Fw: Investor's Eye: Update - Marico (Price target revised to Rs201), Bharat Heavy Electricals (Maintain Hold with price target of Rs260)

 

 

Investor's Eye [September 24, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE   Marico Cluster: Apple Green Recommendation: Hold Price target: Rs201 Current market price: Rs191 Price target revised to Rs201 We recently interacted with the management of Marico to get a view on the current business environment in the domestic and international markets. The key takeaways from our interaction are discussed in this note. Key takeaways Growth momentum to sustain in key domestic categories  Despite headwinds, such as a below normal monsoon and sustained high food inflation, Marico has not witnessed any significant slowdown in demand for its products in some of its key domestic categories.  Parachute witnessed an abnormal volume growth of 18% year on year (YoY) in Q1FY2013. However, Marico expects the growth rate to stabilise in the range of 8-10% in the coming quarters.  Saffola is likely to achieve a volume growth of around 11-12% YoY in FY2012 (compared with a five-year compounded annual volume growth of about 15% YoY). The company has been witnessing a slight slowdown in the upgradation of consumers from the other edible oil brands to Saffola edible oil for the past four to five months. However, the company says it is a short-term phenomenon and expects the growth rate to improve to 14-15% per annum in the long run. The value-added hair oil portfolio is expected to grow by 15-20% in the coming quarters. The key growth drivers shall be innovations in the product portfolio and improvement in the penetration of products. Mixed trend in raw material prices  The copra prices have corrected significantly from their highs but remained volatile in the recent past. The prices currently stand at around Rs4,175 per 100gm, down by almost 30% YoY.  In view of the volatile trend in the raw material prices the company has not passed the full benefits of the softening copra prices to the consumers. The company recently introduced a promotional offer of Rs2 on 45ml and 100ml packs. It will keenly monitor the price momentum in the coming months before taking any price reduction in the rigid packs.  On the other hand, the prices of the key inputs of Saffola have maintained their upward momentum. The prices of sunflower oil, safflower oil and rice bran oil were higher by 8%, 58% and 17% YoY respectively during the period July-August 2012.  The company last took a price hike in the range of 7-9% in January 2012. It is not likely to take any further price increases in the edible oil portfolio in the coming months to avoid any pressure on the sales volume.  This will have an impact on the margins of the Saffola edible oil portfolio. International business showing some improvement  Bangladesh (which contributes about 40% to the international business' revenues) has seen an improvement in the macro environment in the past few months and is expected to post a better performance in Q2FY2013. In Q1FY2013 Bangladesh had posted a decline of 2% YoY. The overall environment in the Middle East and North Africa region (which contributes around 25% to the international business) is better than in the previous year. In the Middle East the company has lost some momentum due to the new pack transition. However, the company has made efforts to communicate the same to the end-consumers and expects things to improve in the coming quarters. Egypt is showing signs of revival and the business environment is becoming normal. South East Asia (accounts for ~25% of the international business) is expected to maintain above-20% growth in the revenues on the back the sustained strong performance of the X-men business in Vietnam and the Code 10 business in Malaysia.  Overall, the international business is expected to grow in mid teens in FY2013. Going ahead, the company is banking on steps like cross-pollination, entry into new categories and improvement in the distribution reach. It expects the growth of the international business to revert to the 18-20% range over FY2014-15 and the operating profit margin (OPM) to improve above 11%. Outlook and valuation: We have fine-tuned our earnings estimates after incorporating the FY2012 annual report numbers. We expect Marico's top line and bottom line to grow at CAGR of ~17.0% and ~24.0% over FY2012-14. However, any significant moderation in the sales volume growth of some of the key domestic segments and any substantial increase in the prices of the key inputs would act as a key risk to the earning estimates. At the current market price the stock is trading at 31.0x its FY2013E earnings per share (EPS) of Rs6.2 and 24.7x its FY2014E EPS of Rs7.7. We have revised our price target upwards to Rs201 (valuing the stock at 26x its FY2014E EPS of Rs7.7, in line with the current valuation of the fast moving consumer goods basket). However, the current valuations do not provide any significant upside to the stock price. Hence, we maintain our Hold recommendation on the stock.     Bharat Heavy Electricals Cluster: Apple Green Recommendation: Hold Price target: Rs260 Current market price: Rs248 Maintain Hold with price target of Rs260 Key points Policy uncertainties abating: Bharat Heavy Electricals Ltd (BHEL) has witnessed a severe downgrade in valuation multiples in the last couple of years on account of a policy inaction-driven slowdown in the demand environment. However, the proposed initiatives to restructure debt on the books of the state electricity boards (SEBs), tariff hikes and flexibility in raising tariffs in future have kick-started the reforms at one end of the power sector, leading to renewed interest in the power generation and equipment companies. We believe the second stage of power reforms in the form of fuel security and quick regulatory approvals would boost the viability of power projects and consequently give a fillip to the power stocks. Competition remains intense but order cancellation concerns overdone: Despite the government's sudden activeness in pushing forward policy measures, the competition from the private sector and Chinese players remains intense and BHEL is likely to continue to lose market share. Thus, the incremental growth in fresh order intake in the boiler-turbine-generator (BTG) segment is likely to remain subdued despite the recent policy measures. However, in terms of the existing order book, we believe that the concern over the cancellation of BHEL's orders from the private power developers seems overplayed as the Inter Ministerial Group hasn't de-allocated any coal mine of BHEL's private clientele after scrutinising 29 coal mines. While the bank guarantee of two of its clients, GVK Power and DB Power, would be deducted as penalty, the bigger threat of large-scale order cancellations looks limited to us.  Breakthrough in non-BTG segment would be a positive trigger: The company is now focusing on the non-BTG segments, like railways, logistics and transmission & distribution (T&D), that have a significant growth potential. Recently, BHEL in consortium with Hitachi was among seven companies that bid in the Delhi Metro tender for the supply of 486 coaches. The company has also bagged India's first 800HVDC transmission line order worth Rs1,590 crore. Its spares and services business for renovation and modernisation of power plants also holds potential whose order inflow share has increased to 10% in FY2012 from 4% in FY2011. Margins and earnings to remain under pressure; maintain Hold with price target of Rs260: In addition to the firm input prices and competition-led margin pressure, there is a growing risk of liquidation damages being slapped by some of its clients who are blaming BHEL for delaying project execution. Moreover, the relatively lower order intake in recent years would reflect on its revenue growth and result in a marginal decline in the earnings over the next two years. However, a lot of negatives are reflected in the serious de-rating of the stock over the last two years. Thus, we maintain our relatively more positive view on the stock with a revised price target of Rs260 (10x FY2014 earnings). We maintain our Hold recommendation on BHEL despite the recent upsurge in the stock price.  Click here to read report: Investor's Eye < /font>   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan's top equity mutual fund picks

