IDBI Capital:: Diwali Muharat Top Picks - 2019

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IDBI Capital Market: Diwali muhurat top stock picks 2018

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2017 IDBI Diwali Muhurat Picks

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IDBI Capital: DIWALI PICKS 2016

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O&G - Gas price doubled to US$8.4/mmbtu: +ve for ONGC, OIL, RIL & -ve for GAIL, IGL; Coal regulatory bill gets Cabinet nod; Mastek - Mgmt Meeting; Economy: BoP & External Debt Update (IDBICaps)

Oil & Gas Sector: Gas price doubled to US$8.4/mmbtu from FY15: Positive for ONGC, OIL & RIL; Negative for GAIL, IGL

• In a major move, Natural gas price is doubled from current level to US$8.4/mmbtu from earlier US$4.2/mmbtu, which is effective from 01 April 2014 and applicable for all gas producers like ONGC, Oil India and RIL. The gas price hike would be revised quarterly and would be valid for five years i.e. till FY19.
• This is significantly positive for ONGC, OIL and RIL, while it is negative for gas users like GAIL and IGL. We expect ONGC’s PAT to increase by Rs83 bn, EPS to grow by 31% (on a full year of higher gas price)and valuations to increase by 10-12% from our current target price of Rs336. Similarly, OIL’s PAT is likely to grow by Rs10 bn, EPS by 25% and valuation by 8%-10% from our current TP ofr Rs560. RIL’s PAT is expected to increase by Rs25 bn, while EPS to rise by 10% and valuation to increase by 5-6%.
• This is negative for GAIL as they use domestic gas in their petrochemical division. We expect GAIL’s PAT would be negatively impacted by Rs8-9 bn (EPS impact is 15%), while valuation would be impacted negatively by ~12%. However, there is a likelihood that GAIL’s additional burden would be offset by an expected decline in subsidy burden.

§  Sudeep Anand (Sudeep.anand@idbicapital.com, +91-22-43221190) is awaiting for more details which is expected to come today. We would be revising our TP and ratings post that.

Indoco Remedies Ltd. Good prospects… BUY :IDBI cap

Indoco Remedies Ltd.
Good prospects… BUY
Summary
Indoco Remedies (Indoco’s) growth outperformance during FY13 in the domestic business
(15% YoY) despite an acute heavy portfolio inspires confidence on the strength of the franchise
(albeit on a lower base). Supplies of high margin ophthalmic products (~5 products) of market size
US$638 mn in FY14 and similar number of launches in FY15 will be the next growth engine. We
believe continued momentum in domestic business and beginning of supplies to the US,
will address investor concerns on margins. We initiate coverage with BUY.

Petronet LNG Ltd. Time for breather… HOLD ::IDBI capital

Key Highlights
 Spot LNG prices have come down to US$11/mmbtu and even market margins are relatively better
than previous couple of quarters. However, due to higher LNG pooled prices, the company is still
witnessing slowdown in demand which is causing slight increase in its inventory levels.
 The company does not see its volume crossing 140tbtu in near-to-medium term.
 Dahej’s second jetty is expected to commence by end-2013, while storage tanks and vaporization
units are expected to complete by end 2015. Post that, PLNG's operating capacity would be around
15mtpa.
 For Dahej expansion, the company has already completed gas sales agreements with GAIL and
GSPC for 2.5mtpa and 1mtpa respectively. Re-gasification margins are likely to be closer to the
current levels of Rs35/mmbtu. Further, IOC is showing interest for remaining 1.5mtpa capacity for
Dahej.
 The company is only in talks for short-term contracts and not for long-term contracts as prices for
latter contracts are still pretty high.
 GAIL’s recent short term contract with GDF of 0.8mtpa is priced slightly higher than US$13/mmbtu,
which would fetch re-gasification margin for PLNG and would be marketed by GAIL.
 Phase-I of Kochi-Bangalore pipeline would be ready by end-CY12, while phase-II would be over by
end-CY13. Therefore, Kochi terminal would operate at lower capacity of 0.7-0.8mtpa in FY14,
ramping up to 5mtpa in another 2-3 years.
 Re-gas margins are expected at ~Rs50/mmbtu for Kochi terminal, in line with our estimates.
 PLNG expects port to be ready by end-CY16 while floating terminal is expected to commence from
CY15, which will have capacity of 2-3mtpa. No major capex has been done so far for Gangavaram
project.
 The company expects volume to remain stable till FY14 owing to capacity constraints.

