Stocks To Buy & Sell After Q1FY16 Results By Amar Ambani Of IIFL

Strides Arcolab (Q1 FY16) – BUY
CMP Rs1,272, Target Rs1,530, Upside 20.3%

• Q1 FY16 revenues post modest growth at ~6% yoy as Africa weakness drags emerging market sales lower
• Institutional business rebounds with strong anti malaria traction; regulated market growth tepid at 1.7% impacted by Europe
• Upgrade to BUY on strong growth across key businesses, margin ramp up over FY16/17; revise 9-12mth target to Rs1,530 and rate Strides as top pharma pick

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Shriram City Union Finance Ltd. (Q1 FY16) – BUY
CMP Rs1,751, Target Rs2,204, Upside 25.9%

• AUM growth improved to 16% yoy; traction in non-gold loan portfolio improves
• Well positioned for a recovery; AUM growth to accelerate to 22-23% by FY17
• NIM declined on product mix shift, but long term outlook is encouraging
• Asset quality was stable; NPLs to rise on shift to early recognition
• Profitability to stay strong despite elevated provisioning; Retain Buy with 12-month TP of 2,204

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ICICI Bank (Q1 FY16) – BUY
CMP Rs302, Target Rs400, Upside 32.5%

• Domestic loan growth strong at 17% yoy; retail credit continue to drive growth with share increasing to 57%
• Bank targets a slightly higher growth in FY16; well capitalized for credit growth recovery
• Average CASA ratio at all-time high; NIM comes-off marginally to 3.54% but outlook is stable
• Fee growth has been reviving gradually; cost/income ratio increase on lower treasury income
• A relief quarter for asset quality; commentary on outlook is comforting too
• Retain BUY and 12-month target of Rs400

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Greaves Cotton (Q1 FY16) – BUY
CMP Rs148, Target Rs232, Upside 56.7%

• Revenues at Rs381cr were lower by 9.9% yoy; lower than our estimates, Engine segment revenues were lower by 5.6% yoy as growth in volumes remained flat to weak across segments
• OPM at 16.4% was substantially ahead of estimates and was higher by 527bps yoy and 486bps qoq, driven by value addition in the engines business and cost cutting initiatives implemented
• Adjusted PAT was higher by 22.4% yoy at Rs.36cr, however reported PAT was at Rs. 43cr v/s Rs. 29cr in Q1 FY15 impacted by one-offs
• Maintain our rating to BUY with a 2-year price target of Rs232

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Larsen & Toubro Ltd (Q1 FY16) – BUY
CMP Rs1,790, Target Rs2,161, Upside 20.7%

• LT’s results were lower than estimates on both order inflow and execution
• EBIT loss in Metallurgical and material handling division coupled with lower contribution from development projects led to a miss in bottomline
• Hydrocarbon division managed to report better than expected numbers; However, overall margins were impacted by execution of legacy orders and under recovery of international overheads
• Consolidated order inflow was quite weak, registering a degrowth of 21% yoy to Rs. 26,376cr, due to higher base and the company losing out on large orders due to pricing. Outstanding order book for the consolidated entity was at its highest level of Rs. 238,973cr, up 22% yoy
• Adjusted for the revenue from sale of development asset, topline growth stood at 15.7% yoy on the back of higher contribution from hydrocarbon and power segments
• Consolidated operating profit was lower on a yoy basis due to operating loss in MMH and lower contribution from development assets. Higher tax rate of 45% accentuated the miss in bottomline
• The company has guided for a prospect pipeline of Rs. 500,000cr for the rest of FY16
• For FY16, company has maintained its guidance of 15% growth in order inflow and revenues and margins to expand by 100bps yoy
• Stake sale in L&T Infotech business next trigger for the company. Growth in FY16 to be back ended; Maintain BUY rating with a revised price target of Rs. 2,161

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Alembic Pharma (Q1 FY16) – SELL
CMP Rs735, Target Rs590, Downside 20.0%

• Revenues beat estimate on higher international generics supplies; Abilify to make its mark from Q2 onwards
• Company hikes R&D spending to ~Rs. 50cr/quarter as it adds spending on injectables, derma to current portfolio of oral solids
• Margin declined ~190bps; company indicated impact of higher R&D on margins at 300bps
• Raise FY17E earnings by 13% on gAbilify, other opportunities; we like the underlying US business strength, higher R&D spending focus and ANDA pipeline but find stock expensive; downgrade to sell with revised 9-12mth target of Rs590

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Exide Industries (Q1 FY16) – Accumulate
CMP Rs146, Target Rs156, Upside 6.9%

• Net sales at Rs. 1,800cr was lower than our and street estimates; represented a decline of 5.9% yoy but 8.9% growth qoq
• Weaker than expected revenues was owing to sharp fall in industrial battery and automotive OEM battery sales
• OPM at 14.8% was lower than our expectations and was lower by 44bps yoy but improved 36bps qoq, gross margins were higher by 41bps yoy but declined 181bps qoq
• PAT was at Rs. 155crs much lower than our expectations and saw a 16.2% yoy decline but a 12.8% qoq growth
• Automotive industry fortunes are expected to revive from H2 FY16 and further strengthen in FY17, however replacement demand will be weak given the muted OEM sales in the past three years
• We maintain our Accumulate rating on the stock as we believe upside triggers are factored in the current valuations

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Petronet LNG (Q1 FY16) – Accumulate
CMP Rs193, Target Rs195, Upside 1.0%

