SPA :: Diwali Muharat Top Picks - 2019

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Kansai Nerolac - SPA

Kansai Nerolac Paints (KNP) registered sales in line with our expectation but higher other expenditure resulted in lower
than expected PAT in Q1FY14. Company reported sales growth of 9% YoY in Q1FY14 to INR 7,919mn on the back of
sluggish auto paint demand and reducing demand in decorative paints segment. EBIDTA margin declined by 59bps YoY
to 12.80% on the back of higher growth in other expenditure related to the new plant at Hosur. PAT came in at INR 609mn
in Q4FY13, a YoY de-growth of 4%, also aggravated by lower other income. We maintain our SELL recommendation on
the stock owing to CMP being higher by ~10% from our target price.

Allahabad Bank -SPA

ALB continued to report dismal set of numbers with net profit plunging by 68.5% YoY in Q4FY13 largely due to 36.7% YoY increase
in provisioning expenses coupled with 18.0% decline in Net Interest Income. Asset quality deteriorated sharply on account of
2.6x surge in fresh slippages to INR 25.9 bn, out of which 3 accounts worth INR 9.4 are expected to be recovered by the next
quarter. The decline in NII was due to 98 bps fall in YoA owing to a base rate cut and interest reversals of INR 1.9 bn on bad loans.
We introduce FY15 estimates and retain our BUY rating on the stock with a revised target of INR 174 (Previous TP 195).
Sharp decline in NIMs
ALB witnessed a sharp sequential decline of 72 bps in NIMs to
2.3% due to a) 98 bps reduction in YoA owing to cut in base rates
from 10.75% to 10.20% in two tranches, and b) interest income
reversals on bad loans to the tune of INR 1.9 bn in Q4FY13.
Consequently, the NII declined by 18.0% YoY to INR 10560 mn in
Q4FY13. We expect NIMs to recover to ~3% levels over the next
couple of years on the back of increased focus on high margin
retail and MSME segments.
Asset quality sharply deteriorated
Asset quality deteriorated sharply with fresh slippages surging
sequentially by 159.7% to INR 25.9 bn in Q4FY13. Consequently
GNPA & NNPA deteriorated sharply increasing by 101 bps & 113
bps to 3.9% & 3.2% respectively. Importantly major portion of
these slippages was bulky in nature with 9 accounts contributing
to ~INR 16 bn out of which 3 accounts worth INR 9.4 are expected
to be recovered in next couple of quarters. We therefore expect
the asset quality to improve going forward with no strong pipeline
of stressed assets and ALB's renewed focus on credit monitoring
and faster recoveries & upgradations.
Restructured book - 11.4% of total advances
Restructured book increased to INR 148.8 bn, accounting for 11.4%
of advances (10.8% of advances in Q3FY13). The bank has
restructured advances of INR 13.9 bn in the last quarter, out of
which major restructuring was done for pharma, iron & steel apart
from other accounts in chemicals, textiles and food processing.
Restructuring pipeline for the current quarter stands at ~INR 5 bn.
Slippages from restructured portfolio to NPA stood at INR 12 bn.

Mangalam Cement:: Target: INR 209: SPA

Mangalam Cement reported below than expected set of numbers in Q4FY13 largely on the back of sharp decline in
volumes. This was due to subdued demand for cement coupled with closure of clinker unit for couple of months resulting
in decline in clinker sales volume from 79304 tn in Q4FY12 to 10957 tn in Q4FY13. Upcoming clinker and cement capacity of
0.50 mt & 1.25 mt by Oct 13 & Dec 13 respectively will drive the next leg of growth. We introduce FY15 estimates and retain
our BUY rating on the stock with a revised target of INR 209 (Previous TP 193).

Eveready Industries India Ltd: SPA

We met the management of Eveready Industries to understand the company's strategy going forward. Despite having
good brands like "Eveready" & "Powercell", the company has been struggling to achieve desired level of growth. Eveready
primarily deals in batteries, flashlights & lighting products with batteries contributing to ~60% of the revenue. Recently it
has launched a portable mobile charger. Excerpts of our discussion are as follows-

Berger Paints India ::SPA Securities,

Berger Paints India (Berger) registered Q3FY13 consolidated sales growth of 18% to INR 9,203mn. Higher than expected
gains in margins resulted in a YoY PAT growth of 40%. EBIDTA margin expanded by 260bps YoY to 12.69%, majorly
benefitting from fall in RM costs. Softening in RM cost aided by appreciation in INR would bring in further margin gains
ahead. Also, expected improvement in economic growth would drive volume growth in both decorative and industrial
paint segments going ahead.

