3/06/2014
Buy Cummins India Ltd For Target Rs.680

4QFY14 operating performance below estimates:
KKC’s 4QFY14 operating performance was below estimates with revenues at INR9.7b (down 16% YoY) vs estimates of INR11.2b (down 2.6%), while EBITDA at INR1.7b (down 12% YoY) is 11.2% below estimates. EBIDTA margins stood at 17.6% (up 80bps) and are significantly above estimates of 17.1%. The improvement in EBIDTA margins is commendable, particularly given the poor fixed cost absorption.
*  Muted domestic powergen sales impacted revenues, while industrial segment sales were flat:
Cummins Inc, in its concall, had stated that during 1QCY14, India powergen revenues have declined 46% YoY in USD / 37% in INR. Industrial sales were flat due to increased exports by Industrial OEMs.
*   Improved cost efficiencies support margins, despite adverse product mix and increased pig iron prices:
The key highlight has been the sharp decline in RM costs to 61.3% of revenues in 4QFY14 (down 174bps YoY). This is encouraging, and is despite pig iron prices increasing by 8.2% from lows in 1QFY14 and is supported by value engineering / cost reduction program. Even the staff costs and other operating expenses have been maintained in a tight control.
*   Net Working Capital deteriorates, increased capex:
Net working capital stood at 83 days in March 2014 (excluding ICDs of INR1.14b to Cummins Technologies), vs 65 days YoY. The deterioration is largely led by higher inventories and receivables. Fixed assets increased from INR6.8b in 2QFY14 to INR10.1b in 4QFY14, largely due to capex on India Technical Centre, etc. Cash on the books declined to INR6.4b vs INR9.7b in Sept 13. We await details on the quantum of ICDs to Cummins Technologies.
*   Valuations:
We maintain Buy, with revised price target of INR680 (22x FY16E). KKC is an early cycle play on investment climate given pent up demand from stuck projects.
  Accumulate State Bank of India For Target Rs.2987

Q4FY14:
Earnings aided by strong non-interest income and containment of opex; strong recovery & up-gradation supported decline in headline NPL.
NII growth (16.5% YoY) came a shade below our expectations on back of margin pressure; net profit came higher on back of strong non-interest income, containment of opex and ~Rs.6.0 bn writeback of investment depreciation. NIM pressure during Q4FY14 pulled down the cumulative margin from 3.19% during 9MFY14 to 3.17% during FY14.
Positive surprise came on strong up-gradation as well as cash recovery which stood at 106% of gross slippage seen during Q4FY14 (24% in Q3FY14). In absolute terms, both GNPA and NNPA declined by 9.1% and 16.3%, respectively, while provision coverage ratio improved QoQ to 62.86% (Q4FY14; 450bps). However, addition to impaired assets (gross slippage + new restructuring) remained at elevated levels (Rs.155.8 bn; 6.0% on annualized basis).
Stock trades at reasonable valuation (1.3x its FY16E ABV) after stripping the value of its subsidiaries. We are rolling over TP on FY16 estimates and revise its TP upward to Rs.2987 (core business: Rs.2000; 1.5x FY16E ABV) but downgrade the stock to ACCUMULATE from BUY earlier, with recent stock outperformance. We believe SBI being the largest bank (comfortable tier-I: 9.72%) would be one of the biggest beneficiaries of any likely improvement in macro-economic environment.
Valuation & Recommendation
We believe SBI being the largest bank would be one of the biggest beneficiaries of any likely improvement in macro-economic environment. With the recent fresh capital mobilization (~Rs.100 bn) through QIP as well as GOI infusion, its tier-I capital is comfortable at 9.72% (FY14). With the improving revenue growth and moderate rise expected on the cost front, as bank has been aggressive in recognizing stressed portfolio as well as transition cost as compared to its peers, SBI is likely to report earnings to grow 15.6% CAGR during FY14-16E. We are modeling its return profile to remain muted (RoE: ~11%, RoA: ~0.7% during FY16E), post recent capital mobilization. However, we like its robust liability franchise, comfortable tier-I equity and lower risk on its future earnings with operating leverage likely to support from FY15 while credit cost is likely to be lower with likely improvement in the economic cycle.
At CMP, stock is trading at reasonable valuation (1.3x its FY16E ABV and 9.1x its FY16E earnings), after stripping the value of its subsidiaries. We are rolling over TP on FY16 estimates and revise its TP upward to Rs.2987 but downgrade the stock to ACCUMULATE from BUY earlier, with recent stock outperformance. The fair value is based on SOTP methodology where core business is valued at Rs.2000 (1.5x FY16E ABV) and subsidiaries are valued at Rs.987 (post 20% holding company discount).Buy Sharon Bio-Medicine Ltd For Target Rs.55

SYNOPSIS
*  Sharon Bio-Medicine Ltd is a pharmaceutical company which engaged in the manufacture of APIs & Pharma Intermediates since 1995.
*  During Q3 FY14, company net profit jumps to Rs. 178.40 mn against Rs. 145.23 mn in the corresponding quarter ending of previous year, an increase of 22.84%.
*  Revenue for the quarter rose by 16.30% to Rs. 3156.85 mn from Rs. 2714.31 mn, when compared with the prior year period.
*  During the quarter, Profit before interest, depreciation and tax is Rs. 393.70 mn as against Rs. 323.14 mn in Q3 FY13, registered a growth of 22%. Sharon Bio-Medicine has completed expansion in its 3 manufacturing facilities.
*  The total investment in expansion has been incurred to the tune nearly Rs. 1250 mn.
*   In Dehradun Formulation plant, the expanded expenditure has been app. Rs. 850 mn whereas capacity of the plant has been increased more than double.
*  The commercial production in Sharon two expanded plants at Taloja near Navi Mumbai has already been started and Dehradun Formulation expanded facility will start production from June, 2014.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 22% over 2012 to 2015E respectively.
FINANCIAL HIGHLIGHTS (STANDALONE)
Results updates- Q3 FY14,
Sharon Bio-Medicine Ltd is a pharmaceutical company which commenced as a manufacturing of Pharma Intermediates in 1995 in India, reported its financial results for the quarter ended 31st March, 2014.
The company net profit jumps to Rs. 178.40 million against Rs. 145.23 million in the corresponding quarter ending of previous year, an increase of 22.84%. Revenue for the quarter rose by 16.30% to Rs. 3156.85 million from Rs. 2714.31 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.1.69 a share during the quarter, registering 87.72% decrease over previous year period, due to increased the equity capital of the company and stock split from Rs. 10/- to Rs. 2/-. Profit before interest, depreciation and tax is Rs. 393.70 million as against Rs. 323.14 million in the corresponding period of the previous year.
Outlook and Conclusion
*   At the current market price of Rs.44.50, the stock P/E ratio is at 6.96 x FY14E and 6.02 x FY15E respectively.
*  Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.6.39 and Rs.7.39 respectively.
*   Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 22% over 2012 to 2015E respectively.
*   On the basis of EV/EBITDA, the stock trades at 7.41 x for FY14E and 6.55 x for FY15E.
*   Price to Book Value of the stock is expected to be at 1.46 x and 1.17 x respectively for FY14E and FY15E.
*   We recommend ‘BUY’ in this particular scrip with a target price of Rs.55.00 for Medium to Long term investment.
 

27/05/2014
Buy Aban Offshore Ltd. For Target 767.00

Aban Offshore Limited (AOL) was established in 1986 when Indian entrepreneurs were encouraged to provide offshore drilling services to the Oil and Natural Gas Corporation Ltd. (ONGC) to meet the growing needs of a vibrant economy. AOL launched its first contract drilling service to the ONGC in 1987 with two modern jack-up drilling rigs acquired from the USA. It is now ventured into international waters as one of its five rigs is doing work for an Iranian oil company. The group has also ventured into construction, offshore and onshore drilling, wind energy and power generation, Information Technology enabled services, hotels and resorts, tea plantations and in marketing.
Investment Rationale
Renewed contracts:  A ray of hope Aban has recently secured a contract for the deploymet of DD5 (Deep Driller 5). The approximate revenue expected from DD5 is around Rs 385crs. Aban ICE has bagged a 3year contract from ONGC at reasonable rates & its operation started during the quarter of Q3FY14 which would help boost the revenue & in turn improve the company’s profitability.
Exceptional performance in the previous quarters:  Aban has performed exceptionally well in the previous quarter results. Q3FY14 it delivered a very good set of numbers. It’s EBITDA levels improved from Rs. 487.7 crores in Q3FY13 to Rs 559.6 crores in Q3FY14. PAT of the company improved significantly from Rs 31.8 crores in Q3FY13 to 80.3 crores in Q3FY14.
Strong performance expected in the coming quarters: The management of the company expects the demand of rigs to improve even further. Hence in the improving scenario the contracts are due for renewal in FY15 & the renewal is expected to take place at higher day rates which would be beneficial for the company. Hence the high day rates & recent debt refinance could help improve the company’s financials and deliver growth.
Valuation: At CMP of `688 the stock is trading at 7.07x & 6.71x it’s FY15E & FY16E EPS which we believe is attractive. We attach an exit P/E multiple of 7.5x it’s FY16E EPS of `102.5 per share. Based on our valuation we arrive at the target price of `767 with a BUY rating & a potential upside of 11.5%.
  Buy Marico Ltd For Target 285.00



Marico Ltd, maker of Parachute and Saffola cooking oil, reported March quarter results with 7.36% rise in sales whereas overall volumes grew by 6%.
* The Company has reported net profit after tax, Minority Interest and Share of Profit / (loss) of Associates of Rs. 887.71 mn for the quarter ended 31st March 2014 as compared to Rs. 838.64 mn in Q4 FY13.
* EBDITA of Marico has also grown by 28% in Q4 FY14 over the corresponding quarter of the previous year. EBDITA stands at Rs. 1671.14 mn against Rs. 1304.53 mn in Q4 FY13.
* Profit Before Tax also rose by 9.25% YOY at Rs. 1388.15 mn compared to Rs. 1270.63 mn in same period previous year.
* Marico’s International FMCG Business comprised about 25% of the Marico total revenues at Rs. 2600 mn in Q4 FY14.
* Marico markets well-known brands such as Parachute, Saffola, Hair & Care, Nihar,Shanti, Mediker, Revive, Manjal, Setwet, Zatak, Livon, Fiancée, HairCode, Caivil, Black Chic, Code 10, Ingwe, XMen,L’Ovite and Thuan Phat.
* Marico has 40 lacs retail outlets services by its nationwide distribution network comprising 4 Regional Offices, 32 carrying & forwarding agents (CFAs) and about 5000 distributors and stockists.
* Other Income of the company rose by 26% from Rs. 101.68 mn in Q4 FY13 to Rs. 128.43 mn in the current March quarter.
* Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 13% over 2013 to 2016E respectively.

OUTLOOK AND CONCLUSION
* At the current market price of Rs.230.25, the stock P/E ratio is at 27.76 x FY15E and 26.28 x FY16E respectively.
* Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs. 8.29 and Rs.8.76 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 13% over 2013 to 2016E respectively.
* On the basis of EV/EBITDA, the stock trades at 16.98 x for FY15E and 16.05 x for FY16E.
* Price to Book Value of the stock is expected to be at 9.55 x and 8.14 x respectively for FY15E and FY16E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.285.00 for Medium to Long term investment.
  Buy GSPL For Target 91


GSPL’s operating profit of Rs2bn was marginally lower than our estimate of Rs2.1bn due to lower volume and lower transmission tariff. Transmission tariff decreased by 6.3% qoq to Rs1.21/scm (yoy -31.5%), which was marginally lower than our estimate of Rs1.25/scm. GSPL’s volumes for the quarter declined by 6.3% yoy to 20.8mmscmd (qoq +0.4%) as against our expectation of 21mmscmd. The fall in gas transmission volume is due to falling gas production from KG D6. Consequently, GSPL’s revenue for the quarter declined by 35.8% yoy to Rs2.3bn. Operating cost for the quarter decreased by 5% yoy to Rs306mn. Resultant, GSPL’s operating profit decreased by 38.8% on annual basis while on sequential basis it was down by 2.8% to Rs2bn. Net profit at Rs915mn was in line with our estimate.
We maintain our BUY rating on the stock with a revised target price of Rs91. At the CMP, the stock is trading at 9x and 4.1x FY16e EPS and EBITDA respectively.