Jubilant Foodworks Ltd. Impressive performance continues…: IDBI capital,

Jubilant Foodworks Ltd. (JUBI) delivered another strong quarter on top line/bottom line with 45%/40% growth YoY respectively to Rs3.1 bn/Rs323 mn – ahead of estimates of Rs2.9 bn/Rs308 mn. Gross margin/EBITDA margin was marginally lower at 73.4%/18.2% impacted by continued food inflation and operationalising of DD stores. We raise our revenue estimates by 1%/4% for FY13/14 (mgmt has raised its store opening target to 100 in FY13 vs. 90 earlier), however, cut our EPS estimates by 5%/4%, to factor in 70bps cut in margin to factor in impact of DD stores (mgmt has guided for 60-70bps margin impact on operationalising of DD stores). We factor in SSG of 20%/18% for FY13/14 with store addition of 100/95. We remain impressed by management’s positive tone on healthy SSG trend (it has guided for >=18% SSG in FY13) and its ability to maintain profitability despite rising competition (led by pricing power and operating leverage – mgt has guided to at least match FY12 EBITDA margin of 18.7% without considering DD stores impact on margin). Maintain ACCUMULATE with DCF valuation of Rs1,260 (13.1% WACC; 5% terminal growth).

V-Guard Industries Ltd. Management re-iterates growth momentum: IDBI cap

We hosted a two day road show with the management of V-guard Industries. Key take away from the meetings were:
 Management re-iterates 25% growth in revenues during FY13
V-Guard management has re-iterated guidance of 25% growth in revenues in FY13. Growth will come from across product categories. Management has indicated Non-South markets will grow at a higher pace as compared to the South markets in FY13. During Apr-May, 2012 it has witnessed descent growth which has further given it confidence to achieve its yearly guidance.

Jyothy Laboratories Ltd. New CEO – a right step: IDBI cap

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JYL’s Q4FY12 revenue was ahead of estimates led by better than expected performance from Maxo, which led to EBITDA beat as higher revenue led to almost break even for Maxo vs. PBIT loss of 9.7% in Q3. However, cost pressures (rising crude prices, guar gum prices and depreciating INR) were clearly visible with gross margin at 39.5% lowest since it listed in Dec’07. PAT was largely in line led by higher than expected interest expense at Rs134 mn (interest on loan taken from Axis Bank) vs. IDBIe Rs26 mn and Rs23 mn in Q3. Management indicated that sales momentum across brands in core business has improved QoQ and operations have largely stabilized as large part of distribution realignment is completed. Volume growth in both Fabric care and Exo (84% value growth, 75% volume growth) aided revenue growth. Even Maxo was strong at xx%, thereby showing early signs of revival in the growth trajectory. Management expects volume traction in Fabric care and Exo to continue led by ongoing brand building exercise, strong brand equity and completion of distribution realignment. In case of Maxo, mgt’s focus on liquids as also new TV commercial (to be telecast soon) will likely boost volumes, with growth rate aided by lower base (~1% growth in FY12). Management expects volume growth of 20-25% in JYL in FY13 (we factor in 15.4% growth). Henkel India (HIL) continues its improved performance with EBITDA margin at 13.4% in Q4FY12 from -6.8% in Q4FY11 (JYL took over HIL in Mar’11). Moreover, with Karaikkal strike (where Henko Champion is manufactured) being resolved on Dec 26, 2011 (strike resulted in revenue/EBITDA loss of Rs270 mn/Rs70 mn, with EBITDA to 3.1%), revenue is back to quarterly run rate in excess of Rs1 bn and EBITDA margin at >14%. Management expects 25-40% vol. growth in FY13 with EBITDA margin sustainable at ~15%, led by price hike of 8-12% across brands in Apr’12; however, arrested by uptick in A&P spends (TV commercials on Margo and Pril to be telecast soon). We raise FY13 revenue estimates by 4% (to factor in strong volume performance, especially in Maxo) and up EBITDA margin estimate by 30bps to 13.8% (mgt estimates ~16% OPM as sustainable; however, we are conservative led by crude/INR related cost pressures). However, our interest estimate goes up, resulting in earnings maintained at Rs10.9. Introduce FY14 estimates with revenue/EBITDA/EPS at Rs8.9 bn/Rs1.3 bn/Rs10.2 – up 16%/19%/down 6%. EPS is estimated to be down 6% as we estimate full tax from FY14 onwards (MAT credit available till FY13). Key takeaway from Q4 results was the appointment of Mr. S Raghunandan as the Chief Executive Officer and Whole Time Director of the company. Mr. Raghunandan has served as Managing Director with Reckitt Benckiser India and also worked at senior mgt level at leading FMCG companies like Paras Pharma, Dabur India and HUL, etc. We believe this is a step in the right direction and was much needed considering the large bouquet of brands under JYL + Henkel. In our view, this move should start reaping benefits in HIL over next 3-6 months. Reiterate BUY with SOTP valuation at Rs241 – JYL’s core business at Rs190; 84% stake in HIL at Rs36 (16x CY13E EPS of Rs2.2) and NPV of tax benefits on HIL’s accumulated losses of >Rs5 bn at Rs15. Management has categorically denied any near term possibility of stake dilution as also asset monetization, which will keep debt at elevated levels.

Hindustan Construction Company - Dismal performance continues :: IDBI Caps

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Execution remained muted with revenue coming 5% below our estimate at Rs11.6 bn. Order inflow in Q4FY12 remained subdued at Rs3.1 bn. The biggest negative surprise for the quarter came in the form of lower than expected OPM (7.6% V/s IDBIe of 12.0%). Consequently, EBITDA came 40% below estimate at Rs878 mn. HCC reported a net loss of Rs542 mn, against our estimate of Rs200 mn loss. Despite some improvement in execution, we expect HCC to continue to report a net loss in FY13/FY14. We have lowered our TP for HCC to Rs20 (Rs22 earlier) due to reduction in our target EV/EBITDA multiple to 4.5x (earlier 5x) and downward revision in our OPM estimates. Maintain REDUCE.
Key Highlights
 Revenue 5% below estimate at Rs11.6 bn; order inflow remains weak
Revenue declined by 5% YoY to Rs11.6 bn, against our estimate of Rs12.1 bn. This is the third successive quarter when HCC has reported a YoY decline in revenue. Order inflow in Q4FY12 remained subdued at Rs3.1 bn (Rs18.9 bn in FY12). Consequently, O/B declined 6% QoQ to Rs153.4 bn.
 OPM 440bps below estimate; EBITDA 40% below expectation
OPM at 7.6% was significantly below our estimate of 12% (11% in FY12). Consequently, EBITDA was 40% below estimate at Rs878 mn. The margin contraction is likely on account of business restructuring and distribution of overheads on the lower turnover. The management has guided for an EBITDA margin of 11.0% in FY13.
 Net interest expense up 19% QoQ; Reported net loss of Rs542 mn
Net interest expense increased 19% QoQ to Rs1.2 bn and was in-line with our estimate. The company reported a net loss of Rs542 mn, against our estimate of Rs200 mn loss.
 Subsidiary performance
Karl Steiner reported Revenue and PAT of Rs40bn and Rs158mn, respectively for FY12. The company has a current O/B of Rs82.9 bn. However, Lavasa and HCC Infra reported a net loss of Rs1.4 bn and 1.6 bn, respectively for FY12. HCC commenced tolling on the Dhule – Palasner BOT in Q4FY12 and the initial collections are in-line with management expectations. During the quarter, Lavasa launched 0.25msf of residential space, which the management claim got sold out completely.
 Maintain REDUCE; TP revised to Rs20
Despite some improvement in execution, we expect HCC to continue to report net losses in FY13 and FY14. We have kept our subsidiary valuation estimate unchanged at Rs49 per share. However, our value for the standalone business stands revised to negative Rs29 per share (earlier negative Rs27) due to reduction in our target EV/EBITDA multiple to 4.5x (earlier 5x) and downward revision in our OPM estimates. Consequently, we have revised our TP for HCC to Rs20 (Rs22 earlier). We maintain our REDUCE rating on HCC.

Titagarh Wagons Ltd.- Operating performance below expectations:: IDBI Cap

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Summary
Titagarh Wagons (TWL) earnings were below expectations with PAT at Rs210 mn with ~19% YoY growth. EBIDTA margins fell by 60bps to 14.9%. Revenue growth stood at ~10%YoY to Rs1.8 bn. Wagon production stood at 900 units for Q2FY12 as compared to 500 units in Q2FY11. Despite the 80% YoY growth in volumes, relative lower revenue and earnings growth has been ascribed to wagon output mix. Predominantly stainless steel wagons were manufactured last year whereas a mix of Carbon-Mg and Steel produced in the current quarter. The change in wagon mix as well as higher power and fuel costs also impacted the margins. The orderbook currently stands at 1,200 wagons (400 IR and 800 non-IR). Indian Railway (IR) wagon orders for FY12 have still not been released and are now likely to be released by December, 2011. Any further delay in IR order may lead to revision of our earnings estimates downwards. We have revised downwards our margin estimates to 15.6% for FY13E from 16.2% earlier though impact on earnings is negated due to higher other income estimated. The stock trades at 9.9x FY12E and 9.6x FY13E EPS and is fairly valued at current levels. We hence downgrade our rating to HOLD from ACCUMULATE earlier, while we rollover our target price to Rs445 on SOTP basis with 9x FY13E EPS of core earnings and stake in Cimmco calculated on BV basis.
Key Highlights
 Revenue grew 9.8%YoY to Rs1.8 bn. For the Half year period Revenue growth stood at 26%YoY top Rs3.9 bn.
 Wagon dispatch for the quarter stood at 900 units and for the period H1FY12, 1900 units. We have estimated a total wagon production of 3650 units.
 EBIDTA margins fell to 14.9% by 60bpsYoY due to change wagon production mix and higher power and fuel charges which increased by 85% YoY. The fall in EBIDTA margins was inline with the fall shown by other industry players in Q2FY12.
 PAT grew by 18.8% to Rs210 mn mainly due to the increase in the other income.
 Cash and debt stood at Rs1,370 mn and Rs493 mn respectively.
Outlook and Valuation
The IR wagon order is the key deciding factor in the near term as the current orderbook would cover production only upto Q4FY12. The IR order was initially expected to be released in Sept 2011 has seen delays and is now expected to be released in December 2011. Further, wagon space is also becoming increasingly crowded and hence we expect the margins for the next set of orders to be relatively less.
The stock trades at 9.9x FY12E and 9.6x FY13E EPS. Our SOTP valuation for the stock post the rollover amounts to Rs445. Downgrade to HOLD.

Invest in various types of debt since you can't take the rate movement for granted: Debasish Mallick, CEO & MD, IDBI AMC in ET

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The strategy that investors should adopt at the current juncture, the IDBI Mutual Fund's plans for market penetration and the future of the fund industry are some of the issues that Debasish Mallick discusses with ET.

When can we expect the market sentiment to improve? 
The debt overhang in the western countries is likely to continue for a long time. If it does, it will have a major negative impact on the global market sentiment and sentiment will decide the course of the markets. FII investments are also not likely to go up in India any time soon, especially with uncertainty about the domestic economy and doubts over the reforms programme. Other emerging countries are also likely to give better returns. On the domestic front, inflation has started to ease a bit, though there are concerns that it is temporary and may go up again. Core inflation will have to correct in some time. This is the lag effect of all the 13 rate hikes that we were so critical about. After a clear view emerges on inflation, the RBI is likely to tinker with the rates. I don't expect an interest rate cut soon and we may have to wait for some more time. When it happens, it will improve the market sentiment, even though volatility will be the order of the day. 

Munjal Auto Industries Ltd. Mirroring Hero…::IDBI Caps

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Company background Munjal Auto Industries Ltd. (MAIL) manufactures Exhaust systems for 2-w and 4-w, spoke rims for 2-w, Steel Wheel Rims for 2-w and 4-w, Fuel Tanks for 4-w, Seat Frames for 4-w and other automotive assemblies. The company has technical collaboration with Samsung Industries Ltd. of Korea for the manufacture of Fuel Tanks for Four Wheelers. Munjal Auto is a part of Hero Group. Key highlights from management meet
 ~90% of Hero MotoCorp’s (HMCL) muffler requirements are met by Munjal Auto, with balance being supplied by Majestic Auto (Hero Group Company). The company supplies to all HMCL models, except 100 cc bikes.
 December month production has been the best ever in the company’s history. HMCL normally has a 5-day plant shutdown in December every year; however, this time as demand for 2-w remains strong, it has decided to do away with the shutdown.
 MAIL indicated that it supplies ~18k units/day of HMCL’s daily requirement of 22k units. It expects this daily run rate to go up to 22k units of HMCL’s requirement of 25k/day.
 Mufflers contribute 80-85% of MAIL’s revenue, with balance being wheel rims, fuel tanks and other small components. ~97% of MAILs’ revenue comes from HMCL. It supplies fuel tanks to Tata Nano and is in talks with General Motors for supplies of chassis components for its models.
 MAIL currently operates at >100% utilisation in 2-w and will be debottlenecking its existing plants to cater to HMCL’s requirements. Plant wise production stands at 8k units/day at Haridwar (to go up to 9.5k units in FY13), 5.5k units at Bawal (7k units in FY13) and 4.5k units at Baroda. Management categorically stated that 2-w business is low capital intensive and with Rs250-300 mn capex, it can generate Rs1 bn revenue in 2 years time.
 MAIL has ~1,300 workers at Baroda, while ~300 workers at Haridwar + Haryana. Splendor/Passion/CD Dawn are produced at Haridwar and Haryana plants, while >100 cc models of HMCL are produced only at Baroda. 49% of MAIL’s revenue comes from tax free Haridwar plant, which also contributes ~80% to profits. Haridwar plant has excise benefit till FY19 and income tax benefit FY14. 70% of Haridwar profits post FY14 will be taxed.
 The company stated that it will continue to focus on HMCL only and is not looking to supply to any other 2-w OEM.
 On 4-w, it currently operates at ~25% utilisation (it has capacity to produce 800 fuel tanks/day at Baroda at capex of Rs250 mn) and meets 80% of Tata Nano’s fuel tanks needs. It is actively in talks with General Motors (GM) for supplies of fuel tanks and chassis components, which if materialises has the potential to generate Rs1 bn revenue on capex of Rs700-800 mn as also provide much needed revenue diversification (away from over dependence on HMCL). It currently has technology tie up with Samsung Industries of Korea for fuel tanks for 4-w. Management indicated that it will always look out for technological tie ups for any new 4-w component supplies.


