Tech Mahindra
Merger with Mahindra Satyam would create an entity with US$2.6bn in sales and 75,000 employees, put it on the global map for large
deals and improve growth prospects.
Core competencies of the two firms complement each other (enterprise services of Satyam and TechM’s mobility expertise), creating
a formidable player in the fast-growing enterprise mobility business, a key area of investment for Fortune 500 companies.
Valuations of ~10.8x FY13E EPS on pro forma earnings do not completely capture the improved growth prospects of the company.
Eicher Motors
Best play on CVs; company poised to gain market share, driven by AB Volvo-validated products and frugal cost structure (efficiency
close to that of 2W names!!!)
Offers superior growth visibility in a cyclical industry due to rising HCV market share (up in a weak market), resilient LMD and exports/
outsourcing.
CY13/ CY14 to be blow-out years as MDEP project goes live, RE expands capacity, new CV platform hits market and new EM brand is
launched.
Petronet LNG
Company to expand capacity 2x over the next two years (Dahej +5m tpa from 10m tpa currently; Kochi +5m tpa) and 2.5x in four
years (Gangavaram +5m tpa).
Domestic gas volumes remain muted; demand to keep growing in double digits over the next decade (volumes to grow from ~11m
tpa currently to ~15m tpa by FY15 and ~18m tpa by FY17E).
Pricing remains an issue, but with newer tranches of domestic supply coming in at higher prices, acceptability of higher prices would
rise. Slowing Japanese demand and global capacity additions could drive some moderation in spot LNG prices in the next five years.
Petronet LNG (continued)
Earnings CAGR of 14% over FY12-15E, but growth will be back-ended, with FY13-H1FY14E earnings showing slower growth due to
ramp-up of capacity coming in only by H2FY14E.
Limited threat from regulations in the medium term, with re-gasification margins not under the purview of the PNGRB Act as of now.
Ipca Labs
Ipca has among the strongest and most consistent business models in the mid-cap pharma space; superior API capabilities vis-à-vis
peers give solidity to its model; the company expects a 100+ commercial API basket over 2-3 years.
With the FDA nod for the Indore SEZ, clearance for the Baroda API complex, WHO pre-qualification for Artemether-Amodiaquine
combination over the last few months and recovery in domestic formulations, Ipca is well set to embark on the next phase of growth.
Expect steady growth across segments, with US generics likely leading the way from FY14 (expect 35-40% growth); currency tailwinds
will further add to the momentum.
At CMP of Rs402, the stock trades at 12x FY14E; scope for further appreciation with multiples re-rating to 13-14x given the robustness
of the business model and medium-term growth drivers.
Strides Arcolab
With 161 sterile ANDA filings, only 43 commercialized products, and promise of ~50 new filings in CY12, Strides’s scale-up potential
remains fascinating.
Given the tight steriles market in the US and availability of abundant USFDA-approved capacities, we expect the specialty business to
scale up briskly; pick-up in the pharma business will add to the momentum.
Net debt is down to Rs13bn with D/E ratio of 0.67x (from 1.67x as of Dec-11), which addresses a key investor concern
Glenmark
After addressing investor concerns over balance sheet issues, last quarter’s performance (37% yoy revenue growth; 21% EBITDA
margin) is reflective of the potential of its generics business model.
We expect profits to steadily improve hereon as investments in growth begin to pay off across geographies, led by the US and India.
Expected scale-up of ROCE to 18-19% (despite Rs1.7bn-1.8bn of NCE R&D spend) over FY13-14 (from 11-12% over FY09-11) builds
a strong case for a re-rating of the generic business. Significantly value-accretive news flow on the NCE pipeline is possible over the
next 12-18 months.
At CMP of Rs409, Glenmark remains attractively valued at 16.5x FY14E earnings.
Sobha Developers
Among the largest players in the steady Bangalore market; expansion into other cities (Chennai, Mysore and Gurgaon) provides
comfort on sales momentum.
Over 60% of land bank (210msf) in tier-1 cities of Bangalore and Chennai; minimal payment outstanding (Rs1.2bn; ~10% of total).
Strong cash flows from ongoing/ planned launches (>Rs80bn over next four years) provide comfort on execution scale-up and debt
reduction (Rs12bn; gearing at 0.58x; management target is 0.5x).
Growing at a whopping 76% CAGR (over FY08-12), Sobha achieved >Rs17bn sales in FY12; can comfortably achieve a run-rate of
Rs20bn from FY13.
We expect revenues/ earnings CAGR of 23%/ 20% over FY12-14E; EPS to potentially double by FY14 (>Rs30/share); stock trading at
attractive P/E levels (~10x FY14).
Potential valuation of >Rs400/share even at conservative land-bank valuations (Rs180psf; 2x acquisition cost).
JPVL
Expect strong cash flows on the back of robust generation in hydro power plants.
Progress in under-construction power plants on track, visibility on capacity addition.
Better protected than peers from coal-supply shortage and cost pass-through issues due to higher proportion of hydro capacity and
captive coal mine.
United Spirits
Shift in strategy to premiumisation and, hence, significant improvement in quality of earnings were evident in the recent results; this
would enhance USL’s positioning in the Indian spirits market which is becoming more premium.
With increasing leverage (1.7x), narrowing interest coverage ratio (1.3x for FY12), we see an urgent need for capitalization, which
could be addressed by sale of UB shares andUSL treasury stock.
We have always maintained that “strategic” value-unlocking in USL is a given and that the timing is the only “uncertainty”. Our sense
is that the probability of inducting a strategic partner looks high, which will significantly re-rate the business.
TVS Motors
One-legged run to end: New bikes (125cc and ‘Victor’ re-launch) mark entry in executive segment (50% of 2W industry). 125cc
scooter to boost presence.
New launches to drive margins as gross margins would rise, driving operating leverage. Growth in operating profits to be 2x growth in
revenues.
Deleveraging to boost non-operating growth: Interest-bearing debt of Rs4.3bn (25% of market cap) to be retired by end-FY14.
DEN Networks
DEN added 0.3m digital subscribers in FY12; we expect a 3x jump in additions over the next 12 months (1.18m in FY13E).
With digitization to improve declarations (albeit with a lag), we see the ‘annuity-driven’ model of distribution coming to the fore and
resulting in superior financial performance for DEN (35% CAGR in earnings over FY12- 14E). With cash on books of Rs2bn+ and
leverage of 0.3x, DEN is well capitalized for incremental subscriber addition of 2m+.
With the ‘direction’ of digitization now clear and given the superiority of the cable business model over DTH (capital requirement for
digitization almost half), we see merit in investing in DEN to participate in the digitization story. An aggressive management is an
added support to our thesis
No comments:
Post a Comment