Stocks To Buy And Sell After Q3FY15 Results By Amar Ambani Of IIFL

Express Idea: Shriram Transport Finance Co Ltd. – BUY
CMP Rs1,211, Target Rs1,385, Upside 14.4%

• AUM growth to gradually pick-up
• NIM to recover; cost/income ratio to improve
• Asset quality pressure to ease; current valuation do not fully capture long-term cyclical recovery in profitability

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Bharat Heavy Electricals Ltd (Q3 FY15) – SELL
CMP Rs268, Target Rs235, Downside 12.3%

• BHEL continued to report weaker set of numbers on account of shrinking order book and slower execution in the domestic market
• 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 third consecutive quarter due to slower execution and high fixed costs
• Order inflow for the quarter stood at Rs77bn on the back of orders from Telengana state. Order book was higher by 3% yoy to 1,039bn led by strong order from state utilities
• Running ahead of fundamentals; Maintain SELL with a price target of Rs235

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Hindalco Industries Ltd (Q3 FY15) – Reduce
CMP Rs152, Target Rs145, Downside 4.4%

• Hindalco reported weaker than expected numbers due to underperformance in the aluminium segment and high interest costs
• Though aluminium business performance improved on a qoq basis, EBIT of Rs3.9bn was marginally lower than estimate
• Copper business EBIT remained strong on the back of rising Tc/Rc margins and an improvement in by-product credits
• Bottomline impacted by higher interest costs (commissioning of Aditya smelter) and higher tax rate
• Near term earnings to remain subdued due to high power costs; Maintain reduce rating with a price target of Rs145

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Power Grid (Q3 FY15) – BUY
CMP Rs150, Target Rs187, Upside 24.7%

• Power Grid’s operational numbers were inline with our estimates
• Topline growth was strong at 18.2% yoy to Rs43.5bn on the back of higher capitalization in 9M FY15
• Reported PAT was higher than our estimate due to lower tax rate and an increase in consultancy revenues qoq
• The company continued to report higher capitalized projects during the quarter at Rs72bn; 136% higher on a yoy basis. Capex for the quarter stood at Rs48.8bn
• Capitalized projects in YTD stood at Rs173bn, more than capitalization of Rs159bn witnessed in FY14
• We maintain our BUY rating on the stock with 2-yr target price of Rs187

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Cipla (Q3 FY15) – Reduce
CMP Rs662, Target Rs630, Downside 4.8%

• Cipla Q3 revenues and EBIDTA below estimates on weak formulation exports but offset by 14.2% yoy growth in domestic business
• Margin largely in line qoq as flat revenue impact mitigated by strong cost management
• Expect earnings growth to pick up over FY16/17 but valuations leave little room for upside; retain target but lower rating to Reduce

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Indraprastha Gas (Q3 FY15) – BUY
CMP Rs430, Target Rs500, Upside 16.3%

• Net sales at Rs9.4bn were lower than estimates owing to weaker than expected PNG volumes and CNG realizations
• CNG volumes at 204mn kgs were higher by 5.7% yoy but declined 1.5% qoq. PNG volumes were at 82.4scm a fall of 7.6% yoy and 8.4% qoq
• Gross margins/unit decreased by 3.7% yoy and 3.2% qoq to Rs11.1/unit. This was lower than our expectations owing to lower than expected CNG realizations and gas price hike implemented during the quarter
• OPM at 20.3% came in lower than our expectations and was higher by 159bps yoy but lower by 247bps qoq
• Maintain BUY with a price target of Rs500

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Tata Communications (Q3 FY15) – BUY
CMP Rs414, Target Rs520, Upside 26.1%

• EBIDTA and PAT beat offset revenue weakness; Q3 margins up 134bps qoq while revenues decline 3.1% qoq
• Data yet again drives the EBIDTA beat with margin up ~80bps to 21% on the back of 4.4% qoq revenue rise; voice market remains challenging with 8% qoq sales decline
• Tcom remains the best bet to play the growth unfolding in enterprise data which would drive stock rerating; BUY for unchanged 9-12mth SOTP target of Rs520

