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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Buy Jain Irrigation For Target Rs.170 - Motilal Oswal

Government reiterates focus on MIS

Strong steps by Center can accelerate JI’s deleveraging process

Micro irrigation will be popularized to ensure ‘Per drop-More crop’

Indian President, Mr Pranab Mukherjee, addressing both the houses of Parliament, reiterated the new Government’s focus to develop the agricultural sector. The Government for the first time specifically mentioned on popularizing Micro Irrigation Systems (MIS) in a major pattern to ensure better yields through minimal water consumption. A key hurdle impacting MIS sector’s growth is the long delay associated with Government subsidy receivables. Even as a full road map of the Government’s initiatives on MIS is awaited, we believe potential steps in the form of direct credit of subsidy by the Center to farmers or replication of efficient models like the Gujarat Green Revolution Company (GGRC) can be major game changer event for companies like Jain Irrigation (JI). Our interaction with JI’s management suggests further clarity will emerge as it meets the agriculture ministry soon.

Strong emphasis on irrigation, food processing and solar energy

The speech also highlighted an increase in investment in agri-infrastructure, incentivizing setting up of food processing industries, prioritizing pending irrigation projects and launching the ‘Pradhan Mantri Krishi Sinchayee Yojana’ to promote irrigation, and expanding the national solar mission, which are positives for JI’s MIS, PVC piping, Food processing and Solar segments.

Food processing stake sale to aid deleveraging

JI is on track to organically improve its working capital situation over FY14-16 by focusing on progressive states and a switch to NBFC model. We expect gross receivable days in MIS business to decline from 257 in FY14 to 181 in FY16E, thus ensuring strong free cash generation, which should help reduce debt-equity from 1.8x in FY14 to 1.1x in FY16E. As per our interaction with the management, JI is likely to conclude the 25% stake sale in its food processing unit to a financial investor (likely to garner INR5b through stake sale) in 1HFY15, which should further lower debt.

Strong steps by Government can accelerate re-rating

We believe strong steps by the Government by direct credit of subsidy or replication of efficient models on the lines of Gujarat Green Revolution Company (GGRC) can be a game changer event for JI, which can accelerate the stock’s re-rating process. We upgrade JI’s target price from INR150 to INR170 (16x FY16E EPS) implying 35% upside. Maintain Buy.

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Buy Polaris Financial Technology For Target Rs.260 and Rs.280 - Sharekhan

Polaris heading north pole Polaris Financial Technology has formed an  inverse headand- shoulders pattern and has  already taken off its previous monthly swing’s high.  This confirms that the next five-wave rise has  started as the previous rise was a clear  five-wave rise. The momentum indicator,  Know Sure Thing (KST), is well in buy mode on  the monthly chart and it has just provided a buy  cross-over on the daily chart which is also a  positive sign for bulls. The weekly KST is, however, in sell mode which indicates that the  stock needs to surpass its previous weekly swing’s high of Rs217.70 in order to gain  strength. Based on the above mentioned observations we feel that the risk/reward ratio is  quite favourable for the bulls. Hence, we recommend initiating longs at these levels. Trading strategy Buy Polaris Financial Technology at the current market price of Rs204.50  for the targets of Rs260 and Rs280 with a stop loss at Rs174. Risk: Reward 1: 1: 1.82 Risk: Reward 2: 1: 2.47 Risk: 204.50 – 174 = 30.50 Reward 1: 260 – 204.50 = 55.50 Reward 2: 280 – 204.50 = 75.50 To Read Complete Report Click Here Above views are of the author and not of the website.

Buy Kalpataru Power For Target Rs.200 - Sharekhan

Key points

*  In Q4FY2014 the revenues of Kalpataru Power & Transmission Ltd (KPTL) grew by 12% YoY to Rs1,152 crore with a healthy performance in the T&D segment. The OPM of KPTL remained flat at 9.5% in Q4FY2014 but due to higher depreciation and interest charges the adjusted PAT declined by 3% YoY to Rs47 crore. For FY2014 the PAT grew by 6% YoY, backed by a 22% growth in sales and a steady margin in the stand-alone entity.