Balrampur Chini Mills": SPA Securities,

Balrampur Chini came out with better than expected set of numbers on the back of robust profitability clocked by sugar
division, which were aided by sharp improvement in volumes, better realisations and liquidation of low cost inventory.
Sugar prices have remained buoyant over the past six months on account of lower production estimate of 23 mt for this
season (26 mt in 2011-12). Revenues from byproduct - ethanol and co-generation segments however remained subdued
due to delayed start in crushing this season and lack of clarity on the ethanol pricing. We change our estimates to factor
in higher sugar cane prices and retain our BUY rating on the stock with a revised target of INR 63.

Escorts - "BUY" recommendation.:: SPA

Escorts reported net sales of INR 8234 mn, up by 7.1% YoY & down by 18.8% QoQ. EBITDA margins expanded by 240 bps YoY
to 5.65%, on the back of lower operating expenses partly offset by higher employee cost. With monsoon playing a spoilsport,
offtake of tractors de-grew by 14.8% YoY. Railway equipment segment has seen a sharp improvement in margins, whereas
auto ancillaries segment and construction equipment segment continued to remain under pressure. We continue to
retain our "BUY" recommendation.

Heidelberg Cement India Ltd. ::Target – INR 64 :: SPA

HCIL came out with steady set of numbers which were almost in-line with our estimates on the back of improved operational performance.

While the topline was in-line with our estimates at INR 2563 mn (+23.1% YoY), bottomline was marginally below our expectations at INR 75

mn against our expectations of INR 81 mn. Realisation during the last quarter improved by 19.5% YoY outpacing the 7.8% increase in

operating cost/tn, which resulted in sharp improvement in EBIDTA margin. We recommend a BUY on the stock with a target of INR 64.

Volume & Price driven growth

HCIL reported a healthy revenue growth of 23.1% YoY to INR 2563

mn, led by volume growth of 3.1% to 0.65 mt coupled with 19.5%

improvement in cement realisations to INR 3931/tn. HCIL like all other

cement players managed to witness sharp improvement in

realisations largely due to delayed monsoons, resulting in shorter

period of seasonal decline in prices. Demand is expected to improve

going forward with the commencement of construction activities post

monsoon season, which will result in recovery in cement prices.

Sharp improvement in margins

HCIL has reported sharp improvement in EBIDTA margins to 8.3% on

the back of firm cement prices. Freight cost increased by 6.4% to INR

500/tn due to the recent 5-7% increase and levy of service tax on rail

freight. Power & Fuel cost increased by 10.3% to INR 1141/tn largely

due to ~18% surge in power tariffs to INR 6.5/unit (expected to

remain elevated for next 2-3 quarters). However with realisations

outpacing total costs, EBIDTA/tn improved to INR 317 in Q3CY12.

New capacities on track

HCIL’s new additional clinker & grinding capacities of 1.9 mtpa & 2.9

mtpa respectively are all set to commence operations from Dec 2012

onwards, which will increase its total cement and clinker capacity to

6.0 mtpa and 3.1 mtpa. This expansion is well timed as it will enable

the company to increase its market share and enjoy the economies of

scale. The company plans to sell the additional output in the markets

of UP, MP, Bihar, Delhi and NCR.

Conveyor belt to reduce transportation cost

HCIL has commissioned its new conveyor belt in Oct 2012 for

transportation of limestone from mine to its plant (~20 km), the

benefits of which will be largely seen from CY13. This coupled with

change in rail road mix from 63:37 to 50:50 would result in savings of

~INR 75-100/ton.

Demand in Central region to improve

HCIL derives ~65% of its volumes from the central region. We expect

demand in central region to grow at CAGR of more than 10% (All India

demand CAGR 8%) aided by higher growth in MP due to state

elections next year. Additionally UP is also likely to witness

improvement in demand as the newly elected government is showing

increased interest in infrastructure spending. The company is

targeting to increase its market share in MP & UP to 12% & 9%

respectively (currently ~7-8%) post the expansion.

