Bajaj Auto
Structurally well-placed; presence in 40 countries with 2W, 3W and, very soon, 4Ws. Poised to benefit the most from uptrading, with
brands like Pulsar and Kawasaki in its stable.
Better placed to handle competition. Derives 20% of volumes from the domestic 100cc executive segment; robust launches planned in
key brands to tackle competition.
Potential of RE60 not captured in estimates; could be replacement for 3Ws as it caters to demands of both regulators and customers.
Exports to start in 3QFY13.
M&M
UVs drive growth while tractors take a pause. XUV and Bolero drive growth in a weak market and mitigate impact of weak tractor demand.
Recent recovery of monsoon reduces risk of a tractor collapse.
Recent turnaround of Tech Mahindra positive for consolidated financials.
JPA
Capex has peaked, gearing expected to reduce.
Expect strong cash flows in power (JPVL) due to robust generation at hydro plants and progress of projects under construction. Yamuna
Expressway commissioned; to pave way for real estate launches in new locations along the expressway.
L&T
Diversified skill-sets for a range of industries; vendor of choice for large and complex projects.
Large and diversified order book.
Captures maximum value from most orders due to broad presence in the value chain (e.g., power EPC solutions include manufacturing of
both BTG and BoP components).
HDFC
High visibility of sustained growth given healthy affordability levels and strong demand.
NPLs to remain low as no heavy job losses forseen; benefits from the fact that as most loans are for self-use, this is the last asset a
person would default on.
Given strong track record and sustainable high core RoEs, we expect HDFC to sustain premium valuations. Valuing the core business
at 4x FY13E book (3.5x FY14E) and building in a value of Rs205 per share for subsidiaries, we set a 12-month price target of Rs800.
ICICI Bank
The bank has delivered 20%+ earnings growth for seven consecutive quarters now; and we believe it is firmly on track to expand both
profitability and balance sheet.
Better transaction structuring and high level of collateralization offer comfort on infrastructure asset quality.
A steady earnings trajectory should drive a structural re-rating of the stock from 1.3x FY13E core book currently to 2.4x. We have a 12-
month target price of Rs1,476 (including Rs166/ share for non-banking subsidiaries).
Yes Bank
With its advances portfolio being almost entirely composed of working capital loans, Yes Bank's asset quality remains one of the best
in the industry.
Given the wholesale bias of the bank’s funding mix, a decline in wholesale borrowing rates would provide impetus to earnings as also
stock performance.
Currently trades at 2.2x FY13E adj. book and 1.7x FY14E adj. book. Reiterate Outperformer, with an 18-month price target of Rs500
(2.5x FY14E adjusted book).
IndusInd Bank
With rates softening in the past few days due to easing liquidity (a trend likely to sustain), we expect IndusInd to start gaining margin
momentum again given ~50% of its loan book is fixed rate in nature.
IndusInd is focusing on diversifying its revenue base as well as improving its liability franchise as reflected in robust fee growth and a
continuous expansion of the saving deposit base.
Despite improving over the past three years, branch efficiency still lags peers by a wide margin. We see this untapped opportunity
driving a sustainable RoA of ~1.6% 4. Current valuations are 2.9x FY13E & 2.3x FY14E adj. book. We have an 18-month price target of
Rs430 (3x FY14 adj. book).
Infosys
Infosys’s prolonged underperformance to the CNX IT index has been led by the conspicuous absence of its “beat-and-raise” quarterly
performance and slower volume/ revenue growth compared with TCS/ HCLT.
The management has taken steps to accelerate growth and adapt to newer business dynamics. The sales engine in being revived with
renewed focus on client-mining and new high-potential client acquisition as also empowering the next line of management.
These efforts should bear fruit in the next few quarters; valuations of ~14x PER adequately captures the known negatives.
Wipro
Wipro has a high share of run-the-business IT spending, the highest among the top 6 Indian IT services companies. Also, revenues are
well-diversified across verticals, clients and service lines.
A re-organization undertaken in FY12 has ensured higher accountability, agility and better client responsiveness and is likely to reflect
in Wipro’s long-term growth prospects.
Valuations of ~13x PER reflect weak Q1 and muted Q2 guidance. Wipro’s business model is resilient and we see a bounce-back.
Cairn
Production growth of ~20% from current levels by H2FY14E to 210 kb/d. Further increases possible over FY15E if regulatory
clearances come through.
