28%.
We resume coverage with a BUY rating and TP of Rs 437 (32x FY17E EPS and a discount of Rs 16 on account of preference share payout). We believe that ZEEL is uniquely positioned to capitalize on (1) higher ad spends on account of improving GDP growth, incremental spends by FMCG and the emergence of new categories (2) digitization – ARPU upside from phase I and II areas as well as digitization of phase III/IV.
Rallis India – At an inflection point
Rallis India’s 3QFY15 results were disappointing on account of lower Rabi sowing (-5% YoY) and weak profitability for farmers in kharif. Revenues came in at Rs 3.9bn (-3% YoY) while APAT stood at Rs 255mn (-16%). Inventory losses (Rs 54mn, due to fall in RM prices) and higher other expenses led to the contraction in EBITDA margin to 13% (-91 bps).
Rallis is a direct beneficiary of Indian agriculture growth. Lower penetration of agrochemicals in India and its cost advantage underpin a long term growth. A strong brand, complete portfolio and extensive distribution network command a premium for Rallis.
Despite the world class facility at Dahej, revenues from exports have only doubled in the last 5 years for RALI vs ~5x growth for the CSM leader in India. We expect CSM along with seeds (biz to grow 2.5x over FY14-17E) to be the key drivers for the company.
Rallis is trading at 15.5/3.7x FY17E EPS/BV. Attractive valuation, zero debt, strong RoE/RoCE and new product launches are key positives for the stock. Upgrade to BUY with a TP of Rs 251 (18x FY17E EPS).
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