 

 

Mutual Gains [September 20, 2012]  Sharekhan www.sharekhan.com

Summary of Contents MUTUAL GAINS Sharekhan's top equity mutual fund picks Large-cap funds Mid-cap funds Multi-cap funds Principal Large Cap Fund SBI Magnum Sector Funds Umbrella - Emerg Buss Fund Reliance Equity Opportunities Fund Tata Pure Equity Fund HDFC Mid-Cap Opportunities Fund  Tata Dividend Yield Fund  UTI Wealth Builder Fund - Series II IDFC Sterling Equity Fund  Mirae Asset India Opportunities Fund - Reg Franklin India Bluechip Franklin India Prima Fund UTI Opportunities Fund ICICI Prudential Focused Bluechip Equity Fund - Ret Reliance Long Term Equity Fund  BNP Paribas Equity Fund Indices Indices Indices BSE Sensex BSE MID CAP BSE 500 Tax saving funds Thematic funds Balanced funds Reliance Equity Linked Saving Fund - Series I Birla Sun Life India GenNext Fund - Growth HDFC Balanced Fund Reliance Tax Saver (ELSS) Fund UTI India Lifestyle Fund - Growth HDFC Prudence Fund  Franklin India Taxshield Canara Robeco FORCE Fund - Ret - Growth Tata Balanced Fund Canara Robeco Equity Taxsaver Fidelity India Special Situations Fund - Growth ICICI Prudential Balanced  BNP Paribas Tax Advantage Plan Reliance Media & Entet Fund - Growth Canara Robeco Balance Indices Indices Indices CNX500 S&P Nifty Crisil Balanced Fund Index Fund focus IDFC Sterling Equity Fund   Click here to read report: Top equity mutual fund picks Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Investor's Eye: Update - Torrent Pharmaceuticals (Growth revives), Automobiles - (Tracking winning bets in a slowdown); MF - Sharekhan's top equity mutual fund picks, Sharekhan's top SIP fund picks

