Stocks To Buy & Sell After Q2FY16 Results By Amar Ambani Of IIFL

India Cements Ltd (Q2 FY16): Operational performance beat estimates – BUY
CMP Rs83, Target Rs114, Upside 34.5%

• Lower dispatches (~8% de-growth) drag revenue below estimates
• Realisation jumps 5% yoy but falls 2.7% qoq basis on account of recent price correction in key southern market
• Reversal of excess DMF along with lower power cost boost margins
• Maintain Buy with a 9-month price target of Rs.112

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Apollo Tyres (Q2 FY16): European operations drag performance – BUY
CMP Rs170, Target Rs200, Upside 17.6%

• Consolidated revenues at Rs. 2,996cr were below our estimates and were lower by 9.6% yoy due to weak India market, Euro depreciation and restructuring of South Africa operations
• Standalone operations see 0.1% yoy decline in revenues to Rs. 2,247cr
• European operations continue to see decline in revenues on account of lower volumes, realization fall and weakening of the Euro
• Consolidated OPM was at 16.1% a growth of 123bps on the back of improvement in Indian operations, Standalone OPM was higher by 329bps yoy to 17.8%; both standalone consolidated OPM were lower than estimates
• In Q2 FY16, TBR imports increased almost 100% Yoy of which the Chinese brands contributed nearly 90%
• Retain our BUY rating as valuations look attractive at FY17E P/E of 7.6x, risks to this view arises from further increase in Chinese imports and increase in rubber and crude oil prices

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Yes Bank (Q2 FY16) – BUY
CMP Rs744, Target Rs1,005, Upside 35.1%

• Loan growth remains strong at 29% yoy; bank likely to sustain the momentum in coming years too
• Deposit franchise continues to improve with a sharp uptick in CASA ratio
• NIM was resilient; could improve marginally over the medium term
• Core fee growth disappointed; opex growth elevated on aggressive network investments
• Uptick in NPLs was in-line with the trend seen in preceding quarters
• Retain BUY and 12-month target price of Rs1,005

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Bharat Forge (Q2 FY16) – Accumulate
CMP Rs816, Target Rs910, Upside 11.5%

• Revenues at Rs. 1,117cr lower by 1.9% yoy; lower than our estimates
• Tonnage volumes were higher by 3.8% yoy and 5.1% qoq
• Realizations were lower by 5.5% yoy and 5.9% qoq
• OPM at 28.8% was higher by 25bps yoy but was lower than expectations, benefits of lower raw materials cost and manufacturing expenses were offset by higher staff and other overheads costs
• PAT at Rs. 175cr declined by 2% yoy and 10.4% qoq; was lower than our estimates
• Cut our estimates to factor in persistent weakness in the oil and gas segment and also increasing slowdown in other non-auto exports business, also factoring in slowdown in US CV business
• Downgrade to Accumulate with a revised price target of Rs910

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Dr Reddys’ Laboratories (Q2 FY16) – Accumulate
CMP Rs4,214, Target Rs4,500, Upside 6.9%

• Dr Reddy’s (DRL) reported yet another strong showing yoy as revenue growth of 11% (cc 14% yoy) beat our estimate of 7.7% yoy
• Robust growth across US (+32% yoy), Europe (+65% yoy) and India (+14% yoy) drove topline growth; emerging markets sales down 22% yoy o currency headwinds
• Margins continue to grow on a strong base of Q1, up 585bps yoy on higher gross margin and lower SG&A yoy; PAT beat at +25.7% yoy
• Srikakulam facility resolution remains the key regulatory overhang; revise margin and EPS estimates and retain Accumulate

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Shriram City Union Finance (Q2 FY16) – BUY
CMP Rs1,840, Target Rs2,269, Upside 23.3%

• On track to achieve AUM growth guidance for FY16
• Change in AUM mix lead to softening of yield; NIMs, however, maintained at higher levels aided by declining funding cost
• Cost/income inches up on higher employee expenses; expect the ratio to fall below 40% as operating leverage plays out
• NPL ratios to go up but credit costs will remain stable
• Franchise profitability to improve materially over FY15-18; Retain BUY with a 12-month TP of Rs. 2269

