Top Investment Ideas For 2018 By Stewart & Mackertich

Indian Hotels

Undisputed Leadership: Over the past couple of years, multiple international hotel brands have entered the Indian hospitality industry, yet Indian Hotels still remains the undisputed leader in terms of geographical presence and room inventory. Over the years, the company has built a vibrant portfolio catering to different hotel categories including premium hotels, mid-market hotels and budget hotels. Its share from contract management continues to increase, raising possibilities for better margins.

Beginning of an up-cycle: The five-year period marked by oversupply in the Indian hospitality sector is coming to an end and the market is witnessing an up-cycle with expectations of a robust revival in demand. The company’s revenue per available rooms is expected to witness impressive improvements over the next two years. The company in its latest presentation has clearly depicted improved occupancy and ARR’s which are the signals of better days are ahead for the hospitality industry and for IHCL in particular.

Valuation: Several macro and micro factors compel us to believe a good visibility of growth in the hospitality sector. Indian Hotels is likely to reward investors. We value the Company at an EV/EBITDA of 22x for FY19E driven mainly by increase in their top line and arrive at a target price of INR169.

Jindal Saw

Growing turnaround story of Internal Operations: The Company has been doing steady business over last few quarters and has improved their margins considerably. Improved margins will add to the earlier sunk bottom line of the company.

Global surge in Oil and Gas Prices: As the self-imposed cuts by OPEC is said to extend till end 2018, we expect a stable crude prices to stabilize around 60-65 USD/barrel, generating optimum environment for major stalled investments in the GCC and Scandinavian region to restart investment for more oil. Since, Jindal Saw has a 37% order book for exports as of Q2 FY18, the orders are expected to plummet further.

Valuation: We foresee a major turnaround story for Jindal Saw Limited over next couple of years. We estimate the topline to grow more robust in next fiscal on the back of ongoing reforms in the economy and growth revival in the global economic engine. Hence, on the back of the improving ROCE, we have assigned an EV/EBITDA (x) of 5.4 for FY19E with a Target Price of INR160.

Bharat Forge

Setting up new Greenfield Project: Bharat Forge to set up state of the art large mega site called Centre for “Light Weight Technology “(LWT) in Andhra Pradesh. In phase-I they are going to invest around INR200 crores and aims to start its operation within 2 years. This site is going to develop components, subsystems of aluminum and future carbon fiber which are light weighted and which finds application in automobiles, industrial, marines, aerospace etc. and looking forward especially in BS VI norms vehicles and upcoming arena of EV’s.

Positive Outlook for M&HCV and PV: Domestic commercial vehicle (CV) sale is back on track since July 2017, driven by the demand post GST. As per the Industry Domestic M&HCV segment is expected to register an increasing growth of 15-18% over next one and half years on the back of government’s focus on infrastructure coupled with stricter implementation of overloading ban, implementing BS VI norms by skipping BS V and pick-up in the overall economy.

Valuation: Considering the positive opportunities for the company coupled with greenfield expansion and US truck sales picking up, we expect the EPS of the company to grow at CAGR of 25.6% for the next 2 years. Also, due to improving ROCE, we assign a PE multiple of 36 to FY19E EPS , to arrive at a price target of INR859.