Kotak 2012 Diwali Picks

After a challenging previous year, Samvad 2068 provided some
cheer to the markets. For much of the year, there was frustration
and near-despair. However, concerted action by US / EU central
banks and the subsequent reforms initiatives by the Indian
Government have provided a much needed boost to our markets in
the last 10 weeks. The benchmarks have recovered from the lows of
2011.
The new Samvad brings with itself, hope of a better future. The
Government is in a mood to bring the economy back on the high
growth path and that, according to us, can be a big positive, if the
Government carries out with further reforms. The US elections have
ensured continuity in and minimal disruption of US economic
policies. The easy monetary policy also seems set to continue. EU
has so far, succeeded in averting any major defaults.
No doubt, there will be periods of uncertainty and anguish and
concerns. There may be corrections in markets. The fiscal cliff in US
is expected to be the first big test for global equities. EU chiefs will
also have to keep on working hard to avoid catastrophes. And more
importantly, the Indian policy-makers will face a big test in the
ensuing winter session. The last budget before 2014 elections will
also be important.
However, we are hopeful of a much better Samvad 2069. Given this
backdrop, we have selected some stocks which look attractive to us
from an investment perspective.
The stocks are :
Cairn India
 Cairn India Ltd (CIL) is one of the biggest private exploration and production
companies in India.
 MBA have recoverable oil reserves and resources of more than 1 billion barrels,
which includes proven plus probable (2P) gross reserves and resources of 636
million barrels of oil equivalent (Mn boe) with a further 308 Mn boe or more of
enhanced oil recovery (EOR) potential. This is 25-30 years of production.
 Based on our estimates, the stock is trading at 5.1x EV/EBIDTA and 6.3x P/E on
FY14E earnings.
ICICI Bank
 ICICI bank is better placed vis-à-vis its peers with robust liability franchise (CASA
mix at ~41% at the end of Q2FY13), stable asset quality, improving NIM (3%+
during last 3 Quarters).
 Management's focus on stable growth with improving structural profitability (RoE
is likely to improve further with increase in leverage in next 2-3 years) reinforces
our existing positive outlook on the stock.
 Retail book, which constitutes ~35% of total loan book, has seen near nil slippage during last couple of quarters; this has made us more confident on its overall asset quality.
 After stripping off the value of subsidiaries (Rs.204), stock is trading reasonable
at 1.4x its FY14 ABV.

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Grasim Industries
 Grasim Industries is a diversified player in cement, viscose staple fibre (VSF) and
chemicals and is also expanding its capacity in cement to enhance its overall
market share in cement and VSF division to capture higher demand.
 We thus expect company to benefit from volume expansion as well as pricing
improvement going forward.
 Along with this, company also has a healthy balance sheet and is open for further expansion in cement capacity through organic or inorganic means.
 It is trading at very attractive valuations of 9.4x P/E on FY14 estimates.
Tata Consultancy Services
 The management has maintained its optimism of beating NASSCOM's target
growth rate of 11% - 14% (USD terms) in FY13 in CC terms and has also maintained an optimistic macro outlook.
 TCS' revenue growth in the past few quarters has been better than Infosys and
it has been able to restrict impact on margins.
 Stock is available at about  18x FY14 estimates
Adani Port (ADSEZ)
 ADSEZ has outlined aggressive plans to emerge as one of the largest private
port operators in India.
 Total cargo handling capacity for the company in India is expected to increase
from 150mn tons currently to 225mn tons by FY14E.
 As a large portion of the volumes is linked to energy imports, we expect volumes for the port to grow at 18% CAGR to 90mn tons by FY14E.
 Stock is trading at very attractive valuations of about 13.3x on FY14 estimates.
Engineer's India Ltd
 Engineers India Ltd (EIL) is India's leading publicly held company engaged in the
areas of hydrocarbon, metals and infrastructure consultancy.
 According to Ministry of petroleum and natural gas, domestic crude oil refining
sector is likely to significant capacity in twelfth five year plan. EIL is likely to
benefit from this as it enjoys entrenched relationship with PSU majors like HPCL,
BPCL, IOC etc.
 In order to widen its spectrum of offerings, company has entered into various
favourable joint ventures with domestic as well as international players.
 Stock is trading at very attractive valuations of about 10.1x on FY14 estimates.
KPIT Cummins
 Management commentary echoes the optimism sounded by other leading peers
about the continuing traction in automotive, manufacturing and hi-tech verticals,
the mainstay of KPIT.
 We understand that, the company has decent visibility on revenues, going
ahead.
 Stock is available at about 9.3x FY14 estimates