Buy Indiabulls Real Estate For Target Rs. 85-88 - Religare Securities Ltd

Recommendation

Buy Indiabulls Real Estate Ltd At 79.50-80 For Target Rs. 85-88 and Stop Loss 77.50 CMP 80.75

Rationale:

In recent past, IBREALEST has witnessed sharp correction after a vertical rise from 45 to 110 levels. The ongoing correction halted near 50% retracement level of above mentioned up move. On Tuesday i.e. 5th Aug 2014, it has formed a rising three pattern (bullish candlestick pattern) on daily charts with noticeable rise in volumes. One can utilize this opportunity to initiate fresh long positions as per the given levels  (Trading period: 3-5 trading sessions)

F & O Trade / Strategy Recommendation For 6th Aug 2014

Buy  Dr. Reddy,s Laboratories Ltd Aug Futs 2760-2770 For Target Rs. 2855 and Stop Loss 2730 , CMP 2775

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Buy BHEL For Target Rs.250 - Angel Broking Pvt Ltd

Justification:
After surpassing a strong resistance zone of `202 – ` 208 during the month of May 2014, we witnessed a significant up move of more than 40% in very short span. This was followed by a ‘Time-wise’ as well as ‘Price-wise’ correction, which was important from the longer term perspective. Considering past 6 to 8 day’s movement, it seems that the stock has cemented its position around the strong support zone of daily ’89 EMA’, which coincides with the 61.8 % Fibonacci Retracement Level of the up move seen from `176.65 (low on May 05, 2014) to `291.50 (high on May 26, 2014). During the session, we are witnessing some early signs of revival as the prices managed to surpass its smaller degree (hourly chart) trading range of `231 to `223 along with substantial increase in volumes. Thus, we advise traders to buy this stock from current level to a decline up to `228 for a target of `250 in coming 2 – 3 weeks. The stop loss for this trade set up can be kept at `222.

Recommendation
Buy BHEL at 232 – 228 Target 250 Stop Loss 222

What is the difference between investing and trading ?

Courtesy :Investopedia

Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding  of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investors often enhance their profits through compounding , or reinvesting any profits and dividends into additional shares of stock. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as Price Earning Ratios( P/E) and management forecasts.

Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "Selling Short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.

 A trader's "style" refers to the time frame or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:

• Position Trader – positions are held from months to years
• Swing Trader – positions are held from days to weeks
• Day Trader – positions are held throughout the day only with no overnight positions
• Scalp Trader – positions are held for seconds to minutes with no overnight positions

Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits. 

Buy NMDC For Target Rs.220 - Motilal Oswal

Strong volume growth and stable pricing With surplus capacity, well positioned to meet domestic demand

*   Strong 15% volume growth likely in FY15:

NMDC has been targeting dispatches of ~35m tonnes (v/s our estimate of 34m tonnes) in FY15, subject to continued operations of Essar Steel’s slurry pipeline. The Chhattisgarh complex is likely to dispatch ~5m tonnes through the slurry pipeline and ~20m tonnes by rail and road. The Karnataka complex would deliver 10m-12m tonnes in FY15. The dispatches are on track so far and volumes for 1QFY15 are likely to be marginally above 8.5m tonnes.

*   Strong demand for NMDC’s iron ore fines despite oversupply in international market:

Demand for iron ore fines remains strong despite volatility in international prices. The June price hike on lumps had some impact on demand in the latter half of the month because of fall in domestic steel/sponge iron ore prices. Though no decision has been taken yet, there is a case for rollback of the June price hike for lumps.

*   Growth momentum to continue:

NMDC has a total production capacity of ~45m tonnes. Investments in doubling railway tracks between Chhattisgarh complex and Jagdalpur, and flood loading would improve the Chhattisgarh complex’s evacuation capacity in steps over 2-3 years. This would help NMDC to deliver at least 10% annual volume growth in the next 2-3 years.

*   Some delays in pellet plant and Kumarswamy conveyor:

The 1.2m tonnes pellet plant should start production from 1 October. Mechanization at the Kumarswamy mines is behind schedule and is now expected to be completed by December 2014. This, however, is not materially affecting deliveries due to use of alternative portable crusher and road transport.

*   Progress on steel project stepping up:

After Mr Narendra Kothari, ex-CEO of ISP Burnpur, SAIL, joined as CMD, and Mr AP Chaudhary, ex-CMD of RINL got involved as consultant, project work at the 3m tonne Nagarnar Steel Plant has sped up. The plant should start production by January 2017.

*   More growth drivers in pipeline:

NMDC expects to enhance its presence in other states through joint ventures with respective state mineral development corporations. In Jharkhand, it has received prospecting licenses for two iron ore blocks.

*   Well positioned to serve growing domestic demand:

We expect Indian steel demand and production to accelerate over the next five years. This would drive demand for iron ore. Given its surplus mining capacity, NMDC would be a key beneficiary. Maintain Buy.

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Returns generated so far

Dear Readers,

Since last few days, I have been sharing stock research reports from different institutions. I have picked some of the stocks based on market condition and momentum. 

It's time to review performance of the stocks and return generated within 1 month. Below image shows return generated so far. Keep holding for target and stay invested.

Happy Investing!!!

Importance of Free Cash Flows for Long Term Investors

Long-term investors in the stock market are betting that the future of companies today will be better than the present or at least as good. The basic idea is that profits drivestock prices and companies that can deliver consistent profits today and are in position to continue delivering profits are prime targets for long-term investors.

There are many keys to determining whether a company is a good long-term investment or not, but one of the most important is free cash flow.

Without sustained and strong free cash flow, it is difficult to see our company has a competitive advantage or is positioned to deliver profits over the long term. A competitive advantage, also called an economic moat, gives the company an edge going forward and makes it more difficult for competitors to eat into market share.

Many long-term investors insist that a company have a strong record of free cash flow before they will even consider further investigation.

Free cash flow is the cash left over after the company pays all its bills and invests in future growth. Companies may invest this cash in short-term investments or use it for research and development, acquisitions or other extraordinary expenses that are not normally included in day-to-day operating cost.

Free cash flow may seem like esoteric accounting jargon, but is really quite simple when you think about it. If you pay all your bills every month and fund your retirement account and any other investment programs you have and still have money left over you have free cash flow.

That extra cash is not committed to anything such as car payments or student loans or insurance. Because those all been taken care of already.

Most define free cash flow as operating cash flow minus capital expenses investments. Operating cash flow is the money generated from the business of the company, as opposed to funds derived from the sale of a subsidiary for example.

These numbers can be found on the company's statement of cash flows, although many financial websites report these numbers.

What should investors look for in terms of free cash flow and how should they measure its impact on the company?

One of most common ways to measure the strength of free cash flow is to look at it as a percentage of sales. If that percentage exceeds 5 to 7% of sales, then it is a good assumption that this company probably has a competitive advantage or economic moat.

Financially strong companies often have high operating margins and lower expenses than their competitors.

Free cash flow, like all other financial measures makes more sense when viewed in context. Compare it to other companies in its industry and look back to determine if the strong free cash flow has a history or is something new to the company.

Although there are many other factors to consider, a history of strong free cash flow is a good indication that the company probably has a competitive advantage and is worthy of a deeper dive into the other factors that determine whether it is in fact a good long-term investment bet.

Many long-term investors reject companies as investment candidate that do not have a history of strong free cash flow.

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Midcap Investment Ideas - Religare Securities Ltd

•  Indian markets have witnessed a strong rally so far this year, supported by strong FII inflows and stable currency. As a result, the key benchmark indices, Sensex and Nifty, posted decent gains and rose ~20% till date.

•  Though India’s macro fundamentals are weak but turning around, especially when compared with regional and Emerging Markets. Going ahead, we believe that the domestic economy will perform better and this uptrend is likely to continue.

•  The next major trigger for the market is the Union Budget for 2014-15. The Finance Minister, Arun Jaitley, will present the Union Budget on July 10th, 2014. Based on the expectations of upcoming Union Budget, market may see the stock/sector specific movement in the near term.

•  The progress of monsoon and rising crude oil prices (due to militant violence in Iraq) will remain the key macroeconomic worries for our domestic economy. However, we believe that quality midcap stocks with strong growth story and robust financial performance can still deliver better returns.

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Buy Axis Bank Ltd For Target Rs.2,135 - Sharekhan

Key points

*   Axis Bank’s FY2014 annual report highlights the structural changes in the business which include increasing the granularity in deposits and asset base, and diversifying the fee income further. This should result in a sustainable improvement in the operating performance going ahead.

*   The bank has contained its exposures to risky sectors such as power (5.5% of book in FY2014 vs 6.8% in FY2013). Moreover, the rating profile of corporate loans (61% are rated as “A” and above) and SME loans (80% are rated as “SME- 3” and above) remains healthy. The proportion of secured loans increased to 83.4% from 82.8% in FY2013 due to focus on secured retail loans.

  *  With a stable net interest margin, healthy asset quality, steady growth in fee income and strong capital adequacy (tier-1 CAR of 12.6%), we expect the bank to sustain the strong earnings performance (15.5% CAGR over FY2014-16). Therefore, the bank is likely to maintain its superior return ratios (RoA 1.8% and RoE of 17.5%). The stock currently trades at 1.7x FY2016E book value which is a discount of about 20% to the mean valuation. We maintain our Buy rating on the stock with a price target of Rs2,135 (2x FY2016E book value).

Valuations

With a stable net interest margin, healthy asset quality, steady growth in fee income and strong capital adequacy (tier-1 CAR of 12.6%), we expect the bank to sustain the strong earnings performance (15.5% CAGR over FY2014-16). Therefore, the bank is likely to maintain its superior return ratios (RoA 1.8% and RoE of 17.5%). The stock currently trades at 1.7x FY2016E book value which is a discount of about 20% to the mean valuation. We maintain our Buy rating on the stock with a price target of Rs2,135 (2x FY2016E book value).

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Buy Bharat Forge Ltd For Target Rs.710 - Motilal Oswal

Primed for recovery Earnings growth to accelerate with ~27% CAGR (FY14-17E)
*   Bharat Forge (BHFC) has emerged stronger, leaner and healthier from the downcycle, driven by its proactive strategic shift towards a stable, broad-based and greater value-adding business model. It is now one of India’s largest engineering exporters.
*   It is primed for recovery in the global investment cycle. This, coupled with an expanded product/market mix, would drive strong revenue CAGR of 16% CAGR over FY14-17. EPS would grow at a CAGR of ~27%, aided by robust margin expansion.
*   While the stock has outperformed over the last six months, there are several triggers for continued outperformance. These include: (a) volume recovery led benefit of operating leverage, (b) improving segment mix, (c) balance sheet deleveraging, and (d) improvement in capital efficiencies.
*   Valuations at ~17.9x/14.9x FY16/FY17E consolidated EPS of INR32/INR39 are attractive for a global leader in forgings and at a discount to the 5/10 year average of 22x/26x. We initiate coverage with a Buy rating. Our target price of ~INR710 (~22x FY16E EPS) suggests an upside of ~23%.

Stronger, leaner and healthier
BHFC has broadened its revenue stream by entering new segments (non-auto) and global markets. The share of auto business has declined from ~80% in FY07 to ~60% in FY13 and the share of India has reduced from ~60% to ~48% in standalone operations. Further, it has increased value-addition by focusing on machined components, the contribution of which has increased to ~51% in FY13, boosting realizations and margins. Lastly, it has improved its balance sheet by focusing on controlling debt through lower capex, resulting in fall in net debt-equity to ~0.3x/0.2x by FY15/FY16.

Auto business – awaiting CV cycle recovery; focusing on PVs
Benefit of US Class-8 demand improvement, driven by pre-buying before emission norm changes and gradual recovery in the EU would reflect in FY15/FY16. BHFC is a clean play on the expected domestic CV cycle recovery from 2HFY15, with over 60% market share in M&HCV components. The PV segment is a focus area for BHFC and could be an important growth driver. This segment offers an opportunity size 4x that of CVs.

Non-auto business – play on investment cycle recovery
The non-auto segment offers significant growth potential, as it is much larger than the auto segment. BHFC is targeting ~60% of its standalone revenues from the non-auto segment, up from the current ~40%. Its partnerships with global players (Alstom, Areva, David Brown, etc) bear testimony to its globally cost competitive engineering/manufacturing capabilities. BHFC’s increasing penetration with existing and new customers, coupled with economic stability in the international market and investment cycle recovery in India, would drive ~24% revenue CAGR in the non-auto segment. Increasing contribution of nonauto to consolidated revenues augurs well for profitability and capital efficiencies, given the segment’s higher realizations, margins and asset turns.

Multiple levers to support/improve profitability
We expect consolidated revenues to grow at a CAGR of ~16% over FY14-17 (adjusted for FAW JV exit), driven by 22% CAGR in India revenues and 12% CAGR in international revenues. EBITDA margin should expand ~290bp to 18.2%, driven by higher exports from India, rising contribution from non-auto business and machined components, and operating leverage. BHFC has sufficient capacities to drive over 25% revenue CAGR over the next two years, necessitating maintenance capex of INR1.5b-1.8b per year. We estimate cumulative FCF generation of ~INR21b during FY15-17, enabling reduction of net debt to ~INR7b (net debt-equity of 0.2x) from ~INR13.4b (net debt-equity of 0.8x). Improving asset turns and profitability would drive improvement in consolidated RoE to ~22.6% in FY17 from 17.9% in FY14 – the highest RoE since FY07.

Valuations attractive for global leader in forgings; Buy
BHFC is primed for recovery in the global investment cycle. While the stock has outperformed over the last six months, there are several triggers for continued outperformance. These include: (a) volume recovery led benefit of operating leverage, (b) improving segment mix, (c) balance sheet deleveraging, and (d) improvement in capital efficiencies. Valuations at ~17.9x/14.9x FY16/FY17E consolidated EPS of INR32/INR39 are attractive for a global leader in forgings and at a discount to the 5/10 year average of 22x/26x. We initiate coverage with a Buy rating. Our target price of ~INR710 (~22x FY16E EPS) suggests an upside of ~23%.

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Buy Jindal Steel & Power Ltd For Target Rs.409 - Motilal Oswal

Return ratios start looking up EBITDA to post 20% CAGR; upgrade to Buy
*   Return on capital employed has hit bottom:
Jindal Steel and Power (JSP) has invested heavily in steel, power projects in India and mining assets overseas. Over four years, a total of INR350-400b has been invested in setting up a new 12mtpa steel plant Greenfield site (capacity of 1.5mtpa in phase I) at Angul and Brown field expansion of Jindal Power’s capacity by 2,400mw. Further, JSP has invested monies overseas in 2mtpa gas-based steel plant in Oman and coking coal assets of Gujarat NRE in Australia. RoCE (pre-tax) has fallen from a peak of 32.8% in FY09 to 7.9% in FY14 due to long gestation period of these projects. We expect RoCE to start improving now.

*   EBITDA to post CAGR of 20% over FY14-17E:
JSP has recently commissioned 1.5mtpa Angul steel plant with associated facilities during January-May 2014. The 2,400mw (T2) project at Tamnar has already commissioned three units of 600mw each by end-FY14. Oman HBI unit has been forward integrated in billet making recently. Thus, INR300-320b of capex is now put into operation. In spite of uncertainties, we expect consolidated EBITDA to clock a CAGR of 20% over FY14-17E. Uncertainties on sourcing coal, selling power and steel have clouded near term earnings outlook. However, each of these problems is surmountable with time and positive political will. We expect a favorable resolution.

*   Stock trades at discount to intrinsic value:
We review the model and introduced FY17 estimates. We roll over the target price on FY16 estimates. We believe the stock is trading at significant discount to its intrinsic value. We have used three alternative approaches to value the stock: (1) SOTP methodology yields a target price of INR409/share based on FY16E 6.5x EV/EBITDA for steel business and DCF for Jindal Power, (2) P/BV(x) has hit the bottom along with RoE. On factoring moderate re-rating of P/BV(x) and expected growth in book value, the stock should be trading at an average of INR399 during FY16 and (3) the replacement cost yields a target price of INR410/share, not counting the value of mines and opportunity cost.

*   Upgrading the stock to Buy:
JSP is now likely to derive benefit from the INR350b invested over four years. Cash flows will see significant boost on the back of 20% CAGR in EBITDA. With the 12mtpa Greenfield Angul site under its belt, company is now well set to grow steel capacity manifold over next 5-10 years with much lower execution risk. Proximity to the iron ore mining region in Odisha will be a key advantage. We expect that power business too will start growing on de-bottlenecking of transmission infrastructure and reforms in power distribution and coal production. We upgrade JSP to a Buy, with a target price of INR409, 25% upside. Utkal B1 coal mine will drive another ~10% upside.

*  Stock trades at discount to intrinsic value:
We review the model and introduced FY17 estimates. We roll over the target price on FY16 estimates. We believe the stock is trading at significant discount to its intrinsic value. We have used three alternative approaches to value the stock: (1) SOTP methodology yields a target price of INR409/share based on FY16E 6.5x EV/EBITDA for steel business and DCF for Jindal Power, (2) P/BV(x) has hit the bottom along with RoE. On factoring moderate re-rating of P/BV(x) and expected growth in book value, the stock should be trading at an average of INR399 during FY16 and (3) the replacement cost yields a target price of INR410/share, not counting the value of mines and opportunity cost.

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Buy Hindustan Media Ventures For Target Rs.190 - Angel Broking

Healthy advertising revenue growth likely to continue: Hindustan Media Ventures (HMVL) has witnessed a strong double-digit advertising revenue growth in the last four quarters. This is on account of both, increase in advertising volume as well as yield. According to the Management, double-digit advertising revenue growth is likely to continue considering the expectations of an improvement in the Indian economy in 2HFY2015.

Consistent double-digit growth in circulation revenue:

The Company continues to consistently report double-digit growth in circulation revenue, aided by increase in circulation volume and higher realization per copy. At the end of FY2014, realization per copy stood at `2.1, an increase of 12.4% yoy. However, with the recent entry of DB Corp in the Bihar region with a Patna edition, and the resultant cover price war, HMVL’s realization per copy might remain subdued. But the Management believes that increase in circulation volumes in Bihar and Uttar Pradesh (UP) will enable the company to post healthy circulation revenues, going forward.

Expect margin improvement in UP editions:

Although the company earns healthy margins in its mature markets, its emerging editions in UP have been a drag on its overall margins. However, UP editions have already achieved breakeven in FY2014 and the Company expects substantial improvement in margins in the UP editions over the next three years. The Management indicates increase in margins in UP editions from the current breakeven levels to 23-25% in the next three years, which we have presently not built into our estimates on a conservative basis.

Strong Balance Sheet:

HMVL has `270cr in cash and current investments, which the company plans to utilize for organic or inorganic expansion.

Sharp discount to Hindi print media peers:

Currently, HMVL is trading at valuations of 8.2x FY2016E EPS, which is at a sharp discount to its other Hindi print media peers (more than 35% discount to Jagran and DBCorp). Considering the expected economic revival as well as strong balance sheet, possibility of margin improvement in UP, and reasonable valuations, we recommend Buy on the stock and assign a multiple of 10x to arrive at a target price of `190.

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Buy CCL Products For Target Rs.80 - Firstcall Research Ltd

SYNOPSIS

*  CCL Products (India) Ltd manufactures Soluble Instant Spray Dried Coffee Powder, Spray Dried Agglomerated and granulated Coffee, freeze Dried Coffee, and Freeze Liquid Coffee.

*  In Q4 FY14, Net profit jumps to Rs. 178.33 million an increase 63.56% against Rs. 109.03 million in the corresponding quarter of previous year.

*  The company’s net sales registered a growth of 23.46% and stood at Rs. 2186.26 million from Rs. 1770.79 million over the corresponding quarter of previous year.

*  Operating profit is Rs 423.68 million as against Rs. 331.20 million in the corresponding period of the previous year.

*  The Company has recommended a final dividend of Rs. 1.20 per equity share of face value Rs .2.00 each for the year ended 31 March, 2014.

*  During the financial year FY14, Net sales stood at Rs. 7168.22 million as against Rs. 6526.14 million in the corresponding period of the previous year.

*  During the financial year FY14, Net profit rose to Rs. 644.19 mn as compared to Rs. 474.27 mn in the corresponding period of the previous year.

*  Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 18% over 2013 to 2016E respectively.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results Updates- Q4 FY14

CCL Products (India) Ltd is Global Leaders in soluble coffee private label manufacturing, reported its financial results for the quarter ended 31 MARCH, 2014.

The company’s net profit jumps to Rs. 178.33 million against Rs. 109.03 million in the corresponding quarter ending of previous year, an increase of 63.56%. Revenue for the quarter rose by 23.46% to Rs. 2186.26 million from Rs. 1770.79 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 1.34 a share during the quarter as against Rs. 8.20 over previous year period. Profit before interest, depreciation and tax is Rs. 423.68 million as against Rs. 331.20 million in the corresponding period of the previous year.

OUTLOOK AND CONCLUSION

*   At the current market price of Rs 65.95, the stock P/E ratio is at 12.33 x FY15E and 11.39 x FY16E respectively.

*   Earnings per share (EPS) of the company for the earnings for FY15E and FY16E are seen at Rs.5.35 and Rs. 5.79 respectively.

*   Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 18% over 2013 to 2016E respectively.

*  On the basis of EV/EBITDA, the stock trades at 6.66 x for FY15E and 6.08 x for FY16E.

*   Price to Book Value of the stock is expected to be at 2.07 x and 1.77 x respectively for FY15E and FY16E.

*   We recommend ‘BUY’ in this particular scrip with a target price of Rs. 80.00 for Medium to Long term investment.

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Buy Arvind Ltd For Target Rs.270 - Motilal Oswal

Entering next growth orbit
Brands business to be scaled up aggressively, e-commerce launch soon
We met Arvind’s management for a perspective on the demand scenario in the industry and growth prospects, going forward. Key takeaways are:
Brands and Retail business to be aggressively scaled up
Management is focused on scaling up the Brands and Retail business aggressively over the next three to five years. Among a trade-off between scale and margins, management will choose scale as this will increase ARVND’s overall profit pool. While brands will witness incremental store additions largely through the franchise route, retail will see store additions through the owned model route. This has been strategically planned as there will always be limited capital to deploy and growth has to be maximized within that pool of capital and finite time period.

Power Brands’ growth robust; growth brands to be future drivers
‘Power Brands’ like Arrow, Tommy, US POLO and Flying Machine will continue to witness more than 25% growth. Management will invest aggressively in what are internally identified ‘Growth brands’ – brands which are presently small but have high potential for growth and can be Power Brands over the next three years. These include Nautica, Hanes, Gant, Calvin Klein.

E-commerce foray to be next big event
ARVND is working on a unique e-commerce platform, which will be launched under a new brand and will offer differentiated products. For example, customization will be a major differentiator. Online consumers will be able to choose the color, fabric type, style and have messages written on a t-shirt or any other garment they buy. These differentiators will be first of the kind for Indian consumers. Also, company plans to have retail kiosks which will be a unique brand concept.

MegaMart restructuring to be completed by 1HFY15
ARVND is working on a massive restructuring strategy for MegaMart (MM) stores. The plan is to move from old format stores to newer ones. New format stores will be larger – typically 10,000sqft plus. Company has three 50,000sqft stores in MM. It has reduced the store count for MM from 216 to 166 over the past couple of years due to restructuring. However, retail space in MM has expanded during this period from 0.69msf to 0.75msf implying significant (40%) increase in sqft/store from 3,200sqft/store to 4,500sqft/store. MM’s restructuring will be completed by September 2014.

Significant room to expand RoCE in textile business
Management believes that contrary to popular perception there exists significant scope to improve capital efficiency and reduce capex intensity in the pure textile business. Initiatives that are consideration include 100% outsourcing of spinning units and entering into outsourcing arrangements with third party denim and wovens manufacturers. As there is surplus capacity available in the market, management believes it is better to outsource than to put up new capacities. In contrast to ARVND, third parties are ready to work on lower RoCE as they can use the numerous incentives available in the form of TUFF loans and state level incentives which make their model profitable. These initiatives, in our view, can structurally improve RoCE potential in the business and result in further balance sheet deleveraging.

Verticalization from fabrics to garments - a key strategy
Verticalization from fabrics to garments is a key strategy that will gain momentum over the next couple of years for ARVND. Garments segment, which was an underperformer, has been effectively brought back to track. Company is gaining business from new clients due to scale-up in garments. Earlier these new clients never came to ARVND as they procured ready garments and did not work on a model of procuring fabrics and giving to converters. With direct market access with these new clients, company is gaining more visibility and higher margins across the entire textile value chain.

Debt metrics will continue to improve
Management highlighted incremental capex will be largely done from internal cash generation and thus debt in absolute terms will increase only marginally. Capex guidance for FY15 stands at INR5b out of which INR2b will be invested in brands & retail, INR2b in textiles, and INR1b in technical textiles, e-commerce and corporate capex combined. Debt metrics improvement to continue as absolute debt remains steady.

Valuation and view
We remain optimistic with ARVND’s transformation from a pure textile player to a brands and retail powerhouse. We believe with its massive experience gained in the textile business over the last few decades, company is well placed to extend its experience to launch new initiatives - prime among these will be e-commerce foray that is scheduled for launch over the next couple of quarters. We believe that with RoCE and RoE at a decade high and increased contribution from brands segment, capex intensity over the long term will reduce, warranting a re-rating. We upgrade the target price from INR240 to INR270 (7x FY16E EV/EBITDA), maintain Buy.

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Buy Infosys For Target Rs.3579 - Kotak Securities

*   While the appointment of Dr. Vishal Sikka is a good strategic move, we see some challenges in the short term.

*   The products background of the new CEO will allow Infosys to grow its PPS business relatively faster. With the industry moving towards this business model, Infosys will have an advantage.

*    Infosys will also likely benefit on the client business acquisition side due to Mr. Sikka's relationships with CXOs. The appointment also will likely remove several of the uncertainties in clients' minds, while dealing with Infosys.

*    However, the exit of Mr. Narayana Murthy, while giving a free hand to Mr. Sikka, also leads to some discontinuity in operations. We also do not rule out the possibility of further restructuring under the new CEO.

*    The new CEO will have to focus on improving growth rates in the services business while increasing the proportion of the PPS business.

*     Our EPS for FY15 and FY16 stand marginally changed due to Rs.202 (Rs.207) and Rs.223 (Rs.231), based on Rs.59.5 / USD.

*     We expect the stock to remain ranged in near term. However, we expect it to move up once there are indications of growth rate improving.

*     We have been positive on the long-term demand prospects for quite some time. With the developed economies stabilizing, we do expect the demand scenario to improve over the next few quarters.

*     Our TP stands at Rs.3579 (Rs.3714) based on 16x FY16 estimates. Maintain BUY.

Valuations and recommendations

*   We value the stock based on FY16 estimates. We accord valuations which are at the lower end of the valuation band prevalent in FY10. Growth rate for Infosys had dropped in FY10 before recovering in FY11.

*   We expect the stock to remain ranged in near term. However, we expect it to move up once there are indications of growth rates improving.

*   We have been positive on the long-term demand prospects for quite some time. With the developed economies stabilizing, we do expect the demand scenario to improve over the next

*   Our TP stands at Rs.3579 (Rs.3714) based on 16x FY16 estimates. We maintain BUY.

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Buy Maruti Suzuki India Ltd For Target Rs.2,665 - Motilal Oswal

MSIL safeguards minority interest on Gujarat plant

In-principal Gujarat government approval received; MSIL to save INR105b through this deal

Maruti Suzuki India Ltd (MSIL) outlined the agreement details with Suzuki Motor Corporation (SMC) for expansion of Gujarat plant under 100% subsidiary of SMC, Suzuki Gujarat (SG), along with details of the term sheet. As indicated earlier, MSIL would voluntarily seek minority shareholders’ approval for this arrangement. The additional clarifications by MSIL on proposed expansion of Gujarat Plant further safeguards minority shareholders’ interest.

Key follow-up points

*  Receives in-principal approval from Gujarat government for the proposed arrangement.

*  Based on legal expert’s opinion, no significant difference in tax implications between MSIL and SMC.

*  All arrangements of SG such as procuring parts/components, capital assets etc from SMC or related parties to require MSIL’s prior approval.

*  MSIL could potentially save INR105b, assuming post tax return of 8.25% p.a. for the 15-year contract period.

*   Additional funds would be used to strengthen marketing, sales infrastructure, R&D, overseas market penetration.

*   MSIL and SG to establish joint committee with representatives from both companies for co-ordination of operational matters.

Other highlights

*  Among various alternatives, expansion under 100% subsidiary of SMC considered most suitable:

Various alternative structures for Gujarat expansion (SG) were considered. Expansion of SG as 100% subsidiary under SMC was considered most beneficial to MSIL.

*  SMC to fund entire capex:

SMC would finance SG’s capex through initial capital and further fresh equity infusion, after using accrued depreciation.

*  SG to operate on “no-profit, no-loss basis”:

SG will manufacture and sell to MSIL, though would not partake in any profits or losses. This would be done by adjusting the selling price of products.

*  SG to exclusively sell to MSIL:

This exclusive contract manufacturing agreement with MSIL would ensure that SG will not sell products to any other party. Also, the products and volumes would be decided by MSIL.

*  MSIL to lease land to SG:

Land required by SG would be leased by MSIL. Land lease agreement is co-terminus with the contract manufacturing agreement.

*  In the event of contract termination, MSIL to have option of buying SG share at book value:

Beyond 30 years, SG and MSIL may mutually agree to extend their contract period. Also, in case of termination of the arrangement, MSIL would have the option to buy SG’s shares at book value.

Valuation and view

*   With improved economic outlook and consequent improvement in discretionary income and consumer sentiments, we expect PV industry to rebound strongly over the next two to three years (benefiting from pent-up demand).

*   Given its leadership position and three new launches (Celerio, Ciaz in 2QFY15 and compact SUV in 4QFY15), we expect MSIL to be a key beneficiary of the upturn in PV demand.

*   We estimate robust 26% EPS CAGR on 13.7% volume CAGR (implying 3.3% CAGR over FY11-16E) and margin expansion of 150bp over FY14-16E to 13.2%.

*   The stock trades at 20.3x/15.9x FY15E/16E consolidated EPS of INR117.2/INR149.4. Maintain Buy.

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Buy Yes Bank Ltd For Target Rs.720 - Sharekhan

Key points

*   The recent equity capital raising has taken Yes Bank’s CAR to 18% (tier-I CAR to ~14% levels from 9.8%) which gives significant opportunity to the bank to expand the balance sheet (advances book) amid signs of a recovery in the economy. Thus, we expect the earnings growth trajectory to return to 25%-plus range after the cautious growth seen in the past couple of years.

*   In our view there are multiple structural drivers for the margin (a rising CASA ratio, improved priority sector lending, stabilisation in interest rates) apart from leveraging of the equity capital. This should result in an expansion of 20- 30BPS in the net interest margin over the next couple of years. The asset quality of the bank remains among the best in the system.

*  Despite equity dilution we expect the return ratios to remain strong (RoE of about 20% and RoA of about 1.7%) led by a strong earnings growth. We have revised our price target upwards (to factor in the improvement in the margin, lesser than expected dilution in the equity and increase in the book value by 11% for FY2015 and by 22% for FY2016). This has resulted in a new price target of Rs720 (2x FY2016E book value, which is close to its five-year mean valuation multiple). We maintain our Buy rating on the stock.

Price target revised to Rs720

Yes Bank’s stock performance was lagging behind that of its peer banks due to a lower capital base and an ongoing legal issue within the promoter families. Despite equity dilution we expect the return ratios to remain strong (return on equity [RoE] of about 20% and return on asset [RoA] of about 1.7%) led by a strong earnings growth. We have revised our price target upwards (to factor in the improvement in the margin, lesser than expected dilution in the equity and increase in the book value by 11% for FY2015 and by 22% for FY2016). This results in a price target of Rs720 (2x FY2016 book value, which is close to its five-year mean valuation multiple). We maintain our Buy rating on the stock.

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Buy Sun TV Network For Target Rs.Rs.495 and Rs.550 - Sharekhan

Sunrise

Sun TV Network has broken out of the downward sloping trend line that was almost parallel to its previous swing lows, thereby forming a downward sloping parallel channel. Now, since it has broken out of the previous weekly swing’s high of Rs438, it appears to have started its next leg up. The minimum target comes to Rs495, which is the previous monthly swing’s high. Above these levels it can achieve the equality target of Rs550, which is the next monthly swing’s high.

The momentum indicator, Know Sure Thing, is well in buy mode on daily, weekly and monthly charts which is quite a positive sign for bulls in the medium term. The Bollinger bands have expanded well with the rise in the price, thus confirming the break-out. The stock took a good support at its 20-month moving average, which is also the mean of the Bollinger bands on the monthly chart.

Investment strategy

Buy Sun TV Network at current market price of Rs440.35 for the target of Rs495 and Rs550 with a stop loss at Rs410.

Risk: Reward 1 = 1: 1.84

Risk: Reward = 1: 2.72

Risk: 440.35 – 410 = 29.65

Reward 1: 495 – 440.35 = 54.65

Reward 2: 550 – 440.35 = 89.65

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Buy Blue Star For Target Rs.367 - Angel Broking Pvt Ltd

1.2% yoy to `869cr as against `858cr in the same quarter of the previous year. On the operational front, the EBITDA grew 49.5% yoy to `30cr on the back of 395bp yoy decline in raw material cost as a percentage of sales; the EBITDA margin improved by 111bp yoy to 3.4%. The other income for the quarter rose by 68.6% yoy to `35cr and as a result, the net profit jumped by 130.7% yoy to `43cr.

Improvement in macro scenario to support growth

The company’s Electro Mechanical Projects and Packaged Air-conditioning Systems (EMPPAC) division, which contributes ~57% to total revenues, will benefit from an expected revival in the economy as the division caters mainly to institutional/commercial clients. With the formation of a stable government at the centre, we expect the investment climate to improve, going forward. Additionally, we also expect the Cooling Products division to gain traction, given a favorable macro scenario.

Outlook and valuation

We expect Blue Star to report a CAGR of 10% in its revenue over FY2014-16E to `3,542cr. The EBITDA margin is expected to expand by 248bp over FY2014-16E to 5.6% due to better margin orders. Consequently, the net profit is expected to be at `122cr in FY2016 as compared to `74cr in FY2014. At the current market price, the stock is trading at EV/sales of 0.8x for FY2016E, which we believe is attractive, considering its historical average of 1.0x (five-year average). We maintain our Buy rating on the stock with a revised target price of `367 based on a target EV/sales of 1.0x for FY2016E.

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