HDFC Bank :Mixed bag :CLSA

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Mixed bag
For 2QFY12, HDFC Bank reported net profit of Rs12bn, up 31% YoY, inline
with estimates, however core operating profit of 14% YoY was the lowest
in past many quarters. Normalised loan growth at 26% continues to be
healthy led by growth in retail loans. Key disappointment was moderation
in CASA growth to 10%, lowest in recent times, and this has put pressure
on margins (downs 10bps QoQ). Pick up in CASA growth will be a key to
quality and profitability of growth branch expansion will help here. Asset
quality remains robust and drop in provisions was a key to profit growth.
We see 26% Cagr in profit over FY11-14, led by loan growth. BUY.
Less impacted by the slowdown in investment cycle
During 2QFY12, bank’s core loan book grew by 26% YoY, however reported
growth of 20% is suppressed by high base that included short-term telecom
license related loans. Growth in loans was led by retail segment that reported
34% growth in 2Q. Though demand for auto loans has moderated, it is being
compensated by uptick in growth of CV, business banking and mortgage
loans. While interest rates have risen sharply, a healthy growth in income
levels has insulated consumption expenditure and demand for retail loans
(most are on fixed rate). Corporate loans are largely towards working capital
where demand has not softened as much as for capex. Fee growth may
remain lower due to lower fees on distribution of third party products.
Fall in CASA ratio leads to margin contraction
The key disappointment in the results was the moderation in CASA growth to
10% YoY largely driven by sharp rise in deposit rates that drives conversion of
CASA into term deposits. As a result, CASA ratio declined to 47% of deposits
leading to 10bps contraction in NIMs to 4.1%- lowest since 2QFY10. While
sequentially there are some signs of pick-up in CASA deposits, this will be a
key to asset growth without sacrifice of margins and quality of loans. Branch
expansion and penetration into new areas should help CASA mobilisation.
Asset quality strong, no signs of stress either
Asset quality remains strong with gross NPL growing by just 3% YoY to 1% of
loans. Bank continues to hold among the highest coverage ratio (81%) that
provides cushion to earnings against rise in slippage. Management highlighted
that asset quality is looking better than internal estimates and recent trends
do not indicate signs of much stress.
High visibility on earnings growth and asset quality. BUY
Over FY11-14, we expect earnings to grow at 26% Cagr led by loan growth,
operating efficiencies and slower rise in provisions. Strong asset quality, lower
exposure to risky sectors and quality franchise provide earnings visibility in an
otherwise uncertain environment and this will support its premium valuations.
We reiterate our BUY recommendation with target price of Rs580.

Federal Bank Getting ready for big innings :Emkay,

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Federal Bank

Getting ready for big innings

ACCUMULATE

CMP: Rs377                                        Target Price: Rs425

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n     New management reinstates confidence in the bank through major changes in the risk management policy and various measures to drive fee income growth

n     Centralization of the loan processing system and focus on recoveries to bring down slippage rate from 3% to 2% by FY13 and credit cost from 1.7% in FY11 to 1.2% in FY13

n     Branch expansion in NRI/ SME regions to improve liability profile with increased opportunity for SME funding as well. Low cost deposit ratio to increase to 38% by FY13

n     Balance sheet leverage to drive RoE from 12% in FY11 to 14% by FY13. Initiate coverage with a ‘ACCUMULATE’ rating and TP of Rs425 (1.1X FY13ABV)

MindTree Limited Solid quarter, raise TP to Rs 450 :Emkay,

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MindTree Limited

Solid quarter, raise TP to Rs 450

ACCUMULATE

CMP: Rs 386                                       Target Price: Rs 450

---

n     MindTree’s results vindicate thesis on (1) strong revenue growth (+10% QoQ V/s exp of ~5% QoQ),(2) improvement in margins ( up by ~180 bps V/s est of ~110 bps increase)

n     Pfts at Rs 546 mn (+58% QoQ) significantly higher than estimates aided by better op performance and   hedging gains of ~Rs 170 mn. Hiring remains strong at 10%+ QoQ

n     Decent improvement in client metrics ( no of US$ 5 mn+ clients increase from 14 to  17) Top client/top 5/10 client revenues increase by 10/23/17% QoQ

n     Raise FY12/13E EPS by 9%/7% to ~Rs 41.1/44.9 driven by marginal increase in rev estimates, lower US$/INR assumptions to Rs 48/$, ACCU, TP Rs 450( V/s Rs 415 earlier)

