Party’s just begun – Nifty to hit 10,000! Buy Stocks Aggressively: Amar Ambani

Party’s just begun – Nifty to hit 10,000!

Index in 2014 has seen a breakout from an ascending triangle pattern and also from a cup & handle pattern. The implications of breakouts on monthly charts are not only going to continue for many months, but many years as well. From March 2014, Nifty has witnessed short time corrections and shallow price corrections thus depicting the underlying strength in the current movement. The trend this year has been buying on every dip and the same is likely to continue for a long time to come. The amplitude of the triangle breakout mentioned earlier and the breakout projection corresponds to target of 10,300 within 18 months. Bull markets tend to go through period of corrections and consolidation, but the larger trend will continue to remain on the upside.

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State Bank of India (Q2 FY15) – BUY
CMP Rs2,788, Target Rs3,233, Upside 16.0%

• Domestic loan growth further decelerates to muted 7% yoy; shift towards low-risk assets continues
• Robust growth in Retail TDs continues to drive CASA ratio lower
• Domestic NIM contracts marginally; outlook soft in the near term
• Acceleration in fee growth came as a positive surprise; cost/income ratio improves on muted opex growth
• Stress assets addition declined materially; improving trends could sustain aided by economic revival
• Retain BUY and raise 9-12 month price target to Rs3,233

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Tata Motors (Q2 FY15) – BUY
CMP Rs524, Target Rs610, Upside 16.4%

• Consolidated net sales grew by 6.5% as fall in standalone sales was more than offset by higher JLR sales
• Growth in JLR revenues was driven by 7.2% yoy rise in volumes which was offset by 2.8% yoy decline in realizations
• JLR OPM was at 19.4% was in line with our estimates, margins were higher by 186bps yoy but lower by 90bps qoq, favorable geographic mix, better product mix and lower overheads were key reasons for the growth in margins
• OPM for standalone business were lower than estimates at a negative 3% and was down 394bps 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 and is also well placed to increase its margins

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ONGC (Q2 FY15) – BUY
CMP Rs393, Target Rs480, Upside 22.1%

• Net sales fall 8.8% yoy owing to lower net realizations of crude oil and lower gas production
• Discount on crude oil fell 5.3% yoy and 2.5% qoq to US$60.8/bbl
• Natural gas realization was at Rs9,547/tscm v/s Rs9,404/tscm in Q2 FY14
• For Q2 FY15 upstream contribution towards under recoveries is at 73% and ONGC share among upstream companies is at 83.3%
• We maintain our BUY rating with a 9-month target price of Rs480 as we see additional re-rating room as reforms are yet to play out completely

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Bharat Heavy Electricals Ltd (Q2 FY15) – SELL
CMP Rs246, Target Rs213, Downside 13.4%

• The trend in reporting weak set of numbers by BHEL continued as execution in domestic power orders remained slow
• Topline for the quarter declined 31.2% yoy to Rs61bn, quite lower than our estimate of Rs79bn
• Operating profit for the quarter stood below 5% for the second consecutive quarter due to slower execution and high fixed costs
• Order inflow for the quarter was quite strong at Rs130bn on the back of 2 orders from state utilities. Order book was higher by 2% yoy to 1,040bn led by strong order wins during the quarter
• Too much optimism built in; Maintain SELL with a price target of Rs213

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Britannia Industries (Q2 FY15) – BUY
CMP Rs1,625, Target Rs1,870, Upside 15.0%

• Britannia matched our expectations by recording 12.4% yoy revenue growth at Rs19.6bn led by healthy mix of volume and price
• Operating margins expanded sharply by 200bps to 11.3% fuelled by ~90bps/160bps drop in raw material and advertising cost
• Net profit registered ~13% yoy increase at Rs1.1bn led by healthy improved operating efficiency and higher other income. Britannia reported one-off profit of Rs1.6bn on account of sale of land and building in Chennai. Adjusted PAT (post-tax) increased by 50% yoy to Rs1.5bn
• We expect Britannia to witness a revenue/PAT CAGR of ~14%/30% respectively over FY14-16. Maintain Buy rating with a 9-mth revised price target of Rs1,870 (earlier Rs1,754)

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Cox & Kings (Q2 FY15) – BUY
CMP Rs309, Target Rs360, Upside 16.5%

• Revenues of continuing operations (ex-Camping) up 12% yoy and EBIDTA +8% yoy
• Healthy growth in India leisure revenues at 17.6% yoy accompanied by margin expansion; early booking trends for inbound season encouraging
• International leisure revenue rise muted at 2.7% yoy, margins impacted by promotional spending on Superbreak
• Education EBIDTA growth much faster than 9.9% revenue increase; Meininger revenues up 9.2% yoy
• Remain +ve on underlying growth prospects of Education, leisure; revise estimates and upgrade to BUY with 9-12mth target of Rs360

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Finolex Cables Ltd (Q2 FY15) – BUY
CMP Rs256, Target Rs352, Upside 33%

• Revenue growth remained subdued at 7.4% yoy primarily due to decline in communication cable segment
• Gross margins contracted by 100 bps to 26.1% due to increase in raw material cost
• Operating margin at 12.6% was lower than our expectation as sales & distribution costs and employee expenses increased during the quarter.
• Higher depreciation charge due to change in depreciation policy affected profitability; Adjusted PAT grew 9.7% yoy as other income increased 19%.
• Cut FY15/16 estimates on demand remains sluggish and no new orders bagged by the company during the first half but retain BUY with 2 year target of Rs352.

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Warm Regards,

Amar Ambani