TD Power Systems – Huge operating leverage will lead to expansion of ROIC and EBITDA. Potential gains of 55%:
TD Power Systems is very similar to Triveni Turbine. It is a product company though the time to make its products is a little lower than Triveni. It has three very good tie-ups on the hydro side. Basically it is a generator manufacturing company and by FY17 it will be generating 85 percent of its revenues and 95 percent of its EBITDA from generators. In generators, for hydro it has a tie-up with Voith Hydro and it has global tie-ups with Siemens and GE as well. The order book of this company is very strong. In fact both on Triveni as well as on TD Power Systems the game is on the export side because the margins for both are in excess of 40-45 percent.
In Triveni they do after market sales also where the margins are as high as 30-35 percent whereas in the case of TD Power Systems, this is a company which my analysts think that the return on invested capital could go up by 10-11 percent over the next two to three years. The EBITDA margin which is currently at about 4 percent will expand to about 11-12 percent. So, there is a huge operating leverage that this company has; again a product company but something that we really love. The upside on the stock is about 55-60 percent.
Lakshmi Machine Works – ROIC to expand, potential gain of 25%:
We like Lakshmi Machine Works. It has a 60 percent market share in textile machineries. It is looking to add about seven to eight million spindles over the next three to four years. With a 60 percent market share, debt free company, we are looking at very strong numbers. We are expecting the return on invested capital (ROIC) of the company to go up by 10 percent over a two year period. So, we are very positive on both the stocks. After the results, on current price, it will probably be like a 25-30 percent of an upside.
Bata India – Temporary blip caused by SAP implementation is an opportunity to accumulate – potential upside is 25%:
We have done a lot of ground research on Bata India, we met about 30 stores last month to a month and a half and a lot of people tell us that the stocking doesn’t happen as per their requirements from the parent or from the original warehouse. So they are now currently implementing SAP, they have hired Accenture to help them on supply chain and logistics aspect. So I don’t have any concerns on Bata. Any dip should be used to buy.
I still think this company can give you about Rs 450 crore worth of free cash flow over the next two years. About 18-20 percent growth in topline over two years and about 30 percent growth in bottomline. So if you look at it on a CY16 basis, it is probably giving you about 26-27 times. I would still value the company at 30 times and still look for 20-25 percent gain in Bata.
Natco Pharma – positive for the long-term:
We have been positive on Natco Pharma and if I was to make a statement on that particular stock, I would continue to recommend people buying it from a long-term perspective.
Triveni Turbine – phenomenal net negative working capital, 45% ROEs, ROCs, free cash flow of Rs 100 crore over next two years:
Triveni Turbine is a product company, they basically makes turbines and the time to make turbine and to dispatch is about six-nine months. So whatever order book you would have on April 1 on any financial year or even through Q1 will get executed in that year and Triveni does not dispatch its turbines till it gets an advanced payment which is why it is the only company in the capital goods space, which operates on a net negative working capital and that is phenomenal. It does 45 percent ROEs, ROCs which no Indian capital goods company has ever done and it is probably going to be generating more than Rs 100 crore kind of free cash flow over the next two years.
On the conference call, the management said that there are some orders in Q3 where they didn’t receive the advanced payments, they will get booked in Q4, so you will see Q4 numbers get bumped up accordingly. We are very positive, we have rolled over our numbers and the analyst has a price target that is about 35-40 percent higher than the current market price.
Jubilant Foodworks – very positive as EPS will triple and ROE will double in three years:
Jubilant Foodworks’ results were very good, they surprised even us on the positive side and we have the most aggressive target on the street on that stock. We still believe that the stock can give about Rs 1,750 kind of a target with one-year horizon. If you start rolling over from three year perspective then we think that the stock could give anywhere between Rs 2,300 and Rs 2,500 if you are ready to hold from a two-year view.
So retain our very positive stance on Jubilant Foodworks, the rationale still remains the same. I still think that return ratios will double from 20 percent ROE to 40 percent and I still think the EPS will triple from Rs 18 in this financial year over the next three years to about Rs 54-55.