HCL Technologies Revenue performance disappoints, retain HOLD ::Emkay,

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HCL Technologies

Revenue performance disappoints, retain HOLD

HOLD

CMP: Rs401                                        Target Price: Rs415

---

n     Rev at US$ 1002 mn (+4.1% QoQ) below est with IMS (+4.3% QoQ) after strong show over the past few qtrs.  IT Svcs grew by ~4.5% QoQ while BPO’s struggle continues
(-2.5% QoQ)

n     EBITDA mgns at 16.7%, down by ~130 bps QoQ (within mgmt’s guided range of ~150 bps decline) aided by weak currency

n     Op metrics performance mixed. Revenue growth led by US(+6.8% QoQ), Engg svcs(+9% QoQ) while top clients grew lower than co average for the 3rd quarter in a row

n     Lower currency resets drive 4/5% raise in FY12/13E EPs to Rs 32.5/36.5 despite marginal cuts in revenue assumptions. Retain HOLD with a revised TP of Rs 415( V/s Rs 390 earlier)

Patni Computers - Encouraging improvement, see value in the stock :Emkay,

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Patni Computers

Encouraging  improvement, see value in the stock

NOT RATED

CMP: Rs338                                        Target Price: N.A

---

n     Decent operational performance ahead of estimates. Revenues at US$ 191 mn(+3.9% QoQ) with margins improving by ~600 bps QoQ after the sharp fall in June’11 qtr

n     Profits at Rs. 842bn (-5.3% QoQ), beat est despite higher hedging losses (Rs 340 mn). Headcount reduces by ~500 to 17,850 with utilization improving by ~300 bps QoQ to 78.7%

n     Front end integration with iGate completed while Delivery integration to be completed over next 12-18 months. Co’s attrition has been brought below historical levels

n     We find value in Patni given cash at ~38% of mkt cap, improvement in op performance ahead. Potential delisting by parent iGate remains an additional upside trigger

Retirees' business ventures should not be taxing:: Business Line,

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I will turn 60 and retire by the end of the year. My children are settled. My wife is the only dependent. I have two houses that I plan to leave for my children. I will get Rs 20 lakh as retirement benefit. Besides my houses in Ernakulum, I have land worth Rs 30 lakh. My monthly expenses are Rs 20,000, apart from medical expenses. We may live for 20 years. How much corpus should I have for a decent life? If my income is not sufficient, is it better to work or start a business? I have floater Mediclaim for Rs 5 lakh to take care of hospitalisation expenses. — Jacob

Constructing a retirement portfolio for individuals on the verge of retirement is a difficult task and it is daunting for those without adequate retirement corpus. At least in your case you have some assets to liquidate to meet a shortfall.

Your retirement benefits will not be sufficient to meet your monthly needs.If you deploy Rs 20 lakh at 9 per cent, you would earn Rs 1.8 lakh per annum or just Rs 15,000 a month as interest.

The options that are available to you are to either go for employment or to liquidate your land. In the event of selling your land, deploy the fund in deposits and you can manage your monthly needs till 70 by making judicious investment of the surplus earned in the first few years.

After 70, you have to opt for reverse mortgage of your property with a bank. This will provide you a loan structured into regular payments until your death. The amount of loan depends on the age of the borrower, value of the property and interest rates. The advantage is that you can continue to stay in the property.

For the retired, starting a business may be a good idea provided they have seed capital and the ability to withstand losses. Besides that, any business needs a few years to stabilise.

There are a few options whereby you can start business with almost no capital. One of them is HR consultancy, provided you have good contacts.

I am 54 years old and will be retiring after six years. My job is transferrable and I am now posted in Mumbai. My wife is a home-maker. I have built a house in Jaipur by taking a housing loan from my office. I have two children: my daughter is married and settled and my son is doing MBA (final year). I have a monthly surplus of Rs 10,000 for investment. I am always afraid of taking risks as far as investment is concerned. Please suggest the safest investment plan so that my wife and I can have some security during old age while making provisions for other social responsibilities that may arise periodically. Considering our current healthy life, we may live for 20-25 years. After retirement, as per my employment contract I am eligible for a pension of around Rs 20,000. Do you think my pension will be sufficient to meet my monthly requirements or do I need to save more? I also need to spend a few lakhs for my son's marriage. My accumulated PF balance is Rs 13 lakh and I have a deposit for Rs 3 lakh. — R.K. Singh

With your pension and accumulated balance of PF, you can manage your monthly needs without any major shortfall till you reach 70. You have stated that the you are eligible for pension with variable DA. In most cases, an increase in DA may not match the rise in inflation. For instance, let us assume that your monthly expenses are Rs 20,000 at retirement. The expense will be Rs 39,000 when you turn 70 and Rs 55,000 at 75, assuming 7 per cent inflation. However, the actual increase in DA could be lower.