• Net sales at Rs. 8,377cr was sharply lower than our estimates; represented a fall of 17.6% yoy but an increase of 17% qoq
• Total volumes were at 131.5 TBTUs as compared to 138.6 TBTUs in Q1 FY15 and 102.5 TBTUs in Q4 FY15; fall was mainly on account of lower offtake of long term volumes
• OPM at 4.3% was higher than our expectations
• PAT at Rs. 248cr was higher than our estimates on better than estimated operating performance and one time tax reversal of Rs. 72crs
• While Kochi ramp up continues to be a concern recent developments such as stakeholders meeting by state government, leasing out of storage tanks and trucking of gas have been positive
• We maintain our Accumulate rating with a revised 12 month target price of Rs. 195 as clarity should emerge on Kochi terminal in medium term and current soft LNG prices should ensure robust demand for LNG

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GSPL (Q1 FY16) – BUY
CMP Rs125, Target Rs157, Upside 25.6%

• Revenues at Rs. 259cr were higher than our and street estimates owing to better than expected growth in volumes
• Volumes were at 24.5mmscmd for Q1 FY16 as compared to our estimates of 23.3mmscmd
• OPM at 87.6% was higher than our estimates of 86%, due to benefits of operating leverage
• Decrease in debt levels led to decline in interest expenses on yoy basis
• We maintain our BUY rating as we expect the gas availability to increase in the country, GSPL will be a major beneficiary; we maintain our target price at Rs157

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Mahindra & Mahindra (Q1 FY16) – BUY
CMP Rs1,387, Target Rs1,600, Upside 15.4%

• Including MVML, M&M reported 4.7% yoy decline in revenues while it saw a modest increase of 3.4% on sequential basis
• OPM was at 14.3% flat on yoy basis but a jump of 333bps sequentially, qoq increase in margins was led by higher contribution of farm equipment segment to total revenues
• PAT at Rs. 831cr was higher estimates
• While the UV segment will see revival from the new launches over the next couple of years, farm equipment segment should get a boost from normal monsoons and investment in infrastructure activities
• Maintain BUY with a revised price target of Rs1,600

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Tata Motors (Q1 FY16) – BUY
CMP Rs392, Target Rs540, Upside 37.8%

• Consolidated net sales declined by 5.7% as 20.7% yoy jump in standalone revenues was more than offset by 6.6% fall in JLR revenues in £ and 3.5% appreciation in £ against INR
• Decline in JLR revenues was driven by 6% yoy fall in realizations as volumes remained flat yoy
• JLR OPM was at 16.4% was lower than our estimates and margins were lower by 389bps yoy and 103bps qoq
• OPM for standalone business was higher than estimates at a 3.7% and was up 759bps yoy and 225 bps qoq mainly on back of operating leverage
• Maintain our BUY rating as we believe the impact of China slowdown for JLR business will more than offset by strong growth in other regions and new model launches enabling market share gains

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Bharat Heavy Electricals Ltd (Q1 FY16) – Reduce
CMP Rs266, Target Rs240, Downside 9.7%

• BHEL’s results were quite weak as the company reported an operating loss due to slower execution. The weakness in numbers was largely due to a miss in revenue.
• Topline for the quarter was lower by 15.4% yoy against our estimate of 4% yoy de-growth and street estimate of 2% yoy growth
• High fixed costs coupled with lower revenues led to the company reporting an operating loss of Rs. 209cr.
• The company managed to stay in the black on the back of higher other income, which was up 41.6% yoy
• Order inflow for the quarter stood at Rs. 19,688cr, a jump of by 17x on a yoy basis on the back of orders received from Telangana region. Order book was higher by 19.3% yoy to Rs. 116,200cr also supported by order in the solar power sector
• Near term earnings to remain under pressure due to slower execution; maintain Reduce with a revised price target of Rs. 240

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Radico Khaitan (Q1 FY16) – Accumulate
CMP Rs98, Target Rs106, Upside 8.2%

• Healthy gross revenue growth of 16.4% yoy though net sales up a moderate 6.7% yoy
• Prestige and above brands grew 8.7% yoy and share rises to 25% of overall volumes; adjusted for the strategic defocus on TN sales, volume decline stood at 2.4% yoy
• Gross margin expands ~260bps yoy though higher other expenses lead to ~110bps yoy decline in margin
• Lack of near term triggers restricts stock upside; retain Accumulate with revised 9-12mth target of Rs106

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Cox & Kings (Q1 FY16) – Accumulate
CMP Rs284, Target Rs310, Upside 9.2%

• Subdued Q1 showing on high base of last year and INR appreciation vs GBP
• Adjusted for Camping sale, revenues up 5% yoy; domestic leisure posts healthy ~15% yoy topline growth
• Education impacted by high base of last year; weak Euro takes toll on Meininger performance even as Meininger euro revenues up 9% yoy
• Post Q1 FY16 ex-Camping performance, we cut FY16/17 margin and EPS estimates and lower rating to Accumulate with revised 9-12mth target of Rs310

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Kalpataru Power Transmission Ltd (Q1 FY16) – Accumulate
CMP Rs276, Target Rs295, Upside 6.9%

• KPTL’s standalone results were quite stronger than our expectations due to higher execution in the infrastructure segment
• Topline for the quarter was higher by 10% yoy as the infrastructure division reported 3x yoy revenue growth
• However, execution in the Transmission & Distribution (T&D) space was lower due to shrinking order book
• Order inflow at Rs. 1,980cr was quite higher than expected as the company had managed order inflow of Rs. 2,580 for FY15. The company’s L1 position increased to Rs. 2,500cr
• Management has reduced its revenue guidance for FY16 from 15% to 10%+, while maintaining its margin guidance of 10% for the standalone entity
• Maintain Accumulate with a revised price target of Rs. 295

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