We have conservatively used peak production of only 210 kb/d in our numbers based on clearances received so far.
We are positive on strong crude prices (we build in a long-term price of ~US$90/bbl) and rupee depreciation boosting earnings and
pushing back earning peak to H2FY14E (post which government’s share of profit would rise to 50%, depressing earnings).
Exploration option value of Rs78/ share; approvals coming through for exploration on the Rajasthan block to get the resource base of
~3100 mmboe (risked resources of ~530 mmboe) through to appraisal stage would boost this value
JSPL
JSPL should beat the steel downcycle through value-addition.
In the power segment, lower tariffs are priced in; should still drive earnings growth.
Overseas mining assets – value-unlocking from overseas coal assets in South Africa, Mozambique and Indonesia.
HUL
HUL has transformed itself into a premium-focused and leaner organization in the past two years; this would continue to drive 8-10%
volume growth.
The soaps and detergents business is moving back to normalized margins; premiumisation of personal products will ensure
sustained margin expansion.
Efficient leveraging of unmatched scale will drive down costs, further adding to profitability.
We expect a 17% profit CAGR over the next three years.
Marico
The strength of the core domestic hair and edible oil business ensures strong volume growth. Continued market share gains in spite
of steep pricing action is indicative of the strong brand equity of Parachute and Saffola, which will ensure volume-driven as well as
profitable growth.
A shift in strategy towards taking on the multinationals in their own categories (oats, skin care, deodorants) is encouraging and, we
believe, will create growth drivers for the business, beyond the core hair and edible oil business, over the next five years. We are
positive on the Paras acquisition as it opens up new high-growth avenues.
We expect a 22% profit CAGR over the next three years.
Godrej Consumer
The domestic business gives us a high level of confidence as the household insecticides business (50% of domestic revenues) is
growing 2-3x category growth and remains an extremely exciting category. Moreover, soaps has also picked up pace and is
supplementing strong growth in household insecticides.
The company has allayed concerns on the international business to a large extent as growth continues to be strong and the balance
sheet has improved considerably.
We believe GCPL’s de-rate cycle is over, increasing growth visibility on both the domestic and international businesses; this would
prompt a re-rating.
APSEZ
Strong volume growth momentum continues, leading to strong cash flows.
Leverage ratios to peak at current levels (Abbot Point expansion unlikely to be taken up over next 18-24 months).
Strong earnings profile (20% CAGR in cons. earnings over FY12-14) not reflected in current valuations.
Cipla
After management changes, Cipla’s focus on revitalizing its domestic business and enhancing profitability has clearly begun
delivering returns.
While the finer contours of this turnaround strategy remain hazy, we take comfort from management commentary referring to steady
improvement in operating metrics and significant improvement in balance sheet quality.
We also anticipate increased aggression for growth, including strategic moves like M&A deals.
With reasonable possibilities of earnings upgrades, we remain positive on the stock. We have a target price of Rs398 (20x FY14E, 23x
FY13E earnings).
Dr Reddy's Labs
One of the most attractive ANDA pipelines in the industry – 79 pending ANDAs, including of 40 Para IVs and 10 FTFs.
A slew of recent complex launches – e.g., Fondaparinux, Lansoprazole, Tacrolimus, Omeprazole OTC – underline the company’s
R&D capabilities; news flow on more interesting product launches expected in the coming quarters.
High-margin branded formulations sales of Rs37bn (FY13E) across India and CIS; relatively insulated from any impact of the likely
implementation of price control policy.
Street’s skepticism on management’s ability to achieve FY13 guidance of $2.6bn-2.7bn an upside risk.
At CMP of ~Rs1660, the stock trades at ~16x FY14E, much below multiples of most large peers. Also, given return ratios of >20%
and a net cash balance sheet, valuations remain attractive.
Sun Pharma
With all three business segments – US, RoW generics and domestic formulations – showing strong growth, we remain fairly
comfortable on medium-term growth.
US generics will likely keep delivering positive surprises, with 135 ANDAs awaiting approval and unanticipated approvals for niche
products like Astelin nasal spray, Sumatriptan auto-injector etc.
Buy-back of remaining ~34% stake in Taro (Rs4bn PAT in FY14) to provide further upside given valuation arbitrage (Taro trades at
~10x FY14 compared to >20x for Sun); even after the Taro share purchase, Sun will have >$500m cash reserve left for significant
value-accretive acquisitions.
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