Daljeet Kohli recommended OnMobile Global on 3rd November 2014 when the stock price was Rs. 39. However, before anyone could react, the stock surged to Rs. 52. So, on 10th November 2014, when the stock price was Rs. 52, Daljeet issued another report advising a buy with a target price of Rs. 82. Let’s look at the core reasoning:
“OnMobile Global Limited is a data and value added services (VAS) company, for mobile, landline and media service providers. The company went into red due to huge international diversification in non-core areas. In interaction with OGL management, we noted following positives: (1) change in leadership may bring back the strong historical performance, (2) visible turnaround from on-going business restructuring, (3) no major accounting one-offs and surprises is expected from hereon, (4) Latam and other key geography to drive the international performance, (5) domestic revenue to stabilize from hereon, and (6) strong cash balance (Rs.19/share) bring lot of cushion to the investors. We recommend ‘BUY’ with target price of Rs.82 on OGL.
Valuation & Recommendation
At CMP of Rs.52, the stock is trading at P/E multiple of 58.5x FY15E and 5.7x FY16E earnings estimate. In our view, OGL’s financial results depend on corporate actions rather than only on supply and demand factors. As discussed, this is the story of the operational turnaround with major organizational restructuring along with top management reorganization. Going ahead revenue growth is likely to grow at 5.1% CAGR over FY14-16E, while EBITDA growth is likely to be higher at 335.1% CAGR on back of various restructuring initiatives. Additionally, the cash per share of Rs.19 also brings lot of cushion for the investors. Based on the various available triggers and proven management at the helm of the affairs, we recommend ‘BUY’ with target price of Rs.82 (valuing at 9x FY16 EPS) on OGL.”
Daljeet’s second stock pick is Exide Industries, which is presently quoting at Rs. 161. Let’s look at Daljeet’s logic:
“Exide Industries Ltd. (Exide) is engaged in manufacturing automotive and industrial lead acid storage batteries. The company derives 65% of its revenues from the automotive business and 34.3% from industrial and 0.7% from submarine batteries (as of FY14). Exide is the largest storage battery manufacturer in India, with over 70% market share with automotive OEMs and over 50% market share in the auto replacement market. Exide also has a presence in the insurance business through its wholly-owned subsidiary ING Life (renamed to Exide Life). Post FY14 the company has focused on marketing and distribution initiatives, as a result, top line numbers reported 20% growth and bottom line recorded 12% growth in H1FY15. In Q2FY15, Exide has suffered a fall in operating margin mainly on account of rise in marketing & selling expenses, technology up gradation and increase in the distributors incentives with the objective to regain market share and win/ maintain distributors loyalty. However, this loss should not be seen in isolation. In the last nine months, the company has experienced significant recovery in volumes which is an important factor. Therefore, in the coming times, we expect the continued efforts on marketing and distribution side could lead to strong top line growth momentum which eventually will support the profitability. Further, correcting lead prices and higher operating leverage would help to revive margin in Q3FY15.
Fall in raw material cost, improvement in auto replacement demand and higher capacity utilization are positives for the company. At CMP of Rs. 163 stock is trading at 16.5x FY16 EPS. We maintain BUY rating on the stock with target price of Rs. 195 (based on 20xFY16E).”