Outlook & Valuation

Well timed capacity addition and presence in high growth central

region of UP & MP places HCIL on a superlative growth path. Doubling

of cement capacity, increased usage of pet coke from 20% to 35%

along with conveyer belt & change in rail road mix will lead to

economies of scale. With majority of capex plans almost over, return

ratios are expected to improve. Currently the stock is trading at P/BV

of 1.3x & EV/ EBIDTA of 7.6x its CY13E earnings and EV/tonne of INR

2282 its CY13E capacity. We recommend a BUY on the stock with a

revised target of INR 64 based on FY13E EV/tonne of INR 2750.

eClerx's Q1FY13 result was in-line with our expectations::SPA

eClerx's Q1FY13 result was in-line with our expectations. The company reported revenues of $28.1mn
(SPAe: 28.4mn) of which $2.3mn (90% of the incremental) contribution came from Agilyst. Organically revenue
grew 1% sequentially to $25.8mn and EBITDA Margins expanded by 40bps on the back of INR depreciation to
38.6%. The company also added 8 new clients. Thus, on the back of strong growth and higher than industry
margin profile, we continue to recommend BUY with a 2-year target price of INR 874.0.

Heidelberg Cement- RESULT UPDATE - Q2CY12:: SPA Securities,

Heidelberg Cement came out with strong set of numbers on the back of improved realisations and better cost control
measures. While the topline was inline with our estimates at INR 3050 mn (+22.6% YoY & +7.3% QoQ), bottomline exceeded
our expectations by registering a YoY growth of 46.4% to INR 193 mn. Realisation during the last quarter improved by 15.1%
YoY outpacing the 11.5% increase in operating cost/tn, which resulted in 283 bps improvement in EBIDTA margin to 12.1%.
HCIL is all set to commission its additional 2.9 mtpa capacity from September 2012 onwards. We retain our BUY rating on the
stock with a target of INR 50/share.

Asian Paints, RESULT UPDATE - Q1FY13:: SPA Securities,

Asian Paints reported disappointing set of numbers for Q1FY13 on the back of meagre volume growth. Company reported
consolidated sales of INR 25,479mn, a YoY growth of 12.72% largely led by price increases. EBIDTA margin improved by
18bps YoY to 17.53%. PAT grew by 9.38% YoY to INR 2,884mn which was below our expectation. We expect volume growth
to pick in next quarter; however, improvement in monsoon and stable exchange rate would be the key catalyst for the
company's performance. We expect consolidated sales and PAT CAGR of 16.77% and 18.62% over FY12-14. At CMP, stock is
trading at 30x FY13E EPS, which in our view is high on the backdrop of falling demand and continued pressure on margins.
We downgrade to SELL.

S Mobility-INCH DEEP - MILE WIDE :: SPA Sec

We recently met with the management of S Mobility to understand the reasons behind the recent slide in performance
of the group. S Mobility (previously Spice Mobility) is a mid tier mobile handset manufacturer with 887 retail stores
across India spread over 145 cities. The company also has strong online presence. It also provides VAS to different
telecom service provider's customers through Voice, IVR, SMS and applications etc. In FY12 the company's revenue
grew by 10.6% to INR 22.3bn as against 92% CAGR over FY08-11. Here are a few excerpts:

Wabco India Ltd -Target: INR 1677 ::SPA Securities

eClerx- Target: INR 874.0 -SPA Securities,

Ramkrishna Forgings-Target: INR 189 _SPA

Infinite Computers: LOOKING UP : SPA Securities

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Infinite came out with its 4QFY12 results, in-line with our estimates. The company has shown positive volume
growth of 0.5% to $53.1mn after two quarters of sequential decline. The FY12 revenue of $220.7mn and EPS of
INR 27.7 exceeded company's guidance. The company has guided towards a 30% USD revenue growth in
FY13E. We expect the company to exceed their EPS guidance of INR 34.3 in FY13E growing at 25.2%. With
higher than industry average growth rates we expect a rerating of the stock from the current 3x LTM PE
multiple to 5x with a target price of INR 190.
4QFY12 and FY12 Revenues - return to growth
The company witnessed a sequential revenue growth of 0.5% in
4QFY12 to $53.1mn (3.1% decline YoY). The onsite pricing declined
by 1.5% with stable offshore pricing. FY12 revenues of $220.7mn
(SPAe: $220mn) grew 14% on the back of growth from BFSI and
healthcare verticals (Others, up by 229% YoY).
Margins decline
Infinite witnessed a 468bps decline in EBITDA Margins for 4QFY12
(15.3%) over 3QFY12 due to (i) higher one-time contract manpower
cost with one of the largest customer's transition project coming
to end and (ii) INR appreciation. In FY12 the EBITDA Margins
expanded by 59bps to 17.3% but higher tax outgo caused a lower
PAT growth of 12.6% to INR 1,207mn
Growth Avenues
The company has hinted towards a USD revenue growth rate,
higher than industry growth rate, at 30% for FY13E. The EBITDA
Margins are expected to be lower at 16% from the FY12 margins
of 17.3% as the company expects to invest the surplus into
extending its next generation 3G messaging platforms products.