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Coal India (Q3 FY15) – BUY
CMP Rs369, Target Rs432, Upside 17.1%

• Coal India’s Q3 FY15 performance was weaker than expected due to higher operating costs and an increase in provisions
• Blended realisations were higher by 0.5% qoq to Rs1,426/ton as the impact of higher FSA prices was impacted by lower e-auction volumes
• Coal production was higher by 11.2% yoy and dispatches were higher by 6.3% yoy
• Operating profit of Rs34.8bn was lower than expected on account of jump in costs
• Proxy play on the reform story; Maintain BUY with a price target of Rs432

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Express Idea: Godrej Consumer Products – BUY
CMP Rs1,064, Target Rs1,225, Upside 15.1%

• Impressive growth in domestic as well as international biz
• Strong leadership position in international business
• Lower crude, PFAD prices, cost saving initiatives to fuel OPM
• Strong earnings visibility, maintain BUY

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Express Idea: Asian Paints – BUY
CMP Rs822, Target Rs938, Upside 14.1%

After making double top in last week of January 2015, the stock went through a phase of sharp correction, eventually retracing 50% of its previous upmove. The same level also coincides with the support of its 50-DMA, suggesting that the current selling pressure has come to an end. We advise buying Asian Paints with stop loss of Rs763 for target of Rs938.

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Motherson Sumi (Q3 FY15) – BUY
CMP Rs461, Target Rs615, Upside 33.4%

• Revenues at Rs91.5bn came in higher than our estimates, wherein the growth in SMP revenues were substantially higher than our estimates
• Standalone OPM was lower better than expectations at 17.2%, SMP margins came in at 6.9% v/s our expectations of 6.2%, SMR margins were at 10.2% in line with our estimates
• While margins for the SMP were higher on a yoy basis, standalone and SMR margins were lower by 183bps yoy and 20bps respectively causing consolidated OPM to fall by 29bps yoy
• We maintain BUY with a revised 2-year price target of Rs615

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Cadila Healthcare (Q3 FY15) – BUY
CMP Rs1,514, Target Rs1,920, Upside 26.8%

• Cadila revenues up a strong 17.4% yoy driven by robust growth in US and emerging markets
• EBIDTA margin improved 108bps qoq on operating leverage tailwind while higher tax rate led to lower than estimated PAT at +6% qoq
• Company expects 20% growth in US business subject to approvals; pending approvals in transdermals, nasals and topicals would drive growth over next 2-3 years
• Retain BUY on best in class EPS cagr of 30.4% over FY15-17 with unchanged 9-12mth target of Rs1,920

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National Aluminium Co Ltd (Q3 FY15) – BUY
CMP Rs49.5, Target Rs62, Upside 25.2%

• NALCO continued to report strong numbers for the second consecutive quarter led by higher premiums and increase in alumina prices
• Operating performance remained strong even though operations were impacted by cyclone Hudhud
• Alumina production declined by 1.3% yoy, whereas aluminium production improved by 3.8% yoy due to improving coal supply
• Operating profit of Rs5.3bn was higher than our estimate due to a decline in raw material and power costs; OPM at 27.7% was the highest in the last three years
• Strong performance to continue going ahead; Maintain BUY with a price target of Rs62

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Radico Khaitan (Q3 FY15) – Accumulate
CMP Rs86, Target Rs92, Upside 7.6%

• Persistent input cost pressures drive 265bps yoy decline in margin while net sales growth remains tepid at +5.5% yoy
• Prestige and above brands share at 21.4%, up ~200bps yoy but higher ENA costs eat into benefits of improved revenue mix
• Elevated ENA prices and lack of revenue traction to restrict stock upside; retain accumulate with unchanged 9-12mth target of Rs92

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