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Larsen & Toubro Ltd (Q2 FY16) – BUY
CMP Rs1,411, Target Rs1,887, Upside 33.7%

• LT’s Q2 FY16 results were below our estimates on lower margins and lower order inflow
• Lower than expected EBIT margins in infrastructure segment and higher losses in heavy engineering division led to the miss in operational performance
• Topline of Rs. 23,393cr was above our estimate due to higher execution in power segment, indicating at some pickup in execution
• Consolidated order inflow of Rs. 28,620cr was marginally lower than expected. Order book at the end of Q2 FY16 stood at Rs. 244,097cr, higher by 14% yoy
• OPM of 11.1% was lower than our estimate of 11.7% due to a sharp decline in infrastructure margins
• Lower margins in the core E&C division is a big concern. The management indicated that the sharp fall in margins is largely due to job mix status
• PAT was above estimate on account of a one-off gain of Rs. 309cr
• Company has reduced its order inflow guidance from 15% yoy to 5-7% due to slower pickup in execution in domestic and Middle East and strong base
• Revenue guidance also lowered from 15% yoy to 10-15%, while maintaining its margin expansion guidance
• We have cut our estimates for FY16 and FY17 factoring slower than expected recovery in infra spending; However, it remains our top bet in the infrastructure space and maintain our BUY rating with a revised price target of Rs. 1,887

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ICICI Bank (Q2 FY16) – BUY
CMP Rs277, Target Rs375, Upside 35.4%

• Domestic loan growth strong at 17% yoy; retail credit continue to drive growth with share increasing to 57%
• Overall loan growth to improve to 15% by end FY16; well capitalized for long-term credit growth recovery
• Average CASA ratio near all-time high; NIM was stable and outlook is steady
• Moderation in fee growth disappointed; well-managed cost/income metric
• Stress on asset quality persists; credit cost to marginally inch-up in H2 FY16
• Retain BUY with 12-month target of Rs375

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Torrent Pharmaceuticals – Accumulate
CMP Rs1,543, Target Rs1,690, Upside 10.1%

• gAbilify impact loses some sheen as expected on sequential basis; revenues decline larger than estimated at 13% qoq
• Gross margin declines ~80bps qoq while negative operating leverage leads to ~450bps qoq fall in margin
• Reported PAT cushioned by lower tax rate qoq, exceptional gains and includes ZYG Pharma financials
• We revise our FY16/17E revenues, margin and EPS estimates as we factor in gNexium approval; retain Accumulate with unchanged 9-12mth target of Rs1,690

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Glenmark Pharmaceuticals (Q2 FY16) – Accumulate
CMP Rs991, Target Rs1,070, Upside 7.8%

• Mixed bag results as revenues beat, margin misses forecasts; India, US key pillars of strength
• Domestic business (+27% yoy) includes channel sales of Sitagliptin; co sees annualized run rate at 18-20%
• US business steady with 6.7% qoq rise; Welchol, Zetia would be the key launch triggers in CY16/FY17
• Expect US business to do well in H2; revise FY16/17E estimates but valuations at 22x FY17E limit upside. Retain Accumulate

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Indoco Remedies (Q2 FY16): Valuations price in robust growth – Reduce
CMP Rs326, Target Rs315, Downside 3.2%

• Indoco revenues grew 12% yoy vs. estimate of -2% driven by robust exports formulation growth of 23.7%; domestic formulations posted muted rise of 1% yoy
• Regulated market sales up ~26% yoy with healthy traction in Latanoprost ophthalmic solution
• Margins declined on higher staff and R&D costs; PAT growth at +1.8% yoy lags topline
• Expect better pace of approvals in Watson portfolio to drive US and regulated market revenues; valuations however do not leave much room for upside. Retain Reduce

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