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

Magma Fincorp (Q2 FY16): ‘Pressure on Asset Quality persists’ – BUY
CMP Rs91, Target Rs150, Upside 64.8%

• Disbursements continue to decline as expected; would keep AUM expansion in check in the near term
• NIM stays on improvement path; outlook remains strong too
• High pressure on asset quality persists; unlikely to abate in near term
• Recovery in profitability to be sharp in FY17/18; Retain Buy

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Cipla (Q2 FY16): gNexium moderation sets in – Accumulate
CMP Rs659, Target Rs700, Upside 6.1%

• gNexium impact wears off from Q1 peak as expected even as revenue decline of 10.4% qoq also impacted by weakness in domestic generic business
• Ex-Nexium, growth remains strong in export geographies and verticals; most of export formulations decline qoq probably on account of gNexium
• Company raised revenue guidance to 22% (from 20%) and margin improvement of 150bps in FY16; Invagen transaction to be completed by Dec’ 15
• Incorporate Invagen acquisition from FY17E and upgrade to Accumulate with revised 9-12mth target of Rs700

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Tata Steel Ltd (Q2 FY16): Earnings under pressure – Reduce
CMP Rs225, Target Rs211, Downside 6.2%

• Tata Steel’s consolidated results were quite weaker than our estimates due to an operating loss in its European division
• Domestic operations reported strong volume growth, however, this impact on operating profit was offset by a rise in raw material costs
• Outperformance in bottomline was on account of profit from sale of quoted investments in Tata Motors and Titan
• In standalone results, raw material costs increased on a qoq basis due to purchase iron ore as the company’s Naomundi mines was shut during the quarter. Contribution from the FAMD division would increase from H2 FY16 as all mines are operational from second half of Q2 FY16
• European operational performance was weak due to the sharp depreciation against the Dollar and pressure on prices from cheaper imports. The company reported a loss at adjusted EBIDTA/ton of US$7/ton against US$26/ton in Q1 FY16
• Operations in Europe is expected to remain weak due to pressure from cheaper imports and lower spreads in UK
• Performance of South East Asia operations improved on a qoq basis, but remained subdued due to dumping of material from China
• Management expects H2 FY16 to be better for domestic operations as Naomundi mine has resumed operations, full benefits of FAMD division, volume push from Kalinganagar and lower raw material costs
• We have lowered our estimates factoring in the sharp correction in steel prices. We have also lowered our volume guidance in Europe as demand remains weak in the region and imports remain high
• We believe recovery in earnings would take longer than expected and downgrade the stock to Reduce with a revised price target of Rs. 211

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JK Lakshmi Cements Ltd (Q2 FY16): Lower margin drags PAT into negative – BUY
CMP Rs367, Target Rs445, Upside 21.5%

• Durg plant drove 20% yoy volume growth
• Average realisations stood at Rs 3,691/ton (our est. of Rs 3854/ton)
• OPM stood at 10.3% on higher RM and staff cost
• Lower margins along with higher depreciation and interest expenses resulted in a loss
• Growth to be slower than earlier expectations but maintain BUY

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IPCA Laboratories (Q2 FY16): Another muted quarter – SELL
CMP Rs749, Target Rs640, Downside 14.6%

• Another muted earnings report as revenues miss estimates at -1.2% qoq
• Adjusted for one offs in H1, margins in line at 13.2% and decline ~160bps qoq; PAT miss on forex loss, disappointing topline print
• Management guides for 7-8% revenue growth and 17% EBIDTA margin; ex-global funding business, revenues to be flat with 15-16% EBIDTA
• Cut FY16/17E estimates yet again and downgrade to SELL with unchanged 9-12mth target of Rs640

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Greaves Cotton (Q2 FY16): Strong margin performance continues – BUY
CMP Rs139, Target Rs180, Upside 29.50%

• Revenues at Rs425cr were lower by 3.8% yoy; in line with our estimates, Engine segment revenues were lower by 3.8% yoy as growth in volumes remained flat to weak across segments
• OPM at 17.9% was ahead of estimates and was higher by 512bps yoy and 151bps qoq, driven by value addition in the engines business and cost cutting initiatives implemented
• Adjusted PAT was higher by 33.3% yoy at Rs.56cr, however reported PAT was at Rs. 54cr v/s Rs. 27cr in Q2 FY15 impacted by one-offs
• Maintain our rating to BUY with a 1-year price target of Rs180

