16 Blooming Stocks That can Build Your Wealth
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Andhra
Bank is a medium-sized public sector bank with total business of INR 2.6
trillion, 70% of which comes from combined Andhra region. In last two years,
Andhra Bank’s earning capability has been severely hit due to rising NPA.
Andhra Bank’s asset quality was further impacted in Q1FY15 due to spike in
farm loan NPA. With clarity emerging on farm loan waiver scheme, we believe
that 2HFY15 would be better in terms of both NII growth and asset quality as
INR 2300 mn of interest is added back (reversed during Q1FY15) and recovery
of INR 10 bn of farm loan NPA. We recommend BUY on the stock with target
price of INR 106, based on 1.1x FY16E ABVPS.
Bajaj
Corp being the dominant player in Light Hair Oil (LHO) market (through strong
brand, Bajaj Almond Drops, which enjoys ~60% market share), is well placed to
benefit from recent pick up in secondary LHO sales (+7% YoY in Q2FY15, 3.5%
higher than primary sales). The company is well placed to leverage its
extensive distribution network to successfully penetrate into niche
anti-marks category, through Nomarks brand, which it acquired recently.
Strong pricing power in addition to continued market share gain and increasingly
benign input cost environment bodes well for the company.
The stock seems to be attractively valued at 15.2x FY17E earnings, considering improving growth trajectory with 16.6% earnings CAGR over FY14-17E. We recommend a BUY with a target of INR 340 on the stock based on 19x FY16 & FY17 average earnings.
Dolphin
is a provider of specialised and integrated services for the oil & gas
industry. It primarily has 2 businesses: (1) it undertakes turnkey projects
involving underwater and offshore construction (EPC); and (2) oil offshore
support vessels, through its Mauritius-registered subsidiary. One of its
barges, Dolphin Vikrant, is state-of–the-art with dynamic positioning (DP2)
capabilities. It is only one of 11 barges of it type globally.
Vikrant
is its main profit generator, earning a day rate of USD45K (~42% of annual
revenue) and PAT of USD10mn plus p.a. Vikrant’s contract, which was to mature
by CY14 has been renewed further, which will allow it to sustain earnings.
Dolphin may also purchase 2 similar vessels for USD70mn, financed by debt and
internal accruals.
Dolphin’s
main customer, ONGC, had nearly ceased orders over past 3 years, shrinking
order book to 1/5th of normal levels. Dolphin recently bid for INR10bn of
ONGC’s tenders. ONGC should revive capex to INR100bn plus (Dolphin’s
addressable capex) as the new government targets to revive production. We
recommend BUY on the stock with target price of INR 360, based on replacement
cost of vessel Vikrant.
With
dominant position in domestic hydrocarbon sector and increasing foothold in
international market, EIL remains the best play on surging oil & gas
capex globally. Robust order backlog of INR 37.3 bn in addition to expected
inflows of ~INR 30 bn over the next 18 months will drive growth for the
company. Superlative operating margins and low capital requirements ensures
high free cash flows (average 3 yrs free cash flows ~INR 3.1 bn) and strong
return ratios (ROCE of +25%). Currently the stock is trading at a 10.6x FY17E
earnings. We recommend a BUY with a target of INR 320 on the stock based on
16x FY16 & FY17 average earnings.
Hindalco
is among the top 5 aluminium majors worldwide & world’s largest aluminium
rolling company. It is present across the entire value chain of the aluminium
ranging from bauxite mining, captive power plants, coal mines, aluminium
refining & smelting to foils. The successful turnaround of Novelis (which
now constitutes more than half of company’s consolidated EBITDA) is testimony
to company’s execution abilities, and a strong endorsement of its successful
global strategic diversification . The auto
sheet demand in US is accelerating & Novelis is a leader with more than
50% market share. In India, cancellation of coal mines and coal-sourcing
challenges raise concerns given the large incremental requirement from the
ramp-up of new projects.
While
the ramp-up of its projects, both at Utkal & Mahan, has progressed well,
the concerns are largely centered on cost containment given remote location
of Mahan and associated logistical challenges/costs. Although Hindalco is adversely
impacted by the SC order, it is better placed to bid for coal blocks given
its balance sheet size, end of capex cycle & operational end use plants.
Topline
& bottomline is expected to grow at a CAGR of 15.7% & 24.9% between
FY14-16E. We recommend a BUY on the stock with a target price of INR 212
based on 7x FY16E EBITDA.
Fortunes
of HMT might turn given GoI's plans to improve their financials by either
disposing of loss making public sector undertakings or monetizing its surplus
land banks to improve company's profitability. This will unlock huge value
for shareholders of HMT given its enormous land holdings across the country,
which is valued to INR 280 bn. The fair value of the company on a rough basis
after giving 50% liquidity discount for land holdings works out to INR
167/share.