It will incur capex of Rs250-300 mn on 2-w dedicated to HMCL, once it puts up its fourth plant.
 Typically, the order schedules from OEs follow a three steps approach: Firstly, MAIL will be given the annual production plan Then it gets 3 months rolling plan and Lastly it gets firm schedule for next month on every 26th of the current month.
 It paid dividend of Rs7.50 per share in FY11 (~4% dividend yield).
Consistent growth with healthy balance sheet profile MAIL has maintained consistent growth trajectory with revenue/EBITDA/PAT CAGR of 34%/30%/34% over FY08-11. This has been led by consistent performance by its largest client HMCL (23%/21%/28% CAGR over FY08-11). The company has efficiently managed its working capital with net working capital hovering at -5 to 5 days over FY09-11. Balance sheet is healthy at net D/E of 0.31x, though the rise in leveraging is led by investment in capacity expansion over FY09-11. Its return ratios remain strong at 25-30% in FY11.

Automobiles Moderating demand environment to spill over to FY13 :IDBI Cap

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UPDATE
We met 26 Auto dealers across players across cars, UVs, tractors, 2-w and CVs, and some vendors and financiers in the regions of Gujarat (covered Surat, Ahmedabad, Baroda, Vapi, Navsari and Silvassa), Maharashtra (Pune and Mumbai) and Chennai to gauge the demand environment at the ground level. The demand momentum has tapered down further in passenger cars post the festive season with (i) 30-40% drop in inquiries and 10-15% drop in conversion rate, (ii) inventories up by 1-1.5 weeks, and (iii) discounts up by 1-1.5%. This is in contrast to our last dealer survey in Sep’11 when demand scenario especially in Gujarat was robust across auto segments. Car segment continues to reel under pressures from weak consumer sentiment, and discretionary nature of demand for the product (buyers tend to defer purchases in times of uncertainties). MHCV demand has also weakened led by subdued industrial activity and moderating port traffic (declining exports of iron ore on account of mining ban and costlier imports). Financiers have witnessed initial signs of slowdown in MHCVs in the form of rising inventory levels across OEMs, higher discounts, delay in EMI payments by truck operators and falling freight rates on select routes, especially towards South and Kolkata.
LCV, tractors and 2-w demand has remained largely stable, with initial signs of slight moderation in 2-w demand. LCVs and tractors remain strong led by strong rural economy and diverse application – LCVs are used as people mover, for haulage of goods and vegetables, organised retail, last mile transportation and short distance routes, while tractors are used for agri and construction related activities. 2-w have witnessed down trading (preference for low ticket bikes), especially in urban markets.
Demand in Gujarat had held up till date led by state’s robust GDP growth, strong rural economy (good crop, rising MSPs, healthy level of farm mechanisation) and spurt in real estate prices. However, with one of India’s most prosperous states witnessing initial signs of demand moderation (and not slowdown!), we remain cautious on the growth outlook across auto segments, with increased caution on passenger vehicles and MHCVs. We expect demand pressures on cars and MHCVs to spill over to early FY13. Most OEM dealers have confirmed price hike of 2-3% in Jan’12.
We assign higher probability of Auto pack NOT outperforming the broader indices in the near term, as the sector faces multiple headwinds in the form of moderating demand environment and unfavourable forex. Nonetheless, we remain positive on the sector with a medium to long term perspective. We prefer OEMs with pricing power, healthy scope for margin expansion/protection and leadership in relatively immune auto segments. Our top picks among large caps are TTMT (led by continued strong volume traction at JLR led by new launches and increased focus on emerging economies) and BJAUT (2-w demand remains healthy, most profitable OEM and reasonable valuation). We like TVSL among midcap autos, as we believe it provides scope for margin expansion led by improving mix and operating leverage, in addition to our preference for 2-w. The stock is trading at 7x FY13E and we believe it deserves better valuation. We remain cautious on MSIL, AL and HMCL, led by margin concerns (relatively weak pricing power, adverse mix, split related expenses and forex exposure in case of MSIL; macro concerns in case of AL), and rich valuation (in case of HMCL).

Hitachi Home and Life Solutions - Bet on comfort: IDBI capital

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HHLS is a major player in the growing Air conditioner market in India with a ~9% market share in the room
AC market. It has a well established distribution network (~1,800 dealers) and a strong brand name.
HHLS has been focusing on the energy efficient Spilt AC’s with many variants which has enabled it to
capture a significant market presence. HHLS has seen a CAGR in Revenue/PAT of 24%/16% during
FY06-11 and as the Indian AC market expected to grow at ~20% (due to low penetration, increasing
income, increasing temperatures) it is poised for a high growth.
Investment Highlights
 A major player in the air conditioners market
HHLS is one of the major players in the Air conditioner market in India and has a strong brand. It has a
~9% market share in room air conditioner (RAC) market. The air condition market in India is estimated to
be ~3.3mn pcs (Rs68,000 mn) and is expected to triple (~10.3 mn pcs) by 2015 (Source: CEAMA).
 Split Air conditioners to drive future growth
The market in RAC is shifting towards split Ac due to lesser noise, more energy efficiency and better
appearance. Split Air conditioners account for ~65% of the total market and is expected to contribute ~80%
by FY14. HHLS has a major presence in the spilt AC segment and is seeing high growth in this segment.
HHLS has an edge over its peers in this category and sold ~79% of its split Ac’s with 5 star rating in FY10.
 Growing temperatures and increasing income to boost future demand
The rising temperatures in the country have increased the demand for air conditioners and now they
are perceived as necessities as compared to luxury earlier. Also, the increasing income of the
masses across the country and easy availability of financing by distributors/retailers has resulted in
the growing demand for air conditioners.
 Low penetration offer high demand prospects
Air conditioner penetration in India is ~3% which is significantly lower than Pakistan (~16%), Malaysia
(~26%) and Brazil (~12%). The penetration in India is expected to significantly improve due to rising
income, increasing affordability of products and higher availability of financing. HHLS to capture the Tier
II and Tier III city customers has launched models which are more affordable in a bid to ensure high
growth.
 Revenue/PAT CAGR of 24%/16% during FY06-11
HHLS had revenue CAGR of 24% during FY06-11 primarily led by volume growth (FY06-11 CAGR
~24%) and PAT CAGR of ~16%. It expanded capacity in FY10 and now can produce ~0.4mn on
single shift basis (total sales in FY11 was ~0.24mn). With expanded capacity and expanding market,
HHLS is well placed to capitalize on the growing market.
 Valuations
HHLS is one of the major players in the air conditioner market in India and is poised for a high growth
phase due to the growing demand and prominent market position it commands. HHLS currently
trades at a PER & EV/EBIDTA of 10.9x and 8x FY11. We have no rating on the stock.

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Consumption - A play on the evergreen, resilient theme: IDBI Cap

Hawkins Cookers - Sweet whistle: IDBI capital

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Hawkins Cookers Ltd. is one of the major national players in the Indian pressure cooker market. It has a
strong brand in the kitchenware market with a significant presence in the Western and Northern markets
of India. Hawkins has diversified into cookware over the years and its Revenue/PAT had a CAGR of
18%/43% during FY07-11.
Investment Highlights
 Major national player in the pressure cooker market
Hawkins is one of the two national players in the pressure cooker market in India. The pressure
cooker market in India is growing ~10-15% p.a. and there is an increasing shift towards the organized
market (~60% of the market). Hawkins being a national player is a significant beneficiary of the
growing pressure cooker market and increasing shift towards organized markets. Hawkins pressure
cooker segment has grown at a CAGR of 20% during FY06-11.
 Strong brand name and wide spread distributor network
Hawkins is one of the earlier entrants in the pressure cooker market in the country and has built a
strong brand in this product category. It has a widespread distribution network with a strong presence
in the Western and Northern markets in India. The company in order to further penetrate the Southern
markets (where it has a lesser presence) has launched outer lid pressure cookers which have high
demand and this will enable future growth. We believe the company can also leverage its brand to
enter into other kitchenware products which can enable it to see high growth.
 Revenue/PAT CAGR of 18%/43% during FY07-11
Hawkins had revenue CAGR of 18% during FY07-11 which was driven by the pressure cooker
segment. PAT had a CAGR of 43% during FY07-11 due to higher operating margins. OPM increased
by ~560 bps to ~13.9% during FY07-11.
 High return ratios
Hawkins is a debt free company and has high return ratios. The return ratios are higher due to
negligible working capital and capital expenditure requirement. Hawkins reported RoE/RoCE of
75%/56% in FY11.
 Valuations
Hawkins is one of the major players in the pressure cooker market in India. It has a strong brand and
large distribution network and can leverage it to become a complete kitchenware player in the
domestic market. We believe Hawkins can witness a high growth given its brand and ability to expand
its product portfolio. Hawkins trades at a PER and EV/EBIDTA of ~27x and 18.1x FY11 respectively.
We have no rating on the stock.



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Consumption - A play on the evergreen, resilient theme: IDBI Cap

Accumulate V-Guard Industries - Play on mass consumption story: IDBI capital

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V-Guard is into the manufacturing and marketing of products such as stabilizers, cables, water and solar
heater, pumps, fans, UPS and Digital UPS which have mass consumption demand. It is a significant brand in
South India. It has recently expanded operations pan India and we believe the market for its products offer
high growth opportunities. We expect revenue/PAT CAGR of 28%/25% during FY11-13. Maintain ACCUMLATE
and price target of Rs244 (12x PER FY13E).
Investment Highlights
 A play on the mass consumption market in India
V-Guard products are consumed by the mass market. As per NCAER, the number of middle income households
is going to increase by 70% to 238 mn households by 2015. The growing middle class in India, lower penetration
of household appliances, increasing housing activity will lead to sustained demand for the company's product
portfolio. Also increased power availability in the country over the next few years will result in higher demand.
 Broad portfolio + wide distributor network + prominent brand name = High Growth
V-Guard over the last decade has expanded its product portfolio from stabilizers and cables to many other
products such as pumps, electric and solar water heaters, UPS, Digital UPS and Fans. These products have
high demand especially in the semi-urban and rural market. It has also over the past three years nearly doubled
its distribution network (208 distributors, 2,688 dealers and ~11,000 retailers) and thus addressed the wide
spread market. As it has a strong brand name, it has been able to enter newer consumer related products and
has significant presence. We believe the robust product portfolio along with a wide reach will enable a
revenue/PAT CAGR of 28%/25% during FY11-13.
 Expanding geographical reach to aid high growth
V-Guard has predominantly been a South Indian player but over the past few years it has expanded its presence
across India. It has been able to penetrate the newer markets due to its product portfolio and ability to set up a
wide distribution network. In order to cater to the growing market it has also increased its product portfolio.
VGuard
has grown its revenues from Non-South markets from 3% of sales in FY07 to 22% in FY11. We believe
that the increased product portfolio, wide distribution network and new geographical markets will result in
sustainable growth over the next few years.
 Revenue/PAT CAGR of 28%/25% during FY11-13
V-Guard had a top line and bottom line CAGR of ~34% during FY06-11. Going ahead, we expect revenue/PAT
CAGR of 28%/25% during FY11-13 due to entry into new markets and increased revenues from its expanded
product portfolio. V-Guard OPM is expected to decline by ~15bps (9.9%) in FY12 and by further ~10bps (9.8%) in
FY13 due to increased contribution from low margin products (cables, fans etc) and raw material cost pressure.
 Working Capital cycle to stabilize
V-Guard‟s working capital increased significantly in FY11 primarily due to higher inventory. The increase in
inventory was primarily due to higher stocking of finished goods in order to cater to the high demand period
(AprJun).
Management has guided that going ahead the working capital should reduce due to lower debtor days
by giving cash discounts and providing channel financing too. Also prudent inventory management will enable
inventory days to reduce.
 Attractive Valuation: Maintain ACCUMULATE and a price target of Rs244
V-Guard has outperformed the BSE sensex (return of ~34% since our coverage in August, 2010 as against BSE
giving negative returns of 8%). Going ahead, we believe the company is poised for high growth as it has created
a broad portfolio, wide distribution network and a strong brand name. We continue to value V-Guard at a PER of
12x FY13 and maintain our target price of Rs244.

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Consumption - A play on the evergreen, resilient theme: IDBI Cap

BUY Talwalkars Better Value Fitness- Value fit:: IDBI capital

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Talwalkar Better Fitness Value (TBFV) is the largest health club player in the country and amongst top
twenty in the world. It is an early entrant into the health club market in India and has been able to build a
strong brand name by providing high quality equipment and service. TBFV is on an expansion spree and
plans to increase its owned gyms by ~2x to 143 by FY13 without any further equity dilution. TBFL will
have a CAGR in Revenue/PAT of 41%/38% during FY11-13 and will see its return ratios significantly
improving (RoE/RoIC~20%/13.7% in FY13). We believe TBFV to be a play on the growing healthcare
market in India and initiate with a BUY and a target price of Rs203 (16x FY13).
Investment Highlights
 Under penetration + Increasing income + growing health awareness = High growth potential
The penetration of fitness market in India is ~0.4% (taken for top 7 cities) as per IHRSA report
200809,
which is significantly lower than other nations (China 2.3%, Japan 3.1%). The growing
income, increasing urbanization and higher health awareness in India will result in higher penetration
of fitness market. As TBFV is the largest player in the market with a strong brand it will be a major
beneficiary of this growing market.
 Strong brand name + First mover advantage + Large reach = High growth
TBFV has a strong brand name in the health club market in the country. It has been able to provide
high quality equipment with good service which has thus enabled it to be a prominent player in the
otherwise fragmented market. TBFV is one of the first movers in the industry and has a pan India
presence (~50 towns) which will enable it to cater to the widespread market. We expect TBFV to
have a CAGR in Revenue/PAT of 41%/38% during FY11-13.
 Number of gyms to double by 2013 without any further dilution
TBFV will increase its owned gyms by ~2x to 143 gyms by FY13. TBFV had raised ~Rs774 mn in
2010 through an IPO to repay high cost debt (~Rs206 mn) and to fund its expansion plans for
27 gyms (~Rs502 mn). The company has been able to deploy the funds as per expected use and will
now require no further dilution for its future growth plans (35 gyms each in FY12/FY13). With no
further dilution required and the benefits of expansions to come, the return ratios are going to improve
(ROE/ROIC of 20%/13.7% in FY13).
 Attractive Valuations: BUY with a target price of Rs203
TBFV is a play on the growing healthcare market in India. It has a strong brand name and is now
capitalizing, with rapid expansion. There are not any listed comparable players and thus its closest
comparable peers are the consumption companies (Jubilant Foodworks, Page Industries, Titan
Industries etc) which trade at an average PER of ~28x FY13. As TBFV will have lower return ratios in
the near term and also its execution capabilities will be under scanner, we believe it will trade at a
discount (~40%) to the comparable peer set. We initiate with a BUY and a target price of Rs203 (PER
16x FY13).

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Consumption - A play on the evergreen, resilient theme: IDBI Cap

Buy Symphony- A cool play:: IDBI capital

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Symphony Ltd. is one of the leading domestic players in the air cooler market with a ~20% market share of the total
domestic air cooler market and ~45% market share of the organized market. Its main competitors are Kenstar, Bajaj
and Usha. Symphony PAT had a CAGR of 110% during FY07-11 and will witness a CAGR of 32% during FY11-13E.
Symphony has an asset light business model, low working capital requirement, generates free cash flow and has high
return ratios. It trades at a PER of 10.1x FY13. We initiate with a BUY and a target price of Rs1,522.
Investment Highlights
 Increasing temperatures & growing availability of power to boost demand
As per INCCA, the mean average temperature has increased by 0.51C/100 years during the period 1901-2007
and is expected to further increase by 1.7 to 2C by 2030. The rising mean temperatures will result in increased
demand for air coolers/conditioners. Also growing availability of power (India plans to add ~0.1 mn MW of power
in the 12th plan) will increase the demand for cooling equipments.
 Rising income + growing middle class + lower cost of purchase / maintenance = high demand
Air coolers will have a strong demand due to rising temperatures, increasing income and growing middle class in
the country. Also, as the cost of acquisition (~50% lower) and maintenance of an air cooler is lower as compared
to the air conditioner it will see increased off take from the mass market.
 Strong brand name with wide spread distributor network
Symphony is one of the largest air cooler producers in the country and has a strong brand name in this product
category. It has a widespread distribution network of ~550 dealers and ~10,000 retailers spread across the
country. The company plans to double its dealer and distribution network over the next 2-3 years which will result
in high growth.
 Asset light model + High OPM + low working capital = High Return ratios
Symphony outsources the production of air coolers to OEMs whereby capital expenditure is low. Also, it has high
OPM due to strong branding and lower cost of production. Symphony derives ~65% of revenues from traditional
distributors to whom it sells on cash basis whereby working capital requirement is negligible. Due to an asset
light business, low working capital requirement and high OPM the company has high return ratios. Symphony is
expected to have ROCE/ROE of ~37% in FY13.
 Revenues/ PAT CAGR of ~27%/32% during FY11-13
Symphony is expected to witness a Revenue/PAT CAGR of ~27%/32% during FY11-13E. The growth in
revenues will come from both domestic/export markets. Domestic market is expected to witness a CAGR of 32%
during FY11-13 due to increased demand and further widening of the distribution network. Export market will
have a CAGR of 25% during FY11-13 due to addition of newer geographies.
 Attractive Valuations: BUY with a price target of Rs1,522
Symphony is one of the leaders in the domestic air cooler industry and has enormous growth potential. It has
over the past decade built a strong brand name and a wide distribution network and is now in a position to see
high sustained growth over the next few years. Also an asset light business model with negligible working capital
requirement and high return ratios makes the company attractive. Symphony currently trades at a PER of 10.1x
FY13, which is a significant discount to its listed comparable electronic and consumption peers. We believe given
the growth prospects and superior return ratios the stock can trade at similar multiples to its peers. However we
have been conservative and have valued the company at ~40% discount to its peers. We initiate with a BUY and
a target price of Rs1,522 (12x PER FY13).

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Consumption - A play on the evergreen, resilient theme: IDBI Cap