Valuation and view
We believe that GSPL’s transmission in the near future would be under pressure on account of lower domestic gas production. However, we note that LNG capacities scheduled to come up by early FY16 would give much needed fillip to GSPL’s gas volumes. Further, doubling of domestic gas price could lead to increase in domestic production from current and marginal gas fields.
We value GSPL on DCF basis given the long term earnings visibility and arrive at a fair value of Rs91 per share. We have used WACC of 11.5% and terminal growth rate of 2% for DCF valuation. We maintain our BUY rating on the stock with a revised target price of Rs91. At the CMP, the stock is trading at 9x and 4.1x FY16e EPS and EBITDA respectively.

 

15/04/2013

!!SAI PARSADAM!!

BIG BOSS

VIKAS PARSHURAM SAMWATSARE

**************************************************

15 ideas for 2013 FOR STOCK MARKET

It is that time of the year when everybody, who is anybody in the capital market, starts making
annual prediction as to what lies ahead for us in the year 2013.
And, unlike 2012, this year, it has become fashionable (acceptable?) to come out with a very
optimistic view.
But, the fact is that predicting the markets (for 2013) is challenging, to say the least. However, one
thing seems distinctly possible for our markets - we should start on a strong footing and hopefully
make an attempt to scale the November 2010 high (NIFTY- 6312, Sensex- 21005) in the first quarter
itself.
FISCAL CLIFF, RBI & UNION BUDGET
With the fiscal cliff deal in place, we feel that global factors will take a back-seat for sometime
now as India starts looking forward to the loosening of the monetary policy (RBI) later this month
and the Union Budget (from arguably the stock market’s most popular FM) in February.
And, while many may argue that populist measures will dictate the last Budget of the UPA
government (before the nation goes to polls in 2014), we beg to differ. While, like every year, the
Budget will have its huge dollops of populist measures, we do feel that the finance minister will
perform a good balancing act and announce measures to kickstart the economy, while continuing to
work on reining in the fiscal deficit.
And, our view is that if the present government harbours any hope of returning to power in 2014, it
will have to be very lucky as far as the state of the economy is concerned. If by election time, the
Indian economy is clearly back on the recovery path, it will be the single-largest trump card for the
government. Therefore, in all probability, we don’t expect the economy (and the stock markets) to
be ignored by the finance minister.
THE LIQUIDITY FACTOR:
While India saw huge inflows from FIIs in 2012, which contributed largely to the stock indices
yielding a 26 per cent return, one needs to accept that India attracted huge flows mainly at the cost
of China. Therefore, if China shows any semblance of recovery in the current year, it could divert
some inflows away from us.
INTEREST RATES WILL DOME DOWN, FINALLY:
Some of the pre-conditions for a rate-cut – lower rate of price increases and a decline in fiscal
deficit – are emerging. However, the magnitude of decline in interest rates will depend on crude oil
and other commodity prices remaining stable, or falling. Also, it needs to be taken into account
that lower funding (interest) costs could translate into higher imports, weakening the currency. This remains a worry.

3 | P a g e
PCG Research
PCG
2013 – THE CHALLENGES AHEAD
THE RUPEE:
India’s current account deficit widened to a record high of 5.4 per cent of GDP in the September
quarter as export growth slowed more sharply than imports, and with a similar gap expected in the
December quarter, the weakness in the rupee is likely to be prolonged. A sharp rise in gold imports,
a hefty oil bill and falling exports due to the global slowdown have kept India’s current account
deficit at persistently high levels.
The rupee was the third worst performer in Asia in 2012, even though net inflows into Indian stocks
were the highest in the region.
EUROPE CRISIS – FAR FROM OVER
Even as financial markets are calmer and the chances of the euro disintegrating have diminished, it
has come at the cost of highly indebted eurozone states committing themselves to spending and tax
increases. This could ultimately lead to the 17-nation eurozone contracting further in 2013 as
deficit-cutting measures bite deeper. Rising unemployment and falling tax receipts would make it
harder for governments in countries such as Italy, Spain, Greece and even France to meet their
budgeted targets.
That could unsettle financial markets again, particularly in countries where political instability is
adding to the uncertainty.
CONCLUSION:
We do believe that the Indian markets will start on a firm footing and possibly make a new high in
2013. However, global equity markets are unlikely to do well as macro factors look terrible and one
could see a sharp growth slowdown as we move into the year. And, while India will show great
outperformance in 2013, it can’t remain immune to a bad global situation and therefore, will suffer
some hiccups going ahead.

!!SAI PARSADAM!!

BIG BOSS

VIKAS PARSHURAM SAMWATSARE