Greaves Cotton (Q2 FY15) – BUY
CMP Rs140, Target Rs232, Upside 65.7%
– Revenues at Rs4.4bn lower by 1.5% yoy; higher than our estimates, Robust growth in three-wheeler engine sales was offset by weakness seen in other segments
– OPM at 12.7% was higher by 149bps yoy and 166bps qoq, expansion was driven by better product mix and cost cutting initiatives implemented
– PAT was at Rs273mn as compared to a loss of Rs80mn in Q2 FY14 marred by Rs148mn exceptional item related to infrastructure equipment business exit
– Maintain our rating to BUY with a 2-year price target of Rs232
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Tata Communications (Q2 FY15) – BUY
CMP Rs412, Target Rs475, Upside 16.6%
– Revenues miss estimate but margins ahead of expectation; PAT beat aided by interest income on tax refund
– Strength in data revenues offset voice weakness while data margins reclaim 20% threshold
– Expect data to gain further prominence which would mitigate revenue volatility and provide margin support; raise core business EV/EBIDTA multiple to 6.5x on FY16 EBIDTA and retain BUY with revised 9-12 SOTP target of Rs475
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KEC International Ltd (Q2 FY15) – BUY
CMP Rs102, Target Rs132, Upside 29.4%
– KEC managed to report 22.2% yoy growth in topline led by strong execution in the T&D space
– The outperformance was restricted by subdued performance in SAE business
– Margins contracted 73bps yoy and 35bps qoq due to operating loss at SAE and higher raw material/sales ratio
– Order inflow at Rs11bn was lower than estimate; the management has indicated that it is L1 in orders worth Rs20bn
– Bottomline impacted by high interest costs (+37.9% qoq) and lower margins
– Net Working capital days continued to increase on a sequential basis due to lower customer advances and increase in inventory levels at SAE
– Management remained confident of delivering margins close to 7% in FY15 and 100bps expansion in FY16
– We have lowered our FY15 and FY16 estimates to account for weak H1 FY15 and on expectations of a slower decline in working capital
– Maintain Buy on the stock with a revised price target of Rs132
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