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3QFY11: Top Picks: Ambit
Our top picks combine near term catalysts with compelling valuation
stories and clear competitive advantages. We are dropping
Entertainment Networks from our list and adding Tata Motors, Bharti
Airtel (both BUY), IVRCL and Educomp (both SELL). The top picks which
we are rolling forward are BGR, CUB, Dabur, HDIL, JSW Steel and
Shree Cement (all BUY).
Click on Company name below for more detailed report:
BGR Energy (BGRL IN; mcap-US$1,066mn; upside 42%): Foray into
boiler and turbine manufacturing scales up the business and makes BGR an
integrated player. A healthy order book (Rs102bn; 2.1x its FY2011E revenues)
and robust order pipeline offer strong revenue visibility. New order wins in the
next 3 months are the positive catalysts for the stock.
Bharti (BHARTI IN; mcap-US$29,589mn; upside 20%): We believe 3G
will not only help Bharti increase its market share in India, the regulatory
fallout of the 2G investigations should also benefit Bharti (relative to its rivals).
A turnaround in its African operations could be a further catalyst for Bharti.
City Union Bank (CUBK IN; mcap-US$425mn; upside 26%): With 97% of
the overall loan book arising from secured loans, CUB offers a high margin of
safety with 1.5%+ ROAs and 20%+ ROEs. Near-term newsflow on the equity
infusion front could stimulate interest levels in the stock.
Dabur India (DABUR IN; mcap-US$3,894mn; upside 14%): The
likelihood of improved domestic growth momentum, the recent attractive
international acquisitions, and inorganic growth opportunities are not
adequately priced in and should drive near term stock price performance.
HDIL (HDIL IN; mcap-US$1,685mn; upside 74%): A strong balance sheet
(D/E~0.32x), adequate funding, a residential launch pipeline of 27mn sq.ft.
and the kicking off of Phase1 of the resettlement of the slum dwellers around
Mumbai Airport should help HDIL’s share price recover.
JSW Steel (JSTL IN; mcap-US$5,412mn; upside 36%): The commissioning
of 3.2mtpa Vijaynagar plant in March will increase JSW Steel’s capacity by a
third and trigger analyst upgrades in FY11 and FY12.
Shree Cement (SRCM IN; mcap-US$1,526mn; upside 35%):
Diversification benefits of the power business ramp-up should compensate the
expected weakness in the cement business in FY12. Firming up of cement
demand in north India over the next 3-4 months should also help.
Tata Motors (TTMT IN; mcap-US$16,555mn; upside 27%): We expect
Jaguar’s strong 2QFY11 performance to be sustained and we expect the
Commercial Vehicle cycle in India to be strong for at least two more years.
These two segments account for the bulk of Tata Motors’ profits, leaving the
firm well placed to grow earnings strongly through FY12.
IVRCL (IVRC IN; mcap-US$751mn; downside 15%): IVRCL’s equity
requirement of Rs14bn for mobilizing the recently bid IVRAH road projects is
making an equity raising at the subsidiary level inevitable. Execution
disappointments are expected to continue at the revenue and net levels.
Educomp (EDSL IN; mcap-US$1,126mn; downside 30%): The
sustainability of its core Smart_Class business is threatened by saturation in
the premium end of the market and eroding competitiveness in the massmarket.
We remain sceptical of the indicated like-for-like numbers and are
worried by falling profitability
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