Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
Evaluating opportunity in mid-cap industrials; upgrade Voltas to BUY. We
evaluate opportunity in mid-cap industrials based on recent correction and
characteristics such as strong balance sheet, low working capital, cash flow generation
and absence of corporate governance issues. We upgrade Voltas to BUY and reiterate
BUY on CRG as these companies are trading at low valuations even in stress-case
earnings assumptions. Retain REDUCE on Thermax for now.
Evaluate opportunity in mid-cap industrials on attractive valuations, strong B/S, corporate governance
We evaluate opportunity in mid-cap industrial companies (Voltas and Crompton) as (1) companies
are trading at relatively attractive valuations even on stress-case assumptions, (2) strong balance
sheet, low working capital requirements and cash flow generation characteristics, (3) strong track
record of managing business in terms of growth and margins and (4) no dilution.
We have conducted a stress-case analysis on Voltas and Crompton building in lower order inflow,
revenue and margin assumptions across most of the key segments of the companies.
Voltas: Upgrade to BUY (from ADD), TP unchanged (Rs150) as 2X P/B and 11XFY13E are attractive
We upgrade our rating on the company to BUY (from ADD) based on (1) attractive valuations -
trading at 11X FY2013E EPS, 2.1X FY2013E book value (20% RoE with no leverage) despite
building in relatively low expectations. Even in further stress case of (1) 25% order inflow decline
in FY2012E, 7% EBIT margin in EMP, (2) 8% margin in UCP, 10% CAGR during FY2012-13E,
stock still trades at only 13X FY2013E (Rs9 EPS in stress case). We believe geographical
diversification in EMP (India, Middle-East, S.E. Asia), low penetration in UCP would help in
mitigating risks.
Crompton: Reiterate BUY with a target price of Rs210/share (no change in estimates)
We reiterate BUY rating on Crompton as the stock traded at 10X FY2013E (on FY2013E EPS of
Rs13.5) post steep correction subsequent to the 1QFY12 results. Even in stress case of (1) 12.25%
standalone margins and 6% CAGR growth and (2) 5-7% growth in overseas with about 7-8%
margins, stock trades at 12XFY13E P/E only. Our positive stance is also based on (1) diversified
business profile in terms of geographies as well as business segments, (2) capability expansion in
drives (Emotron acquisition), generators, substation automation (QEI acquisition), motors,
consumer appliances, (3) strong balance sheet and cash flow generation characteristics.
Thermax: Marginally change estimates, retain REDUCE (TP Rs550); look for more valuation comfort
We have marginally changed estimates to earnings of Rs33 and Rs35 from Rs33.5 and Rs37 earlier
based on assumption of flattish order inflows versus 10% growth earlier. Stock trades at 14X
FY2013E (versus target multiple of 16X) and 3.7X FY2012E P/B. There has been evidence of
stronger competition in (1) small IPPs (Cethar Vessels winning large orders in that category), (2)
other components such as waste heat recovery boilers etc. (Tecpro Systems won orders from large
cement companies), (3) supercritical opportunity where even L&T has not won any incremental
third party order in the last one year and (4) early signs of weakness in margins that is not fully
priced-in (we build in only 50 bps decline). We revise our target price on the company to Rs550
(from Rs650/share) based on revision in estimates and change in valuation to 16X FY2013E EPS
(previously 17.5X FY2013E EPS). We would look for more valuation or business comfort before
turning positive.
Voltas: Upgrade to BUY with an unchanged target price of Rs150/share
We retain our earnings estimates of Rs9.6 and Rs10.5 for FY2012E and FY2013E,
respectively and retain our target price of Rs150/share based on 14X FY2013E EPS.
We upgrade our rating on the company to BUY (from ADD) based on (1) attractive
valuations - trading at 11X FY2013E EPS despite building in very low expectations in our
estimates (stock trades at 2.1X FY2013E book value, less than 1X sales), (2) no corporate
governance issues, (3) strong balance sheet in terms of no debt and low working capital, (4)
maintains strong focus on working capital, cash generation giving further comfort on
valuation, and (5) long-term track record of the company in managing its business through
cycles.
Our estimates are building relatively conservative assumptions of a 10% de-growth in EMP
segment order inflows, 15% de-growth in Engg products segment revenues and margin
contraction across most of the segments. We also note that penetration of AC market is
relatively low which could provide a potential for strong growth in the UCP segment
Stress-case analysis
Our stress-case analysis (builds in fairly high stress in the business) results in EPS of Rs9 for
FY2012E and FY2013E. Even on this EPS, the stock trades at a reasonable valuation of 13X
FY2013E EPS. The key changes in assumptions in our stress-case scenario include:
Electromechanical projects segment (EMP). Build in sharp de-growth of 25% in
FY2012E order inflows and flat yoy inflows in FY2013E versus our base-case assumption
of 10% de-growth in FY2012E and 5% growth in FY2013E. Also build in slight
contraction in EBIT margins for FY2013E.
Engg products and services segment. Build in 250 bps lower EBIT margin for FY2012E
and FY2013E at 15% (base-case assumption of 17.5%). This is versus 18.3% EBIT margin
recorded in FY2011
Unitary cooling products segment (UCP). Build lower EBIT margin assumption for
FY2013E at 8%, 150 bps lower than base-case assumption of 9% (recorded 10.2% EBIT
margin in FY2011).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
Evaluating opportunity in mid-cap industrials; upgrade Voltas to BUY. We
evaluate opportunity in mid-cap industrials based on recent correction and
characteristics such as strong balance sheet, low working capital, cash flow generation
and absence of corporate governance issues. We upgrade Voltas to BUY and reiterate
BUY on CRG as these companies are trading at low valuations even in stress-case
earnings assumptions. Retain REDUCE on Thermax for now.
Evaluate opportunity in mid-cap industrials on attractive valuations, strong B/S, corporate governance
We evaluate opportunity in mid-cap industrial companies (Voltas and Crompton) as (1) companies
are trading at relatively attractive valuations even on stress-case assumptions, (2) strong balance
sheet, low working capital requirements and cash flow generation characteristics, (3) strong track
record of managing business in terms of growth and margins and (4) no dilution.
We have conducted a stress-case analysis on Voltas and Crompton building in lower order inflow,
revenue and margin assumptions across most of the key segments of the companies.
Voltas: Upgrade to BUY (from ADD), TP unchanged (Rs150) as 2X P/B and 11XFY13E are attractive
We upgrade our rating on the company to BUY (from ADD) based on (1) attractive valuations -
trading at 11X FY2013E EPS, 2.1X FY2013E book value (20% RoE with no leverage) despite
building in relatively low expectations. Even in further stress case of (1) 25% order inflow decline
in FY2012E, 7% EBIT margin in EMP, (2) 8% margin in UCP, 10% CAGR during FY2012-13E,
stock still trades at only 13X FY2013E (Rs9 EPS in stress case). We believe geographical
diversification in EMP (India, Middle-East, S.E. Asia), low penetration in UCP would help in
mitigating risks.
Crompton: Reiterate BUY with a target price of Rs210/share (no change in estimates)
We reiterate BUY rating on Crompton as the stock traded at 10X FY2013E (on FY2013E EPS of
Rs13.5) post steep correction subsequent to the 1QFY12 results. Even in stress case of (1) 12.25%
standalone margins and 6% CAGR growth and (2) 5-7% growth in overseas with about 7-8%
margins, stock trades at 12XFY13E P/E only. Our positive stance is also based on (1) diversified
business profile in terms of geographies as well as business segments, (2) capability expansion in
drives (Emotron acquisition), generators, substation automation (QEI acquisition), motors,
consumer appliances, (3) strong balance sheet and cash flow generation characteristics.
Thermax: Marginally change estimates, retain REDUCE (TP Rs550); look for more valuation comfort
We have marginally changed estimates to earnings of Rs33 and Rs35 from Rs33.5 and Rs37 earlier
based on assumption of flattish order inflows versus 10% growth earlier. Stock trades at 14X
FY2013E (versus target multiple of 16X) and 3.7X FY2012E P/B. There has been evidence of
stronger competition in (1) small IPPs (Cethar Vessels winning large orders in that category), (2)
other components such as waste heat recovery boilers etc. (Tecpro Systems won orders from large
cement companies), (3) supercritical opportunity where even L&T has not won any incremental
third party order in the last one year and (4) early signs of weakness in margins that is not fully
priced-in (we build in only 50 bps decline). We revise our target price on the company to Rs550
(from Rs650/share) based on revision in estimates and change in valuation to 16X FY2013E EPS
(previously 17.5X FY2013E EPS). We would look for more valuation or business comfort before
turning positive.
Voltas: Upgrade to BUY with an unchanged target price of Rs150/share
We retain our earnings estimates of Rs9.6 and Rs10.5 for FY2012E and FY2013E,
respectively and retain our target price of Rs150/share based on 14X FY2013E EPS.
We upgrade our rating on the company to BUY (from ADD) based on (1) attractive
valuations - trading at 11X FY2013E EPS despite building in very low expectations in our
estimates (stock trades at 2.1X FY2013E book value, less than 1X sales), (2) no corporate
governance issues, (3) strong balance sheet in terms of no debt and low working capital, (4)
maintains strong focus on working capital, cash generation giving further comfort on
valuation, and (5) long-term track record of the company in managing its business through
cycles.
Our estimates are building relatively conservative assumptions of a 10% de-growth in EMP
segment order inflows, 15% de-growth in Engg products segment revenues and margin
contraction across most of the segments. We also note that penetration of AC market is
relatively low which could provide a potential for strong growth in the UCP segment
Stress-case analysis
Our stress-case analysis (builds in fairly high stress in the business) results in EPS of Rs9 for
FY2012E and FY2013E. Even on this EPS, the stock trades at a reasonable valuation of 13X
FY2013E EPS. The key changes in assumptions in our stress-case scenario include:
Electromechanical projects segment (EMP). Build in sharp de-growth of 25% in
FY2012E order inflows and flat yoy inflows in FY2013E versus our base-case assumption
of 10% de-growth in FY2012E and 5% growth in FY2013E. Also build in slight
contraction in EBIT margins for FY2013E.
Engg products and services segment. Build in 250 bps lower EBIT margin for FY2012E
and FY2013E at 15% (base-case assumption of 17.5%). This is versus 18.3% EBIT margin
recorded in FY2011
Unitary cooling products segment (UCP). Build lower EBIT margin assumption for
FY2013E at 8%, 150 bps lower than base-case assumption of 9% (recorded 10.2% EBIT
margin in FY2011).
No comments:
Post a Comment