 

 

Investor's Eye [September 20, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE   Torrent Pharmaceuticals Cluster: Ugly Duckling Recommendation: Buy Price target: Rs760 Current market price: Rs678 Growth revives Key points Favourable currency and focus on developed markets help to revive growth in FY2012: Torrent Pharmaceuticals (Torrent Pharma) reported an impressive rise of 22.3% in the net sales to Rs2,594 crore in FY2012. The growth was achieved mainly on a 39% rise in the revenues of the international business because of new product launches and favourable currency movement. The revenue growth was better than that in the previous four years. The operating profit margin (OPM) expanded by 260 basis points to 17%, which was better than the five-year average of 15.7%. The adjusted net profit jumped by an impressive 57.7% year on year (YoY) to Rs391.4 crore, which was the highest in five years.  Weaker performance in domestic market; management expects growth to pick up in FY2013: The company reported a revenue growth of 8% from the domestic formulation business, which accounts for nearly one-third (34%) of its operating income. The growth was weaker because of an industry-wide slowdown in the acute segments, which constitute 38% of the domestic portfolio. However, the growth is expected to pick up in FY2013, as the industry has shown a better growth in the acute segments in the recent months.  Strong operating performance helps achieve stronger return ratios: A healthy rise in the profits, tighter working capital and relatively lower capital expenditure (capex) during the year resulted in stronger cash flows from operations and investments. This, in turn, also helped the return on capital employed (RoCE) to jump to 29.1% in FY2012 from 21.8% in FY2011. The return on equity (RoE) jumped to 35.3% in FY2012 from 26.8% in FY2011. These ratios are comparable with those of the other large-cap companies. Pricing policy and forex are key risks: The implementation of the new pharmaceutical (pharma) policy in its current draft form, which substantially covers chronic drugs, would hurt the company's domestic business materially. As the company hedges its foreign exchange (forex) exposure through forward contracts, a change in the forex rate is a key risk for the company.  We maintain estimates, price target and recommendation: We maintain our earnings per share (EPS) estimates of Rs52.3 and Rs65.5 for FY2013 and FY2014 respectively. We maintain our price target of Rs760 (implies 13x FY2014E EPS) and Buy rating on the stock.    SECTOR UPDATE Automobiles Tracking winning bets in a slowdown We believe that investors would be better off focusing on those automobile companies that are able to hold and protect their market share when the broader industry slows down. These companies would be better off in a medium-to-long run once the demand revives.  We also focus on new disruptive products/segments that, on the one hand, tend to outperform the traditional categories but, on the other hand, reveal the emergence of new leaders in the niche categories or even indicate the formation of future mega categories. Top sectoral picks: Maruti Suzuki, Mahindra and Mahindra (M&M); top company to avoid: Hero MotoCorp Passenger cars: Maruti Suzuki (Maruti) is the preferred player because it seems most prepared to ride the diesel car boom with a 1.3-lakh order backlog. The launch of an 800cc car around Diwali and the new CNG-petrol dual variants across products would provide additional growth impetus. We have a target of Rs1,364 on the stock, but recommend Hold on it as the stock faces short-term risks of a poor Q2FY2013 performance, increased wage bill after the lock-out, volatile yen and stress on petrol cars. Two-wheelers: Honda Motorcycle and Scooter India (HMSI) is experiencing polarised demand in the slow growing domestic motorcycle industry. While the excitement around the Dream Yuga was understood, we found the rub-off effect on Honda Shine and Honda Unicorn in the 125-150cc range as well, thereby taking