*   JMC Projects (its listed construction subsidiary) reported significant margin expansion for Q4FY2014 to 6.2% (up 147BPS) even though its sales declined by 8%, as efforts to improve the margin and streamline the balance sheet are bearing fruits now. Another subsidiary, Shree Shubham Logistics, reported a very strong net profit growth (up by 184% YoY) in Q4FY2014, backed by strong revenue traction (up by 93% YoY) with incremental capacity and better OPM of about 17.5%. In FY2014 also the PAT of SSL grew by 52% YoY.

*   The management has maintained a top line guidance of 15% for KPTL (standalone), backed by a healthy order book of 1.6x FY2014 revenues with expectations of a stable margin. But the profitability in the subsidiaries (especially JMC Projects) is expected to look up. However, in case of JMC Projects, the development of its road BOOT projects should be the key monitorable as FY2015 and FY2016 would be the first two years of tolling revenue collection. We have fine-tuned our estimates and revised our price target primarily by revising upward the valuation multiple, given the overall better outlook. Hence, we retain Buy on the stock with a revised price target of Rs200 (based on SOTP method).

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Buy Dishman Pharma For Target Rs.123 - Angel Broking

For 4QFY2014, Dishman Pharmaceuticals & Chemicals (Dishman) posted results better than our expectations on all fronts. It posted a top-line growth of 15.9% to `400.6cr V/s an expected `359cr. The growth was driven by the CRAMS segment, which posted a yoy growth of 24.6% for the quarter. The OPM came in at 21.9% V/s 19.4% in 3QFY2014 and 20.9% in 4QFY2013. This aided the net profit to come in at `22.6cr (V/s an expected `17cr), a yoy growth of 21.6%. Currently, we have a Buy rating on the stock with a price target of `123.

Results better than expected:

For 4QFY2014, Dishman posted better-than-expected results on all fronts. It posted a top-line growth of 15.9% to `400.6cr V/s an expected `359cr. The growth was driven by the CRAMS segment, which posted a yoy growth of 24.6%, driven by Carbogen Amcis, which grew by 51.8% yoy, while Indian CRAMS declined by 8.2% yoy. The MM segment on the other hand de-grew by 12.2% yoy. With this, the CRAMS segment contributed 72.2% V/s 63.3% in the corresponding quarter of last year. The OPM came in at 21.9% V/s 19.4% in 3QFY2014 and 20.9% in 4QFY2013. This aided the net profit to come in at `22.6cr (V/s an expected `17cr), a yoy growth of 21.6%.

Outlook and valuation:

We expect Dishman’s net sales and net profit to come in at `1,662cr and `178.0cr, respectively, in FY2016. At current levels, Dishman is trading at 4.7x and 4.0x FY2015E and FY2016E earnings, respectively. We believe the current valuations are attractive, hence, we maintain our Buy recommendation on the stock with a price target of `123.

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Buy Aurobindo Pharma Ltd For Target Rs.771 - Sharekhan

Key points

*   Aurobindo Pharma reported a strong performance for Q4FY2014 with the adjusted net profit surging by 324% YoY to Rs466 crore on the back of a 130% increase in the US formulation business. The core OPM (excluding the dossier income) expanded by 1,775BPS to 31% in Q4 while the net sales jumped by 48.4% to Rs2,330 crore.

*   The strong performance can be attributed to the launch of generic Cymbalta in December 2013 under shared exclusivity coupled with the other key launches during Q3 and Q4 of FY2014. Though the benefit of Cymbalta exclusivity will not extend beyond June 2014, but the management expects to maintain the growth in the top line and an OPM of 22-23% on the back of the integration of the newly acquired API business of Actavis and an improvement in the base business.

*   We revise our earnings estimates up by 27% and 23% for FY2015 and FY2016 to factor in the improvement in the base business and the integration of the newly acquired API business of Actavis. Accordingly, our price target stands revised up by 23% to Rs771. We maintain Buy rating on the stock.

We revise our earnings estimates and price target up to Rs771; maintain Buy

Taking into consideration the effects of the acquisition of Actavis, the growth of the base business in the USA and Europe, and the ramp-up in the cephalosporin business, we revise our earnings estimates up by 27% for FY2015 and 23% for FY2016. Accordingly, our price target stands revised up by 23% to Rs771 (which implies 12x FY2016E earnings per share). We maintain our Buy recommendation on the stock.

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Buy Sesa Sterlite Ltd For Target Rs.300 - Sharekhan

Minting in mining

The previous rise of Sesa Sterlite from Rs119.30 to Rs207.20 was a five-wave rise following which the stock had formed an expanded flat pattern in the wave 2 down. Now wave III of 3 up seems to have begun. It has provided a break-out from the inverse head-and-shoulders pattern, which is a bullish reversal pattern. The Bollinger Bands that were narrowing have now started to expand and that indicates the trend has resumed. The stock has taken good support at the 40-week exponential moving average which is a good sign in the medium to long term. The momentum indicator, Know Sure Thing (KST), has come in buy mode on both the daily and the weekly chart which is like a cherry on the cake.

The equality target for wave 3 up comes at Rs300. The 138.2% retracement of wave 1 comes to Rs346 levels whereas the neckline support is pegged at Rs214 levels and till the stock is trading above this level bulls have nothing to worry. The previous swing’s high of Rs207 is very crucial as that’s the high of wave 1. So if the stock overlaps Rs207 levels then the probability of wave 3 up shall reduce as the prices in wave 3 don’t penetrate into the wave 1 region. Hence, 206 levels should be an ideal stop loss for the trade.

Investment strategy

Buy Sesa Sterlite at the current market price Rs228 for a target of Rs300 with stop loss at Rs346 and Rs206.

Risk:Reward ratio 1 = 1: 3.27

Risk: Reward ratio 2 = 1: 5.36

Risk (Rs): 228 - 206 = 22

Reward (Rs) 1: 300 – 228 = 72

Reward (Rs) 2: 346 -228 = 118

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Buy Tata Motors Ltd For Target Rs.507 - Motilal Oswal

Margin disappoints in both JLR and Standalone

*  4QFY14 performance was below estimate driven by disappointing margins in both the business. JLR’s margins declined 190bp QoQ (est to be flat), impacted by adverse product and regional mix, and unfavorable Fx. S/A margins at -6% (est -1.4%) due to year-end write-offs and dealer compensation on excise cut.

*  Consol net sales grew 16.6% YoY to INR653b (est INR655b). EBITDA margins declined 30bp QoQ (up 140bp YoY) to 15.3% (est 15%). Interest cost increased by 67% QoQ to INR16.6b (est INR10.5b) primarily driven by JLR operations. Consol. adj. PAT grew 7.9% YoY (down 13.6% QoQ) to INR42.4b (est INR41.8b).

Management commentary on 4Q results and outlook

*  JLR demand outlook healthy with RR and RR Sport having waitlist of 6 months. Capacity constraint though would restrict FY15 growth. Current capacity of 450,000 units to be scaled-up to 550,000 by 3QFY15 with ramp-up in 4QFY15.

*  Major expansion projects viz China JV and engine plant on track to commence operations during 4QFY15. Jaguar XE (baby Jag) to be launched in 4QFY15 as well.

*  Recovery signs visible in MHCVs; expects growth 2HFY15 onwards. New launches and industry recovery to drive PV business recovery.

Downgrade FY15E/16E EPS by 5.2/5.4% driven by JLR

*  We downgrade our Consol. EPS by 5.2%/5.4% driven by downgrades in JLR partially offset by upgrade in S/A business on expectation of economic recovery.

*  TTMT trades at 9.4x/6.8x FY15E/16E consolidated EPS. DVR trades at 5.7x/4.1x FY15E/16E consolidated EPS. Buy with TP of INR507 (FY16 SOTP-based) for ordinary shares and INR304 for DVR (~40% discount to TP for ordinary shares). \

Valuation & view

*  We believe JLR is on the right strategic path and is investing in the right areas, resulting in its evolution to a much stronger and balanced player in the luxury vehicle market.

*  Domestic business, though currently under pressure due to cyclical pressures in the economy, is expected to bounce back strongly along with economic recovery and favorable product lifecycle in the PV division.

*  TTMT trades at 9.4x/6.8x FY15E/16E consolidated EPS. DVR trades at 5.7x/4.1x FY15E/16E consolidated EPS.

*  Buy with TP of INR507 (FY16 SOTP-based) for ordinary shares and INR304 for DVR (~40% discount to TP for ordinary shares)

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