CCL Products (India) – Long-term Growth Prospects Intact; Retain Buy
Our interaction with the management of CCL Products (India) or CCL at the road-show held recently reinforced our long-term positive view on the stock. While the news of likely freeze dried coffee capacity expansion in India led to a reduction in our FY18E EPS, the capacity expansion is because of strong demand for its instant coffee variety and is only a small blip in healthy medium-term top-line and bottom-line growth prospects. The expansion, costing Rs2.5bn, will be financed through internal accruals and debt and does not require any equity dilution. Earnings growth will pick up steam once the utilisation of expanded capacity rises. Changes to our model resulted in a 17% decrease in FY18E EPS, but EPS CAGR is likely to be strong at 21% over FY16E-FY20E with pre-tax RoCE expected to regain its 27% level after a small blip in FY18. CCL stock trades at 14.9xFY18E EPS. Targeting 19xFY18E EPS is not aggressive for a fast-growing company with a healthy RoCE and we have arrived at a target price of Rs219 (Rs250 earlier), up 27% from the CMP of Rs172. We have retained Buy rating on the stock.
NRB Bearings – Near-term Headwinds Likely to Wane Soon
NRB is the largest needle roller bearings player in India and the fifth-largest bearings company with ~7% revenue share in the country’s bearings market. NRB is facing near-term headwinds owing to slowdown in the user automotive industry in domestic market and slowdown in exports. We have taken note of the same and cut our revenue and PAT estimates for FY16/FY17/FY18 by 5%/7%/7% and 27%/20%/11%, respectively. We are convinced that the company has taken steps to address demand-related problems which will boost revenue growth and is likely to achieve normal margin level after one-time additional provisioning gets over. We have retained Buy rating on NRB, but revised our target price downwards to Rs133 (Rs167 earlier), valuing the stock at 18xFY18E EPS of Rs7.4.
HSIL – Reiterate BUY with revised target price of Rs 329
HSIL Ltd is the leading player in sanitaryware sector with market share of more than 40%. It is the second largest player of faucets. In our opinion, the company would be the beneficiary of demand revival. The long term outlook of building products sector remains robust due to favourable demographic factors and government focus on improving the standard of living of people. Packaging products segment performance is improving due to reducing fuel costs. One of
the key triggers for the stock would be the separation of building products and packaging products business which would reduce the volatility in segmental performance. Recent correction in stock price provides an opportunity to accumulate the stock. At CMP of Rs 254, HSIL trades at PE of 19.0x and 16.4x its FY16E and FY17E earnings of Rs 13.3
and Rs 15.5 per share respectively. We value the stock on SOTP basis. Due to correction in market and peer valuation, we reduce EV/EBITDA multiple of building products segment to 10x from 12x earlier (Cera Sanitaryware, key competitor, trades at 13.5x FY17E EV/EBITDA). We maintain EV/EBITDA multiple for packaging products segment as volume growth in the segment is still not visible. Accordingly we arrive at target price of Rs 329 per share. We maintain BUY rating on the stock with long term horizon.