J&k
Bank’s financial performance has been affected due to stress in asset
quality, which has deteriorated because of recent flood in Jammu region.
Total loan exposure of J&K Bank in J&K is ~45%. J&K Bank’s
management believes that flooding in the state is a national disaster and
would be provided regulatory relief on loans mostly by relaxation of the
rules in NPA recognition and restructuring of loans on easier terms. We
believe that NIMs/ROAs for J&K Bank will moderate on asset quality
pressures and uneven payment schedules. However, we believe that J&K Bank
has ability to navigate through economic challenges as it has displayed best
in class ROA/ROEs of 1.5%/20% during economic downtrend. We recommend BUY on
the stock with target price of INR 168, based on 1.1x FY16E ABVPS.
L&T
Finance Holdings (LTFH) is poised to emerge as a comprehensive financial
services player in India. A strong brand, access to L&T’s vendor/customer
network, a lending portfolio that spans multiple facets of retail, corporate
and infrastructure lending, and management that has considerable experience
in incubating long-gestation projects are some of the key strengths of the
business. In medium term, profitability may be impacted due to hike in NPA
provisioning as it comply with new prudential norms announced by RBI. As per
new RBI guideline, in phase manner till 2018, LTFH has to recognize NPA if
loan is due for more than 90 days from current level of 180 days. We
recommend BUY on the stock with target price of INR 88, based on SOTP
valuation.
Lumax
Industries Ltd is engaged in providing lighting solutions to the automobile
industry & commands a market share of ~50%. The company has technical
& financial collaboration with the global major Stanley Electric, which
apart from enabling it to garner business from Japanese OEMs, has given a
strong technical footing. Its top 5 clients- Maruti, M&M, Honda Cars,
HMSI & Tata Motors account for ~79% of revenue with Maruti alone
accounting for ~35% of revenue. Lumax is also the preferred choice of OEMs
for supply to their upcoming models. Maruti has contracted Lumax to supply
different lamps for all the new models till FY17. Lumax is currently
operating at ~70% utilisation & has adequate capacities in place.
Further,
even if the need of capex arises, it will only be a brown field capex as it
has ample free space at its existing plants. We believe automobile industry
had hit the trough in H1CY14 & is likely to grow at a CAGR of 12.7%
between FY14-16E which places companies like Lumax in a sweet spot as we are
likely to see decent revenue growth coupled with sharp increase in margins
& profitability as a result of higher utilisation.
Topline
& bottomline is expected to grow at a CAGR of 13.4% & 141%
respectively between FY14-16E. We recommend a BUY on the stock with a target
price of INR 640 based on 15x FY16E earnings.
Motherson
Sumi Systems Ltd. (MSSL) is a global auto component supplier with leadership
position in wiring harness, rear view mirrors and polymer components. The
management has a history of scaling up business through acquisitions/JVs
& turning them around. Motherson is likely to sustain high growth
trajectory over the next five years as it increases its presence of SMR,
Peguform in China, Europe and the US, which will lead to an increase in
market share in their respective segments. The company is setting up 14 new
plants across the globe. Going forward margins are likely to expand as the
company has completed the legacy orders & is now executing high margins
orders.
The
demand outlook continues to be strong across US & Europe. On the domestic
front too, PV industry is on the revival path. MSSL's EBITDA margin has
increased across all the three entities, driven primarily by reduced raw
material costs, better utilization of plants and favourable currency
movements.
With
improvement in overall business through increased internal sourcing by
subsidiaries, ramp up of new plants, improvement in utilization levels we
expect MSSL's consolidated revenues & profits to register a CAGR of
~12.9% & ~28.2% respectively between FY14- 16E. We recommend BUY on the
stock with a target price of INR 509 based on 12x FY16E EBITDA.
Backed
by Shriram group, OGPL is India’s leading renewable energy-based power
generation company operating 510 MW of diversified portfolio of renewable
energy power plants (424 of Wind power & 86 MW of biomass), with another
64 MW of prospective capacity expected to get operational by CY15. With balanced
mix of clients and medium to long term offtake agreement for its power in
place, the company has good earnings visibility. PLFs are slated improve
significantly from 2016 onwards with expected improvement in Grid
infrastructure in Tamil Nadu over the next 2 years.
Given
strong management pedigree, ever increasing capacity backed by strong project
execution capabilities and future earning visibility, OGPL is an ideal play
to participate in Indian renewable energy space. The stock is inexpensively
valued at 0.69x FY16E BV of INR 22.1. We recommend a BUY on the stock with a
target of INR 22 based on 1x FY16E BV.
REC,
being a specialised power financier, plays a strategic role in government’s
ongoing financing plans for development of the power sector. Superior domain
knowledge, financing expertise and government support will enable it to leverage
emerging financing opportunities. With structural issues surrounding the
power sector like forest clearance, de-allocation of coal blocks, being
addressed on priority, we believe that bad loans should be contained at
current levels coupled with strong loan growth. Further, with REC being
exempted from following prudential norms guidelines for its lending to
government sector, there is clarity on the NPA regulation front. We recommend
BUY on the stock with a target of INR 417 based on 1.4x FY16E adjusted book
value.
Repro
holds a leadership position in Indian publishing industry and provides one
stop solutions to publishers, corporates, education institutions and
governments, right from managing and repurposing content, to printing and
binding to delivery anywhere across the globe. 80% of Repro’s customers give
repeat business and engage with Repro in long-term contracts ranging from two
to ten years, thereby assuring constant inflow of revenue to the company,
supporting its long term growth strategies. Pre-loaded interactive textbooks
on tablets i.e Rapples launched at the Delhi Book Fair in Feb 14 with
participation of over 100 schools, will drive the near term growth of the
company. Print outsourcing is rapidly picking pace globally and is led by
India, China and Brazil. With ample room to scale up production, management
is aiming to acquire capacities across the globe to fuel the next level of
growth especially in the print-on-demand segment.
Given
its strong clientele, high end technologies, focus towards high growth
education sector and completion of the planned capex, Repro is well placed to
register +27% earnings CAGR over FY14-17E. Currently the stock is trading at
mere 4.4x FY17E earnings. We recommend a BUY with a target of INR 299 on the
stock based on 6x FY16 & FY17 average earnings.
Setco
Automotive is engaged in manufacturing of clutch for the M&HCV industry
& commands a market share of more than 85% in the domestic market. We
expect domestic M&HCV industry to recover & clock CAGR of 13.9%
between FY14-16E on the back of revival in economic activity, thrust on
improving infrastructure & reopening of mines. Setco is one of the prime
beneficiary & among the best play of revival in M&HCV industry. The
benefits of setting up independent marketing channels and replacement demand
for BS III compliant clutch have started accruing to the company. OE sales
are likely to see robust growth in sales with reversal in CV cycle. Global
players have started manufacturing operations in India to increase the
domestic presence & make India an export base. To offer superior quality
products at competitive price, these MNCs are increasing their insourcing
& localising the auto parts, thereby generating demand for Setco's
clutches.
Topline
& bottomline is expected to clock CAGR of 28.7% & 162.4% between
FY14-16E. We recommend BUY on the stock with a target price of INR 353 based
on 10x FY16E EBITDA.
Talwalkars
being the dominant player with a market share of +12% in the Indian organized
health club market (27%*INR 60 bn), is a play on growing awareness about
fitness and a healthy lifestyle.
TBVFL’s
newer asset-light business ventures i.e - Zumba fitness dancing studios and
REDUCE weight-loss centres has gained significant momentum, which would aid
in generating higher margins and returns on capital (REDUCE centres generate
40% ROCE and ZUMBA centres 30%+ as compared to the company’s overall 16-18%).
Plans of rolling out 20 new gyms annually over next two years (150 currently)
along with strong promotion and prudent cost management would result in
better profitability and return ratios.
The
stock seems to be attractively valued at 8.9x FY17E earnings, considering
+25% earnings CAGR over FY14-17E. We recommend a BUY on the stock with a
target of INR 361 based on 14x FY16 & FY17 average earnings.
"Tata
Motors, India’s largest automobile company is the market leader in the
domestic commercial vehicle space (54.1% market share). We remain positive on
its UK subsidiary, JLR, as its strong brand coupled with attractive product
portfolio is expected to generate strong sales volume. JLR’s success ratio on
new product launches/refreshes front since 2010 has been 100%. We expect the
number of platforms to reduce which will accelerate model introduction over
the next few years. Also, concerns regarding its production capacity is set
to ease as its UK plant is having capacity expansion & plants are being
set up in China, Brazil & Mexico (or USA). Domestically, the company is
going through structural changes at the management level. It had roped in
Mayank Pareek from Maruti to head the PV business. The PV business has a firm
product portfolio plan till 2020 with clear defined strategy of launching 2-3
products every year. Reversal of CV cycle will improve CV sales thereby
addressing concerns regarding the rising losses in the standalone entity.
Topline & Bottomline is expected to grow at a CAGR of 15.5% between
FY14-16E. We recommend a BUY on the stock with a target price of INR 671
based on 4.8x FY16E EBITDA", says SPA Research report.
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