away significant share from Hero MotoCorp. Bajaj Auto, on the other hand, is faced with the customer downtrading issues. Avoid Hero MotoCorp; We have a Hold reco Bajaj Auto. MHCV-trucks: Tata Motors underperformed the overall medium and heavy commercial vehicle (MHCV) truck segment in the first four months but recovered sharply in August 2012 across categories, barring the 7.5-12 ton category. The August 2012 performance needs to be monitored because it may turn out to be an aberration. The other key competitors, Ashok Leyland Ltd (ALL) and Volvo-Eicher Commercial Vehicles (VECV), gained ground on the relatively better regional performance and new product introduction. We have Neutral view on Tata Motors and a Hold Recommendation on ALL. Utility vehicles: We expect M&M to deliver a strong growth in the medium term as Quanto and Rexton would make it the most entrenched player in the utility vehicles (UV) space. We have a Buy on the stock with a target of Rs849/share.   MUTUAL GAINS Sharekhan's top equity mutual fund picks Large-cap funds Mid-cap funds Multi-cap funds Principal Large Cap Fund SBI Magnum Sector Funds Umbrella - Emerg Buss Fund Reliance Equity Opportunities Fund Tata Pure Equity Fund HDFC Mid-Cap Opportunities Fund  Tata Dividend Yield Fund  UTI Wealth Builder Fund - Series II IDFC Sterling Equity Fund  Mirae Asset India Opportunities Fund - Reg Franklin India Bluechip Franklin India Prima Fund UTI Opportunities Fund ICICI Prudential Focused Bluechip Equity Fund - Ret Reliance Long Term Equity Fund  BNP Paribas Equity Fund Indices Indices Indices BSE Sensex BSE MID CAP BSE 500 Tax saving funds Thematic funds Balanced funds Reliance Equity Linked Saving Fund - Series I Birla Sun Life India GenNext Fund - Growth HDFC Balanced Fund Reliance Tax Saver (ELSS) Fund UTI India Lifestyle Fund - Growth HDFC Prudence Fund  Franklin India Taxshield Canara Robeco FORCE Fund - Ret - Growth Tata Balanced Fund Canara Robeco Equity Taxsaver Fidelity India Special Situations Fund - Growth ICICI Prudential Balanced  BNP Paribas Tax Advantage Plan Reliance Media & Entet Fund - Growth Canara Robeco Balance Indices Indices Indices CNX500 S&P Nifty Crisil Balanced Fund Index Fund focus IDFC Sterling Equity Fund Sharekhan's top SIP fund picks Large-cap funds Multi-cap funds  Birla Sun Life Top 100 Fund  Reliance Equity Opportunities Fund Tata Pure Equity Fund UTI Opportunities Fund SBI Magnum Bluechip Fund Tata Dividend Yield Fund  Franklin India Bluechip BNP Paribas Equity Fund Birla Sun Life Frontline Equity Fund - Plan A  Tata Ethical Fund  BSE Sensex BSE 500 Mid-cap funds  Tax saving funds  SBI Magnum Sector Funds Umbrella - Emerg Buss Fund BNP Paribas Tax Advantage Plan HDFC Mid-Cap Opportunities Fund Reliance Tax Saver (ELSS) Fund  Franklin India Prima Fund Franklin India Taxshield DSP BlackRock Small and Midcap Fund ICICI Prudential Taxplan Reliance Long Term Equity Fund Religare Tax Plan BSE Midcap S&P Nifty Fund focus Birla Top 100 Fund Click here to read report: Investor's Eye Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan's top SIP fund picks

 

 

Mutual Gains [September 20, 2012]  Sharekhan www.sharekhan.com

Summary of Contents MUTUAL GAINS Sharekhan's top SIP fund picks Large-cap funds Multi-cap funds  Birla Sun Life Top 100 Fund  Reliance Equity Opportunities Fund Tata Pure Equity Fund UTI Opportunities Fund SBI Magnum Bluechip Fund Tata Dividend Yield Fund  Franklin India Bluechip BNP Paribas Equity Fund Birla Sun Life Frontline Equity Fund - Plan A  Tata Ethical Fund  BSE Sensex BSE 500 Mid-cap funds  Tax saving funds  SBI Magnum Sector Funds Umbrella - Emerg Buss Fund BNP Paribas Tax Advantage Plan HDFC Mid-Cap Opportunities Fund Reliance Tax Saver (ELSS) Fund  Franklin India Prima Fund Franklin India Taxshield DSP BlackRock Small and Midcap Fund ICICI Prudential Taxplan Reliance Long Term Equity Fund Religare Tax Plan BSE Midcap S&P Nifty Fund focus Birla Top 100 Fund     Click here to read report: SIP fund picks   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.