To balance your monthly needs, deploy the PF judiciously to meet any shortfall. Assuming that your current PF balance grows at 8.5 per cent for the next six years, at your retirement it will be Rs 21 lakh. We presume your monthly PF contribution as Rs 6,000. With interest the PF could grow to Rs 4.5 lakh. At your retirement if you deploy Rs 25.5 lakh at 7 per cent, you will earn an annual interest of Rs 1.75 lakh. This can be used to meet the shortfall in your later years.

As you are not interested taking risk on your investment, deploy Rs 8,000 in RD till your retirement. As part of tax planning, withdraw the amount in the financial year after your retirement. . As you have six more years to retire, we suggest you invest Rs 2,000 in a balanced mutual fund, say HDFC Prudence, for the next six years.

After retirement, it is better to have adequate medical cover. In most cases employer medical support to the retiree is limited. So, it is better to enhance the medical cover limit to at least Rs 5 lakh. For your son's marriage, utilise the fixed deposits.

Reliance Regular Savings Fund - Equity: Invest:: Business Line,

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Investors with a high-risk appetite can consider buying units of Reliance Regular Savings Fund - Equity (Reliance RSF Equity), despite its underperformance during a year. Returns of 24 per cent and 13.1 per cent, respectively, during a three- and five-year period, despite lower exposure to the market, favoured the consumer sector. This reflects the fund's ability in stock selection. The fund has also outpaced its benchmark BSE 100 by six percentage points.

Suitability: Being a multi-cap fund, Reliance RSF Equity has traditionally taken bets on mid- and small-cap stocks, to prop up returns. While such a strategy yielded returns in a bull phase, it has equally dragged performance during volatile markets. But in recent times, the fund has toned down its exposure to mid- and small-cap stocks and is now overweight on large-cap stocks.

Nevertheless, the fund's unpredictable performance during shorter time frames, of approximately a year, makes it unsuitable for investors, who cannot stomach volatility. Swings in the fund's performance can also affect the investors' overall portfolio returns. Investments can be made in small lots or through SIPS.

Performance: The fund's Net Asset Value lost 21.8 per cent during the last one year, against 17.2 per cent shed by its benchmark BSE 100. The fund could have posted better returns had it upped its exposure to consumer sector stocks, many of which delivered superior returns even in the down market from January till date. Its shift to large-cap stocks too, didn't help much this time, as many large-cap stocks have shed higher value than their mid-cap peers. These decisions, that caused underperformance in the short term, nevertheless appear to be prudent in a volatile market.

Portfolio overview: For a fund with a large asset size, Reliance RSF Equity has a very compact portfolio, and has in recent times been less aggressive in churning its portfolio. The fund hasn't taken concentrated exposure in stocks.

The top ten stocks accounted for 32 per cent of the assets. One-third of the portfolio accounted for stocks with market capitalisation less than Rs 7,500 crore. With banking stocks undergoing pressure on margins, the fund has gradually reduced its exposure to the sector in the past six months, although it remains in the top sector. The fund is managed by Mr Omprakash Kuckian.

Reliance Regular Savings Fund - Equity: Invest:: Business Line,

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Investors with a high-risk appetite can consider buying units of Reliance Regular Savings Fund - Equity (Reliance RSF Equity), despite its underperformance during a year. Returns of 24 per cent and 13.1 per cent, respectively, during a three- and five-year period, despite lower exposure to the market, favoured the consumer sector. This reflects the fund's ability in stock selection. The fund has also outpaced its benchmark BSE 100 by six percentage points.

Suitability: Being a multi-cap fund, Reliance RSF Equity has traditionally taken bets on mid- and small-cap stocks, to prop up returns. While such a strategy yielded returns in a bull phase, it has equally dragged performance during volatile markets. But in recent times, the fund has toned down its exposure to mid- and small-cap stocks and is now overweight on large-cap stocks.

Nevertheless, the fund's unpredictable performance during shorter time frames, of approximately a year, makes it unsuitable for investors, who cannot stomach volatility. Swings in the fund's performance can also affect the investors' overall portfolio returns. Investments can be made in small lots or through SIPS.

Performance: The fund's Net Asset Value lost 21.8 per cent during the last one year, against 17.2 per cent shed by its benchmark BSE 100. The fund could have posted better returns had it upped its exposure to consumer sector stocks, many of which delivered superior returns even in the down market from January till date. Its shift to large-cap stocks too, didn't help much this time, as many large-cap stocks have shed higher value than their mid-cap peers. These decisions, that caused underperformance in the short term, nevertheless appear to be prudent in a volatile market.

Portfolio overview: For a fund with a large asset size, Reliance RSF Equity has a very compact portfolio, and has in recent times been less aggressive in churning its portfolio. The fund hasn't taken concentrated exposure in stocks.

The top ten stocks accounted for 32 per cent of the assets. One-third of the portfolio accounted for stocks with market capitalisation less than Rs 7,500 crore. With banking stocks undergoing pressure on margins, the fund has gradually reduced its exposure to the sector in the past six months, although it remains in the top sector. The fund is managed by Mr Omprakash Kuckian.

India Infoline:: Diwali Dhamaka Picks 2011

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Indian stock market CLOSED today :Diwali Balipratipada 27th October, 2011

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Indian stock market CLOSED today :Diwali Balipratipada 27th October, 2011

Lupin Ltd. :: Diwali Picks 2011: GEPL Capital

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Lupin Ltd.
Summary
Lupin is an innovation-led pharmaceutical company having presence in multiple countries and
producing generic and branded formulations and APIs. It has a direct marketing presence in
almost all its target markets and is among the highest spenders on R&D of all Indian
pharmaceutical companies. Lupin is the one of the world’s largest manufacturers of TB drugs
and the segment contributes 10% to Lupin’s revenues.
Robust OC pipeline
Lupin has 26 products in its Oral Contraceptives (OC) pipeline which would help it grab a
sizeable pie in the $600mn generic OC market. Already, it has released two OCs in the past two
months (Femcon Fe and NOR-QD) and is expected to keep doing so over the next two years.
Although the market for OCs is dominated by MNCs such as Teva, Watson, Mylan, etc., most of
the products to be released are limited competition products having four or less competitors,
thereby garnering higher revenues for each individual player.
Geographical diversification provides formidable presence
Lupin is present in several countries/regions such as USA, Europe, Japan, South Africa,
Philippines, Australia and CIS making it geographically well diversified. Company derives almost
45% of its revenues from US, EU and Japan. It is 5th largest generic player in the US in terms of
prescriptions. Japanese government plans to increase generic penetration to 30% of the $7bn
Japanese pharmaceutical market by 2012. Lupin’s 100% subsidiary, Kyowa with its 200 product
portfolio is well positioned to capture this opportunity. Presence in the fast growing markets of
South Africa, Philippines and CIS presents huge growth opportunity going ahead.
Consistent Financial Performance and Strong Balance Sheet
Lupin has a legacy of 26 quarters of consistent financial performance with sales growing
annually at a 5-year CAGR of 27% and PAT growing annually at a CAGR of 38%. This is backed by
a low leveraged balance sheet (D/E ratio has come down from 1.48 in FY06 to 0.35 in FY11). PAT
margins have improved from 10% in FY06 to 15% in FY11 whereas EBITDA margins have moved up
from 17% in FY06 to 21% in FY11.
Valuation
Lupin is expected to continue with its revenue growth rate over the next couple of years due to
expected OC launches, limited competition products and large ANDA pipeline. Geographical
diversification guarantees consistent revenue stream and regional risk mitigation. At the CMP of
`465, Lupin is trading at 17x its consensus FY13E earnings. Given Lupin’s continued focus on
innovation, entry into newer, under-penetrated markets and relatively low underlying business
risk, we have valued the stock at 19x its consensus FY13E earnings which is comparable to its
peers. Hence, we recommend a BUY rating on the stock with a target price of `531.

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Diwali Picks 2011: GEPL Capital

Eicher Motors Ltd. :: Diwali Picks 2011: GEPL Capital

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Eicher Motors Ltd.
Summary
Eicher Motors Ltd. (EML) operates in CV business through VECV Ltd. which is a JV with AB Volvo
in which company holds 54.4%. On standalone basis company operates in two wheeler segment
through Royal Enfield brand. The CV business contributes 90% to its consolidated revenues while
10% comes from the Royal Enfield business. CV industry grew by 35% and 30% in FY10 and FY11;
however, currently this industry is facing a slowdown in line with the trends witnessed by the
broader automobile sector. During April-September 2011, the CV industry growth came down to
20% due to rising interest rates and slowing industrial growth, EML outperformed by growing 25%
in the same period. SIAM in the month of October has increased its growth forecast of CV
segment by 1% to 13-15% in FY12E, we expect EML to continue outperforming the same.
EML’s CV business to continue to grow above industry (~21% CAGR till 2015E); there by
increasing its market share to 15%:
VECV, the commercial vehicle arm of the company is currently growing above the industry
growth rate and company expects it to continue further going forward (~21% CAGR till 2015).
This will help EML in increasing its market share to 15% from 8.2% in CY10 in HCV segment.
Company intends to increase its monthly sales rate of 600 units to 1000 units by end of CY11E.
EML also plans to increase its CV capacity to 100K units in next 3-4 years with a capital
expenditure of `5 bn.
Contribution from stand alone business to increase from 10% to 15% by 2015E:
EML sells Royal Enfield bikes in the stand alone business which has good demand and the waiting
period for same is between six to nine months. In order to cope up with the demand company is
expanding its two wheeler capacity from 70K units to 150K units by Q3CY12E with an investment
of `1.5 bn. We expect EML to garner ~29% CAGR in revenues from this stand alone business till
2015E. This will help in increasing the contribution from the stand alone business to 15% by
2015E.
High Tech Medium Duty Engine Project for Volvo’s Global business to further add steam to
the company’s top line and bottom line:
VECV will invest `3-3.5 bn to design and manufacture medium duty engines (85K units per
annum) for Volvo’s global requirements. The commercial production will commence by end of
CY12E. These engines will be supplied to Volvo’s medium duty vehicles in Europe and US. This
will further add steam to company’s top line and bottom line.
Valuation
We value Eicher Motors based on SOTP as company derives earnings from 2 wheeler (Royal
Enfield) business, CV business through VECV JV and returns on the surplus cash it holds. We
value the two wheeler business at a P/E multiple of 14.5x its CY12E earnings, the CV business at
a P/E multiple of 11x its CY12E earnings and add cash per share of `445 to arrive at a target
price of `1896, which is a potential upside of 15%.

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Diwali Picks 2011: GEPL Capital

Coal India Ltd. :: Diwali Picks 2011: GEPL Capital

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Coal India Ltd.
Summary
Coal India ltd. (CIL) is the largest coal producing company in the world based on their raw coal
production, it supplies to 80% of India’s power production.
CIL to benefit from huge incremental potential for electricity generation from Coal
Coal supports around 52% of the primary energy consumption and over 80% of electricity
generation in India. Given the reserves of over 60 bn MT of coal, it can support 409 GW of
incremental power generation. Planned incremental capacity is expected to reach 196 GW from
current levels of 99GW by the end of XIIth five year plan. This would benefit coal India limited
over long term as it supplies to 80% of India’s power production.
Indian Power plants designed to use imported coal only to around 50% reduces the risk of
imports for CIL.
Given the huge demand supply gap of around 90 mn MT in FY11, which is expected to reach 170
to 200mn MT by end of FY12e as per the draft paper by planning commission poses a big
advantage to CIL primarily because of following two reasons.
• Firstly Indian power plants are not designed to take more than 50 % of imported coal
presently.
• Secondly imported coal meant for power plants being dearer by almost over 60% in
comparison to domestic coal, makes it costlier to resort to imported coal.
Accordingly the off take risk for CIL’s product remains negligible unlike players present in other
commodities such as steel and cement, who face huge off take risk.
Rise in e-auction price to aid CIL in long term
With 25% of CIL sales being done at close to international prices, together with sales of ~11% of
total sales through e-auction route and demand supply gap, we believe the prices of coal to
remain firm over next one year impacting CIL’s profitability positively over coming quarters.
The price increase for the linkage coal are not explicitly set out, however it aligns with inflation
and wage increase, we expect another price increase of around 10% during this year. Company
sells around 11% of total sales, through e-Auction with a premium to domestic linkage coal,
which has risen from 60% in FY10 to 80% levels during FY11.Currently the premiums are running
at 90%, with international coal prices expected to rise we see the premium to remain firms and
would benefit the CIL.
Valuation
The stock has corrected more than 14.5% in last one month against a correction of 1.6% in
sensex. While concerns over New Mining Bill for setting aside 26% of profit sharing to the
regional development around the mines, would impact the earnings of CIL in FY13E. Company’s
volume has grown at a CAGR of 5.6% over past 4 years. We believe the new mining bill once
implemented would help the company in getting approvals; mainly forest clearances. We are
positive on the CIL’s long term growth story, we have valued CIL on EV/EBIDTA basis at a target
price of Rs.395 per share with a target multiple of 8.5x on FY13E EBIDTA of Rs. 293bn.


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Bank of Baroda – a consistent performer :: Diwali Picks 2011: GEPL Capital

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Bank of Baroda – a consistent performer
Summary
Bank of Baroda (BoB) has always given consistent performance that to above industry and better
than some of its peers. Currently the major concern for banks is business growth and asset
quality. Even in tough economic conditions, the bank has grown well above the industry average
and maintained its asset quality. The bank has 3409 branches spread across India.
Above industry growth in business
In Q1FY12, advances have grown by 25.2% and deposits by 23% Y-o-Y. The bank has good
presence in international market and its international business constitutes around 20% of total
business. Advance growth was supported by international loan book growing by 28% Y-o-Y, retail
segment by 24% and SME by 31.4% Y-o-Y in Q1FY12. The bank has been reducing its unsecured
loan book which now constitutes ~20% of total loan book. The banks CASA deposits are well
above 30%, as share of domestic CASA deposits stood at 33.9% in terms of aggregate deposits
and 35.9% in terms of core deposits in Q1FY12.The bank is expected to grow advance book by
24% above industry growth of 18% in FY12E.
Stable margins will add to profitability
The banks NIM was marginally down by 3bps to 2.87% in Q1FY12 vs 2.9% in Q1FY11. This was on
account of higher increase in cost of deposits of 97bps Y-o-Y vs 94bps Y-o-Y increase in yield on
funds. The bank is expected to maintain margins as it is reducing its dependence on bulk
deposits and increasing proportion of high yielding assets.
Healthy asset quality as compared to peers
The bank has continuously maintained its asset quality. GNPA stood at 1.46% in Q1FY12 vs 1.41%
in Q1FY11. The bank has maintained high Provision Coverage Ratio of 82.52% in Q1FY12. The
bank has restructured loan book of `71.6bn (~3% of total advances) in Q1FY12. During the
quarter `4.5 bn loans were restructured. The bank witnessed slippages in agriculture and
corporate segment for which it has made provision of `1.3bn in Q1FY12. The bank had CAR of
13.1% and Tier 1 capital of 9.06% in Q1FY12. The banks balance sheet is strong and can support
the growth targets set by the bank.
Valuation
The bank has traded in range of 1.7x to 1.8x ABV in the past and currently is trading at 1.4x
ABV. The stock has corrected by 16% in last 3 months which has lead to lower valuation multiple
due to growth and asset quality concerns that has crippled the banking industry. We feel the
bank would continue its performance going ahead. The stock is trading at 1.2x and 1.0x BV of
FY12E and FY13E. We feel such low multiple is not warranted for the stock with such strong
fundamentals and it would trade at higher multiple once interest rate cycle peaks out. We
expect the stock to trade at 1.2x BV of FY13E implying target price of `901 in long term.

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Cox & Kings (india) Ltd. :: Diwali Picks 2011: GEPL Capital

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Cox & Kings (india) Ltd.
Summary
We believe Cox & Kings (C&K) is best bet in the growing T&T industry with a 9.2% CAGR in
India’s travel and tourism demand over the next decade (CY11-21E), the second fastest in the
world. The a) Pan-India presence with strong brand recall, b) integrated business model with a
diversified product offering (price and destinations), and c) strong overseas network with
presence in key outbound destinations offer it an edge over competitors to gain market share
and capture a higher pie of the industry growth.
Emerging global tour operator with a strong set of synergies from acquisitions
In a short span of four years, C&K has completed seven acquisitions (in the UK, Japan, Australia,
India and the US) to emerge as a global tour operator. With a strong management bandwidth,
synergies from acquisitions led improvement in the consolidated EBIDTA margins. We believe
there is scope for further margin expansion following synergies emanating from: a) consolidated
product sourcing coupled with scale benefits, b) improved product mix (leveraging the global
platform to cross-sell existing products), and c) expansion of captive destination management
services for its various overseas subsidiaries.
HolidayBreak: an acquisition worth the wait
The recent acquisition of HolidayBreak Plc offers a host of benefits to C&K which include a)
potential to double revenues in the next two years with margin improvement, b) entry into the
education and camping markets increasing the volume and value for C&K, and c) utilization of
cash on books which were earlier resulting in a net outflow of 3% for the company
Strong future growth avenues
C&K has also branched out into a) visa processing, where C&K has signed up with six embassies
to process visa applications and expects more than a six-fold increase in volumes in the next two
years, and b) a foray into rail tourism through the Maharajas’ Express, a luxury train in JV with
IRCTC. Though these segments contribute less than 8% to the company’s revenues, we expect
the revenue contribution to increase and with higher margins the company should benefit on the
profit level as well.
Valuation
C&K is currently trading at 14.3x FY12E EPS and 8.9x FY13E EPS, a significant discount to its
historical one-year forward P/E band. In view of a) the acquisition of HolidayBreak which should
double revenues, b) the strong demand visibility, and c) the improvement in return on capital in
view of successful track record of past acquisitions, we believe there is good potential upside in
the stock. We recommend a Buy rating on the stock with a target price of `259 per share (11x
FY13E EPS).

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Diwali Picks 2011: GEPL Capital

Jyothy Laboratories :: Diwali Picks 2011: GEPL Capital

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Jyothy Laboratories Ltd.
Summary
Jyothy Laboratories Ltd (JLL) has moved to the next orbit post acquisition of Henkel India which
has positioned JLL as a multi-brand company, operating in multiple categories like fabric care,
laundry, dish wash, mosquito repellants and personal care. Further acquisition has widened its
distribution reach in urban modern retail and canteen sales. The synergies between both the
companies are likely to benefit JLL, creating value for JLL. However, high interest cost,
integration and restructuring in distribution channel has impacted short term performance of
JLL. Return of growth momentum in core business and improvement in performance of Henkel
India are the key catalyst for the stock
JLL to benefit from likely multi-level synergies with Henkel India in long-term
Henkel India acquisition likely to position JLL as a multi-brand FMCG Company (10 brands now
v/s 3 pre-acquisition) while leaving a significant opportunity to exploit synergies to increase
revenues and margins. JLL, in our view, will be able to achieve these synergies through 1)
operational cost synergies and 2) broadening its distribution reach in modern retail, canteen
sales along with its current strong rural distribution. Apart from these, the other key benefits to
JLL, in our view includes : 1) reduce its dependence on the Ujala brand, 2) entry into personal
care category with Fa, Margo and Neem brands (v/s currently in homecare, laundry and
dishwashing categories) and 3) tax benefits from accumulated losses of Henkel India.
Expect steady state growth in core business
We expect JLL’s core business to grow at a normal pace and model 11% revenue CAGR through
FY14 driven by (1) Ujala – revival of growth in Ujala Supreme and contribution from detergent
portfolio; (2) Maxo - growth driven by liquid vaporizer coupled with launch of outdoor variant
and (3) Exo - extending footprint to national level.
laundry business still in expansion mode
We expect JLL’s laundry business (JLL’s 75%subsidiary) to report 140% revenue CAGR (from 94mn
in FY11 to `1,312mn in FY14) through FY14 driven by – 1) Growth in its current operation in 4
cities, 2) Planned expansion in 2 more cities by the end of FY12 and 3) Favourable change in
business mix
Valuation
The stock has witnessed more than 50% correction in last one year as against 18% correction on
the Sensex as a result of concerns owing to competition in operating segments and acquisition of
Henkel India. In the near term we remain cautious on the financial performance led by higher
interest outflow and macro factors. However, we believe, earlier than expected growth
momentum will be positive surprise for the stock. We believe acquisition of Henkel India will be
value accretive over the longer term. We are positive on the JLL’s long term growth potential.
We value JLL on PE basis at `181 with target multiple of 20x on FY13 EPS of `9.1

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Diwali Picks 2011: GEPL Capital

Sintex :: Diwali Picks 2011: GEPL Capital

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Sintex Industries Ltd
Summary
Sintex Industries Ltd. has come a long way from its original Textile (Bharat Vijay Mills) & Water
tank business to a technology backed complete business solution provider in plastics &
composites market. The company has over the years leveraged its established brand name &
dominance in water tank business to penetrate high margin, innovative & niche product
segments (Monolithic & Composite segments) to become the market leader in Indian plastic
processing industry. With its strong & cost effective domestic manufacturing base, efficiently
evolving global delivery model and proficient & experienced management the company is well
poised to deliver sales CAGR of 24% & earnings CAGR of 18% over FY11-13E.
Monolithic would lead from front; Pre-Fab to follow suit
Monolithic business, which formed 30% of Sintex’s FY11 sales, was earlier based on government’s
social infra-spending. Now it has started seeing traction from Housing Boards & Pvt. players as
well. Backed by buoyant order book of 2x sales, this segment would continue its upsurge of
growth (85% sales CAGR over FY08-FY11), we expect it to give revenue CAGR of 40% & maintain
its margins between 18-19% for next 2 years. Prefab business, which formed 14% of total FY11
sales, is expected to grow by 20% for next 2 years with margins maintained at 21% levels.
Custom Moldings could remain subdued; Textile to balance same
Owing to decline in US & European economies, Nief Plastic’s Ltd & Wausaukee Inc would not
grow by more then 10% for next 2 years, their margins would also be under pressure. Although
domestic subsidiary Bright brothers, which is expected to grow at 30% CAGR for next 2 years
with margins maintained & Sintex Stand alone which is expected to grow at 20% CAGR for same
period; would balance out this segments damp growth. Textile business, which forms 10% of
total sales generates highest margin of 24-25% among all segments, it is expected to grow at 10%
for next 2 years with historical margins to remain strong.
Balance sheet strength would return; Return ratio’s set to improve
Improvement in working capital from 130 days in FY10 to 105 days in FY11 helped Sintex
generate FCF after 2 years. This coupled with expiring of FCCB’s in 2013 will bring the D/E down
from current 1.2 to 0.5 in FY13E. This would also help ROCE to improve from current 11.2% to
16% in FY13E. Sintex has enough cash & provisions to carry out FCCB redemption with out
conversion
Valuation
Sintex has traded in range of 12x to 14x 1 yr fwd earnings in the past and is currently trading at
5x FY13E expected earnings of Rs 23.5. The stock has corrected by more then 200% in last 1 yr
due to deteriorating working capital, for-ex exposure, concerns on Monolithic business & FCCB
redemption issues. We believe that concerns are over done & stock price would bounce back
sharply as Sintex would continue its performance going ahead. Our SOTP based target price of
Rs 165 values the company at 7x 1yr fwd EPS & is at 40-45% discount to its historical long period
average.

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Diwali Picks 2011: GEPL Capital

Diwali Picks 2011: GEPL Capital

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1. Sintex
2. Jyothy Laboratories
3. Cox & Kings 
4. Bank of Baroda
5. Coal India
6. Eicher Motors
7. Lupin 

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It been a tough year for the Indian markets with a 19.5% correction in Samvat 2067,
and volumes declining by 40% as the FII outflow for the period stood at Rs (-3) bn. All
of this has lead to our markets trading at trough levels of 13x 1 yr fwd earnings, a
discount of 10% to its past 15 year average.
A series of changes across the globe and in India have led to a fear for investment in
equities and led to a scenario of uncertainty, volatility and currency depreciation. The
higher commodity prices driven by QE2, the Middle East crisis and the pressure on
financials with the debt concerns surrounding European banks have trickled down to
our economy leading to a slower growth rate and higher inflation. What seems like an
over ambitious deficit target, slow execution in India and political instability due to
the recent exposure of scams, we have become more vulnerable to negative news
flows.
However, with the current fear in the market, there lies a ray of hope, with plenty of
stocks with good business ethics, practices and performances being able for a
comparatively cheaper valuation. We have carefully picked up a few stocks, which we
feel confident about & expected them to give good returns over a longer term. These
stocks are our fundamental picks based on structural opportunities or business cycle
reversals. The idea has been to pick stocks with low risk and above average return
potential.
With that we would like to wish you, A very “Pleasant & Safe Deepavali” and a
“Prosperous Samvat 2068”!
Happy Investing!