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Industrials
India
Sharp fall in stock prices prompts evaluation of opportunities. We take cognizance
of the sharp fall in stock prices over the past couple of weeks and realign our ratings,
target prices with an eye on opportunities even in an overall slow investment cycle. We
upgrade Crompton to BUY (TP Rs135 from Rs160 earlier), Voltas to ADD (TP Rs90 from
Rs110 earlier), retain ADD on Thermax (TP Rs440 from Rs515 earlier) and upgrade Tecpro
to BUY (TP of Rs200 from Rs250 earlier). Our earnings estimates are reasonably cautious
and provide for sharp downturn building in little improvement in FY2013E as well.
Valuations are attractive on these assumptions as well in terms of P/B relative to RoE as
well as P/E.
Crompton: Diversified business presence as well as benefit of Rupee depreciation may limit downside
We upgrade Crompton to BUY (from ADD earlier; TP of Rs135 – 13X FY13E EPS) based on
(1) likely benefit of Rupee depreciation in translation of overseas business (40% of consol
revenues) as well as exports (about 10% of consol), (2) benefit of commodity price correction such
as copper (down 14% from FY2011 average), (3) commentary of stable pricing (Areva, ABB,
Siemens) as well as stability in peer margins (TRIL, Voltamp etc.), (4) reasonable order booking,
(5) medium-term potential for increasing manufacturing exports out of India leveraging its global
presence, (6) relatively conservative expectations (flattish domestic revenues, 11% EBITDA margin,
Rs1 bn R&D expense, 6.5% subsidiary margins), (7) attractive valuations - P/B of 1.6X for cyclically
low 16% plus RoE in FY13E and about 10.5X FY13E EPS. Risks originate from sharper-thanexpected
margin correction in consumer and industrial business as well as a sharp deterioration in
overseas entities.
Voltas: Valuations (1.5X P/B;16% RoE and 10X P/E) limit potential downside
We upgrade Voltas to ADD from REDUCE so far based on a sharp correction and attractive
valuations even with relatively conservative estimates.
Retain ADD on Thermax while adjusting estimates downwards for lower order inflows
We reduce our order inflow estimates to Rs48 bn (from Rs53 bn earlier) so as to build in a likely
sharper decline in incremental order booking versus earlier estimates. We retain our ADD rating
with a target price of Rs440 (based on 14X FY2013 P/E) versus Rs515. Thermax is likely to have
22% RoE in FY13E and trading at P/B of 2.5X. We retain our ADD rating based on (1) attractive
valuations (13X FY2013E P/E, 7.5X EV/EBITDA) post sharp correction, (2) estimates build in
conservative assumptions, (3) strong expansion of business opportunity, and (4) very strong
balance sheet. Risks relate to dependence on metallurgy and cement wherein near-term capex
may be very low.
Retain ADD on BEL based on acyclical nature, large order backlog and strong cash flows
We retain our ADD rating on BEL (unchanged estimates and TP of Rs1,625 based on 12X FY13E
vs. Rs1,850 earlier) based on (1) acyclical nature, (2) large backlog, (3) strong cash position and
incremental cash generation.
Retain REDUCE on BGR on limited visibility; upgrade Tecpro to BUY on reasonable valuations
We reduce our estimates for BGR energy on limited visibility and retain our REDUCE rating on the
stock. We lower order inflows (Rs18/65 bn in FY2012E/13E vs. Rs20/89 bn earlier) and revise our
target price to Rs200 (10XFY2013E) from Rs300 earlier. We upgrade Tecpro Systems to BUY (from
ADD) with a revised target price of Rs200 (from Rs250) based on (1) attractive valuations - trading
at 6X FY2013E EPS estimate and 0.9X FY2013E P/B and (2) estimates relatively cautious, building
in sharp decline in inflows and margin correction.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Sharp fall in stock prices prompts evaluation of opportunities. We take cognizance
of the sharp fall in stock prices over the past couple of weeks and realign our ratings,
target prices with an eye on opportunities even in an overall slow investment cycle. We
upgrade Crompton to BUY (TP Rs135 from Rs160 earlier), Voltas to ADD (TP Rs90 from
Rs110 earlier), retain ADD on Thermax (TP Rs440 from Rs515 earlier) and upgrade Tecpro
to BUY (TP of Rs200 from Rs250 earlier). Our earnings estimates are reasonably cautious
and provide for sharp downturn building in little improvement in FY2013E as well.
Valuations are attractive on these assumptions as well in terms of P/B relative to RoE as
well as P/E.
Crompton: Diversified business presence as well as benefit of Rupee depreciation may limit downside
We upgrade Crompton to BUY (from ADD earlier; TP of Rs135 – 13X FY13E EPS) based on
(1) likely benefit of Rupee depreciation in translation of overseas business (40% of consol
revenues) as well as exports (about 10% of consol), (2) benefit of commodity price correction such
as copper (down 14% from FY2011 average), (3) commentary of stable pricing (Areva, ABB,
Siemens) as well as stability in peer margins (TRIL, Voltamp etc.), (4) reasonable order booking,
(5) medium-term potential for increasing manufacturing exports out of India leveraging its global
presence, (6) relatively conservative expectations (flattish domestic revenues, 11% EBITDA margin,
Rs1 bn R&D expense, 6.5% subsidiary margins), (7) attractive valuations - P/B of 1.6X for cyclically
low 16% plus RoE in FY13E and about 10.5X FY13E EPS. Risks originate from sharper-thanexpected
margin correction in consumer and industrial business as well as a sharp deterioration in
overseas entities.
Voltas: Valuations (1.5X P/B;16% RoE and 10X P/E) limit potential downside
We upgrade Voltas to ADD from REDUCE so far based on a sharp correction and attractive
valuations even with relatively conservative estimates.
Retain ADD on Thermax while adjusting estimates downwards for lower order inflows
We reduce our order inflow estimates to Rs48 bn (from Rs53 bn earlier) so as to build in a likely
sharper decline in incremental order booking versus earlier estimates. We retain our ADD rating
with a target price of Rs440 (based on 14X FY2013 P/E) versus Rs515. Thermax is likely to have
22% RoE in FY13E and trading at P/B of 2.5X. We retain our ADD rating based on (1) attractive
valuations (13X FY2013E P/E, 7.5X EV/EBITDA) post sharp correction, (2) estimates build in
conservative assumptions, (3) strong expansion of business opportunity, and (4) very strong
balance sheet. Risks relate to dependence on metallurgy and cement wherein near-term capex
may be very low.
Retain ADD on BEL based on acyclical nature, large order backlog and strong cash flows
We retain our ADD rating on BEL (unchanged estimates and TP of Rs1,625 based on 12X FY13E
vs. Rs1,850 earlier) based on (1) acyclical nature, (2) large backlog, (3) strong cash position and
incremental cash generation.
Retain REDUCE on BGR on limited visibility; upgrade Tecpro to BUY on reasonable valuations
We reduce our estimates for BGR energy on limited visibility and retain our REDUCE rating on the
stock. We lower order inflows (Rs18/65 bn in FY2012E/13E vs. Rs20/89 bn earlier) and revise our
target price to Rs200 (10XFY2013E) from Rs300 earlier. We upgrade Tecpro Systems to BUY (from
ADD) with a revised target price of Rs200 (from Rs250) based on (1) attractive valuations - trading
at 6X FY2013E EPS estimate and 0.9X FY2013E P/B and (2) estimates relatively cautious, building
in sharp decline in inflows and margin correction.
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