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IOC  (Q2 FY16): Inventory losses hurt GRMs – Buy
CMP Rs400, Target Rs465, Upside 16.3%

• Net sales for Q2 FY16 fall by 23.5% yoy mainly on account of lower realizations
• Net under recoveries was at a miniscule Rs2cr as compared to Rs30cr in Q2 FY15
• Throughput was 2.1% higher on yoy basis at 13.7MMT and was higher by 0.8% qoq. GRM for the quarter was at US$0.9/bbl as compared to US$10.8/bbl in Q1 FY16
• Net loss of Rs329r was reported for the quarter, performance was weaker than our estimates
• We maintain our BUY rating with a revised price target of Rs465 given that IOC will benefit from low crude prices and robust GRMs

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Power Grid (Q2 FY16): Earnings growth to accelerate – BUY
CMP Rs132, Target Rs187, Upside 41.6%

• Power Grid results were marginally above our estimate due to lower interest and depreciation
• Topline growth was strong at 17.7% yoy to Rs. 4,918cr led by strong growth in the transmission revenues
• Reported PAT was higher than our estimate due to lower than expected increase in interest and depreciation
• Capitalisation of Rs. 5,100cr was lower than expected; however the company expects FY16 capitalisation to be at record levels on the back of the commissioning of large line between Biswanath Chariyali – Agra
• Capex for the quarter was higher by 6.3% yoy to Rs. 5,100cr; Management maintained its FY16 guidance of Rs. 22,500
• We maintain our BUY rating on the stock with target price of Rs187

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GAIL (India) Ltd (Q2 FY16): Weak operational performance  – SELL
CMP Rs307, Target Rs276, Downside 10.0%

• Net sales stay flat at Rs. 14,165cr in line with our expectations; Growth in revenues for the natural gas and LPG transmission segment was offset by fall in revenues for petrochemical and LPG & LHC segment
• Gas transmission volumes fall 1.1% yoy as gas production volumes declined from KG-D6 and PMT blocks. Gas trading volumes were higher by 7.7% yoy on power pooling volumes
• OPM at 6% was lower than our estimates and operating profit was lower by 58.2% yoy
• Petrochemical segment reported a negative EBIT of Rs. 237crs as polymer prices declined in line with crude oil price decline while its feedstock price (R-LNG) saw lesser fall; also volumes were lower by 23.6% yoy
• Retain our SELL rating as we see further risks to earnings and cut our target price to Rs. 276

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Granules India (Q2 FY16): Strong performance continues – Accumulate
CMP Rs150, Target Rs155, Upside 3.4%

• Margin beat on back of better operational efficiencies; PAT beats forecast at +45% yoy
• Revenues slightly ahead of estimate at +19.3% yoy, +6% qoq
• Company expects sharp jump in FY17 capex as it ramps up US operations and filings
• Retain accumulate with revised 9-12mth target of Rs155

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Cox & Kings (Q2 FY16): Steady performance – Accumulate
CMP Rs273, Target Rs310, Upside 13.3%

• Healthy performance ex-Camping as revenues rise 13% yoy driven by robust growth in Education, Meininger and domestic leisure segments
• Ex-Camping & forex, margin stable at 46.4% yoy; H2 to see impact of deferred marketing spend
• Net debt declines Rs. 84cr qoq to ~Rs2,400cr and management guided for Rs. 300-500cr debt reduction in FY16
• Revise estimates based on steady H1 FY16 performance and Late Room acquisition; retain Accumulate with unchanged 9-12mth target of Rs310

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United Spirits (Q2 FY16): Robust margin performance – Accumulate
CMP Rs3,432, Target Rs3,600, Upside 4.9%

• Net sales increase 5.7% yoy; lower ad spends and other expenses coupled with gross margin expansion drives ~330bps rise in margin
• Q2 PAT includes gain on sale of UB shares; debt declines to
• H1 FY16 revenues up 8% driven by 16% growth in prestige and above brands; EBIDTA margin at 12.5%
• Revise FY16/17E estimates and up rating to Accumulate with revised 9-12mth target of Rs3,600

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