We expect the company to meet its revenue guidance on the
back of higher growth from recent deal wins and product
launches.
Outlook and Valuation
Infinite has exceeded its FY12 revenues and margin guidance on
the back of higher growth from BFSI and Healthcare verticals
and INR depreciation. We expect the growth momentum to
continue on the back of marquee deals (Messaging Platform)
and products (to be launched in 2QFY13). We have factored in a
USD revenue growth of 21%/25% for FY13E/FY14E. We expect the
margins to come off a bit due to (i) higher product investments
(ii) Visa Costs hence contract manpower increasing and (iii)
Wage Inflation though partially offset by INR depreciation. We
have factored EBITDA Margins of 16.9%/17.7% for FY13E and
FY14E. Thus on the back of higher than industry growth, stable
margins and exceeding company's guidance, we expect the stock
to be re-rated upwards. We continue to recommend BUY for the
stock with a 2 year target price of INR 190.0 based on 5x FY14E
earnings of INR 38.

Yes Bank: VISIT NOTE: SPA Sec

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We met the management of Yes Bank to gauge the impact of savings rate deregulation, sense its business potential and to
comprehend its future growth strategy. Yes Bank is among the fastest-growing private sector banks in the country, having a
branch network of 331 branches as of Dec 11. Yes Bank has a balance sheet of INR 711 bn, deposits of INR 469 bn and advances
of INR 359 bn, with Gross NPA of less than 0.20%. Given below are key takeaways from the visit:-
Moving in-line with Version 2.0 targets
Yes Bank unveiled a plan, named Version 2.0, on 29th April 2010,
wherein, it aimed to grow its Balance Sheet, Advances and Deposits
at a CAGR of 32%, 35% and 36% over FY10-15 to INR 1500 bn, INR
1000 bn and INR 1250 bn respectively. As of Dec 2011, it has been
able to grow the same at a CAGR of 45%, 32% and 38% to INR 711 bn,
INR 359 bn and INR 469 bn respectively from FY10.
In the near term, the management is focussing more on asset quality
and margin maintenance over growth. It aims to grow 500-750 bps
higher than the system growth rates over the next couple of years
aided by expanding distribution base and gaining market share.
One of the biggest beneficiaries of savings rate deregulation
Banking on the savings rate deregulation, Yes Bank was among
the first banks to raise interest rates on savings accounts to 6%
initially and later to 7%, resulting in 99.2% YoY and 40.0% QoQ
growth in savings deposits in Q3FY12 (leading to 160 bps QoQ
improvement in CASA ratio to 12.6%). It has successfully tapped
several salary accounts and the account opening rate has grown
by ~4x the pre-deregulation regime (earlier it was attracting ~6000-
7000 customers a month, now it is almost at ~25,000 a month).
The management remains confident on the traction that it has
been witnessing on CASA mobilization and aims to improve its
CASA ratio by ~1-1.5% each quarter for the next few quarters. The
company is targeting a CASA ratio of 30% by FY15.

Hathway Cable & Datacom: All set, ready to go!: SPA Sec

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Hathway Cable & Datacom Ltd. (Hathway) is a leading Multi System Operator (MSO) in India with active
subscriber base of ~8.8mn. It is also the largest cable operator to offer broadband services in the country. With
Government mandate of compulsory digitization, we see significant change in cable industry dynamics with
substantial boost in revenues for MSOs on the back of complete disclosure of subscribers by Local Cable
Operators (LCOs). With strong network and wide presence across key states in the country, we believe Hathway
is suitably placed to capture the big digitization opportunity.

Usha Martin, Change of mix to lead to margin expansion:: SPA Securities,

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Usha Martin is the largest producer of speciality steel long products in India and is the world's 2nd largest wire rope
manufacturer. The company is fully integrated backed by captive iron ore mine (~80 mnt reserves), non-coking coal mine (~40
mnt reserves) and captive power plant (93.3 MW). We recently met with the management of the Company to get some color
on its recent initiatives to further enhance its capacity and improve margins. We summarize the key takeaways below: