DSIJ Mindshare

Seven Muhurat Buys

The auspicious festival of lights, prosperity and opulence is just around the corner. But the way the markets have been rallying ever since the government stepped up the ante on the reforms front, celebrations already seem to have begun out there. The sentiment has switched from one that was largely dull, gloomy and worrisome to one full of cheer and optimism.

A quick flashback of the situation during the same period last year would bring back images of a worried market reeling under various pressures. From an impending slowdown in economic growth to a paralysed government devoid of strength to carry out any meaningful reforms, and from rising inflation to higher interest rates, nothing seemed to be right for the Indian market then. While this was happening on the domestic front, the global scenario was not too different. In fact, worries on the US and the Euro zone front were even more pressing.

But as they say, days change, and they did. We, at DSIJ, were among the first to recognise the changing pattern of the market, and are indeed glad that we have been instrumental in helping investors seize the opportunity at the correct time. The Sensex has moved up significantly, rising by almost 11 per cent since last Diwali, a major part of this happening over the past four odd months ever since the government kicked off the reforms process.

Things have not changed overnight and the improvement has been gradual. There are many factors that helped the Sensex move into a new orbit. Let’s take a look at what has happened in Samavat 2068 and what to expect from Samavat 2069. For starters, our portfolio of stocks recommended as ‘Muhurat Buys’ last year has provided astonishing returns of 29 per cent as against the 11 per cent rise of the Sensex (See Box: Performance of Diwali 2011 Muhurat Buys). This clearly indicates our standard of research, which has always been at the core of wealth creation for our readers.

The year since the last Diwali has been a real roller coaster ride for the Indian markets. There were many factors that impacted the markets negatively. The very important one was an economic slowdown, not just on the domestic front but also globally. While the US market never conclusively got out of the 2008 meltdown, the Euro Zone sovereign debt concerns only added to the woes. The impact of this was clearly visible, with leading global indices witnessing a decline or remaining largely subdued.

The Indian market too was not untouched by all this mayhem. What added to the difficulties in India was a complete policy paralysis which brought the India growth story to a virtual standstill. Matters worsened further as the rupee depreciated significantly (touching an all-time low) against the dollar. A higher inflation not only resulted in higher interest rates, but also impacted margins of Indian companies. No wonder, the financial performance of India Inc. only deteriorated.[PAGE BREAK]

As expected, the equity indices witnessed a range-bound movement with an acute southward bias. The only good thing that happened was that FIIs continued to repose their faith in the Indian growth story and were net buyers to the tune of USD 18 billion on a Year-to-date basis; though earlier, the introduction and impending implementation of GAAR did threaten to put brakes on this too.

Things started improving as the government, which was almost dormant in the first half of 2012, finally got its act together. The reappointment of P Chidambaram as the Finance Minister was the starting point of this. What followed was a slew of reforms including the allowing of FDI in multi-brand retail, enhancing the FDI limits in pension and insurance funds, introduction of the Land Acquisition Bill, the Companies Bill and the Banking Bill which are now awaiting Parliamentary approval which will see them turn into Acts of law. All this was welcomed by the markets, which very quickly got reflected in the rise of the Sensex beyond the psychological mark of 19000, which until then was moving in a very tight range.

As we said earlier, days have changed and so has the course of the market. All seems to be going well now and naturally, investors would be waiting to chart out their future course of action based on what can expected going forward. There is no better time than Diwali to plan your financial goals and more so in the context of the equity market, which begins a fresh year from here.

We are of the opinion that the seeds of prosperity have been sown, and going ahead, one would be able to reap the benefits of the same. If reforms are announced as well as executed in a proper manner, the India growth story will surely gather steam once again. Further, with the government doing its bit, it is now the turn of Corporate India to show its willingness to keep its engines in full throttle. We guess this seems to be already happening. The capex cycle is reviving and quarterly results have also begun to improve. So, unless and until something really terrible happens, we do not see the Indian growth story getting derailed. Expect better times ahead. In fact, we will not be surprised to see the Sensex touching new highs till next Diwali.

Like every year, we are again recommending a portfolio consisting of seven stocks to be bought on Muhurat day, which marks the commencement of the new trading year. The portfolio we built last year beat the Sensex with significant margins, and we are confident that our recommendations for the ensuing year too would do the same.

As for the stock selection approach, we have primarily selected strong businesses that are available at lower and fair valuations. As easy as this may sound, it wasn’t really so. After long discussions and deliberations, many counters were rejected by our team to come up with these jewels. To make it easier for our readers and investors, we have created a model portfolio which we expect to generate strong returns till next Diwali. We wish all our readers a happy and prosperous Diwali! [PAGE BREAK]

Brokers Speak

Dinesh Thakkar
CMD
Angel Broking

1. What level do you expect the Sensex to touch for 2013?

The Sensex is likely to see an upside from the current levels with a target of 20300.

2. What are the three scrips that you recommend for Muhurat trading?

Axis Bank: This company is trading at 1.6x FY2014E ABV (around 60 per cent discount to HDFC Bank). Its attractive CASA franchise, multiple sources of sustainable fee income, strong growth outlook and A-list management make the company a favourable pick.

Crompton Greaves: Considering the attractive valuations, I maintain a positive stance on this company as the stock is trading at around 30 per cent discount to its five-year trading PE multiple. The pessimism surrounding the company's profitability has clearly been factored into the stock price, given the PE multiple de-rating.

United Phosphorus: In the mid-cap space, UPL figures among the top five generic agrichemical players in the world. The company is favourably placed amongst its competitors to leverage the upcoming opportunities in the global generics space.


Andrew Holland
CEO – Investment Advisory
Ambit Capital

1. What level do you expect the Nifty to touch for 2013?

I expect the Nifty to touch the 6400 levels.

2. What are the three sectors that you recommend for Muhurat trading?

The three sectors that will be in the limelight till next Diwali are:

  • Banking
  • Real Estate
  • Infrastructure

I am expecting the interest rates to start falling and the economy to start picking up. These will be confidence boosters, which will act as a trigger for these three sectors. [PAGE BREAK]

Brokers Speak

Ajay Jaiswal
President – Investment Strategies
Head, Research
Microsec Capital

1. What level do you expect the Sensex to touch for 2013?

We expect the Sensex to trade around 22100 on the conservative side. On the aggressive side, it may trade around 24000. 

What are the three scrips that you recommend for Muhurat trading?

Cera Sanitaryware: The company has undertaken an expansion plan with a capex of around Rs 140 crore to increase the capacity of its sanitary unit from 2 million to 2.7 million pieces per year and that of its faucet plant from 2500 to 5000 pieces per day over a time period of two years. In the consumer segment, the valuation is inexpensive in relation with its projected FY14EPS of 42.2.

Glaxo Smithkline Consumer Products: This company is a leader in malted food drinks with around 70 per cent market share. It has strong brands like Horlicks, Boost, Maltova and Viva. The malted food segment is under-penetrated, with 40 per cent urban penetration and 11 per cent rural penetration. A focus on health and nutrition by the Indian consumer is to be the key growth driver for the company’s products.

IL&FS Transportation Networks: The company is a pioneer in the road BOT space, and it is all set to ride the benefits emanating from the robust momentum in NHAI’s road project awards. The target for road sector awards was set at 9500 km in FY13. The company has a robust order book of Rs 12000 crore (or 2.4x its FY2012 revenues), with an average execution period of 30 months, which provides high revenue visibility over the next two years.


Ambareesh Baliga
Market Analyst

1. What level do you expect the Sensex to touch for 2013?

The target for the Sensex in 2013 is 22500-23000.

2. What are the scrips that you recommend for Muhurat trading?

Dishman Pharmaceuticals & Chemicals: This is a major player in the CRAMS business, which has favourable prospects going ahead as the outsourcing from India has been increasing. This has resulted in a turnaround in fortunes for Dishman as evident in the last two quarters.

Talwalkars Better Value Fitness: This is lifestyle story which should get a similar valuation like the consumption stocks, as they serve upwardly mobile consumers whose spending habits are not as elastic as those at the lower end. An established brand with a national footprint, it is growing at a feverish pace with a mix of owned and franchisee outlets. It has made in mark in the Tier II cities, where aspiration levels and fitness awareness are on the rise due to the media’s reach as well as higher disposable incomes. [PAGE BREAK]

Brokers Speak

Dr V K Vijayakumar
Investment Strategist
Geojit BNP Paribas Financial Services

1. What level do you expect the Sensex to touch for 2013?

We expect the Sensex to touch an all-time high in 2013.

2. What are the three scrips that you recommend for Muhurat trading?

ICICI Bank: The private banking sector is doing well even in a slowdown. Within the private sector banking space, ICICI Bank's performance has been very good on all parameters. Moreover, there is huge value waiting to be unlocked in the bank’s insurance and mutual fund ventures.

HCL Tech: The company has been putting in a stellar performance in recent times. It has reported eight consecutive quarters of margin expansion when the industry itself was going through difficult times, and is poised to sustain this growth trend.

Lupin: This company has excellent credentials. It has many product launches in US and Japan in the pipeline, which will give a big fillip to the bottomline going forward.


Vijay Chopra
Head, Advisory – PCG & Channel Sales
Fullerton Securities & Wealth Advisors

1. What level do you expect the Sensex to touch for 2013?

The Sensex has the potential to touch the 20000 level.

2. What are the three scrips that you recommend for Muhurat trading?

GIC Housing Finance: The company has posted fantastic Q2 numbers. Its loan book is very healthy, with low exposure to the infra players. The NIMs are good and the NPAs are low.

ITC: The performance of the company has been fabulous. It is gradually gaining ground in the FMCG space as well apart from its leadership in the cigarette space. The paper business has also posted decent growth. With the tourist season approaching, its hotel business should also pick up.

YES Bank: This company is one of the best picks in the private banking space. The bank has been making quiet inroads and increasing its retail presence across the nation. Its CASA deposits have been rising, the NIMs have also steadily grown and the NPAs are at 0.05 per cent, which makes for a fairly healthy balance sheet. [PAGE BREAK]

Brokers Speak

Hemang Jani
Sr. Vice President
Advisory Desk – Sharekhan

What level do you expect the Sensex to touch for 2013?

The one-year target of the Sensex is around 20100-21500

What are the three scrips that you recommend for Muhurat trading?

ICICI Bank: The bank has entered an expansionary mode once again after making a conscious effort to contract its advances book due to asset quality concerns. It offers substantial value unlocking opportunities with the expected listing of its subsidiaries like ICICI Securities and ICICI Prudential Life Insurance.

Cairn India: Cairn India owns 10 oil and gas blocks, which include producing, development and exploration assets. The Rajasthan block RJ-ON-90/1, in which it has a 70 per cent stake, contributes to a significant proportion of the company’s total production. It has net cash of USD 2.4 billion or Rs 65/share, which is about 20 per cent of its current market cap and nearly equal to its capex guidance for the next two years. This leaves room for the possibility of a higher payout to the shareholders.

Eros International Media: With its proven track record, a de-risked business model and aggressive ramp-up plans, we believe that EMIL is well poised to gain from the rising discretionary spending on film entertainment driven by the country’s favourable demographics. With its niche expertise in film distribution and co-production, the company is well poised to capitalise on the upswing in the Indian film industry.


Sandeep Nayak
ED & CEO
Centrum Broking

1. What level do you expect the Sensex to touch for 2013?

The Sensex levels will be between 20600-25100.

2. What are the three scrips that you recommend for Muhurat trading?

Andhra Sugars: The business cycle for the company is up. The dividend yield is at five per cent and the valuations are reasonable at 3.5x FY13.

Reliance Capital: This company posted over 57 per cent YoY profit growth in FY2012. Considering the potential for value unlocking from its businesses and the prospect of consistent growth in India’s financial sector, we expect Reliance Capital to be an outperformer going ahead.

Bharat Electronics: The worst is over for the company, and the orders delayed in FY2012 will get executed in FY2013. The order book continues to remain strong at Rs 25000 crore, which is about 4.2x its FY2012 revenue and provides strong revenue visibility for more than two years. The cash on BEL’s books as on March 31, 2012 was Rs 6773 crore, which is about 62 per cent of its current market cap. [PAGE BREAK]

Brokers Speak

Rakesh Goel
Sr. Vice President
Bonanza Portfolio

1. What level do you expect the Sensex to touch for 2013?

We believe that the Sensex will reach the 22000 level and surpass its all-time high level of 21108 in 2013.

2. What are the three scrips that you recommend for Muhurat trading?

Axis Bank: The scrip has posted a Net Profit growth of 22.1 per cent YoY and is down 2.6 per cent QoQ to Rs 1123.5 crore. In Q2FY13, the bank posted an NII of Rs 2326.9 crore, up 15.9 per cent YoY and 6.7 per cent QoQ. Loan growth was up 22.9 per cent YoY to Rs 172132 crore, with a continued decline in the retail segment. Technically too, it has given a breakout above the 1175 resistance level, with good volumes.

Coal India: The company is all set to increase its production by another 180 million tonnes during the 12th Five Year Plan. It is also planning to enhance its supply to the power sector to 90 per cent of its targeted production of 531 MT in the next three years compared to about 70 per cent now.

Titan Industries: The company is diversified into watches, jewellery and eye wear, and it is expected to gain in the festive season as consumer demand for such products increases. Technically too, the chart is showing strength.


Kishor P. Ostwal
CMD
CNI Research

1. What level do you expect the Sensex to touch for 2013?

In 2013, I see the Sensex touching the 24000 level.

2. What are the three scrips that you recommend for Muhurat trading?

Century Textiles: Century Textiles has four business verticals – cement, textiles, paper and real estate. According to me, the company's debt of Rs 3000 crore is equal to its paper division's valuations, and hence, all the other businesses are almost free of cost. The cement valuations alone on the basis of EV/tonne work out to Rs 550 per share. The scrip can yield at least 50 per cent appreciation in one year.

Bombay Dyeing: The company has completed its first phase of construction at Dadar, Mumbai. The total land bank available with the company is around 1 crore sq. ft. and the gains on realisation on sale of flats will start accruing in a big way in 2013. The stock is currently under-priced.

Mukand Engineering: This Rs 10 paid up stock belongs to the Rahul Bajaj group. The company’s order book stood at Rs 378 crore as on 31st March, 2012, and more orders are flowing in. The estimated time to execute these orders could be two-three years. The company enjoys an EBITDA margin of 20 per cent on an average. This could mean that this stock be a dark horse on number games. [PAGE BREAK]

Brokers Speak

Rahul Arora
CEO – Institutional Equities
Nirmal Bang Equities

1. What level do you expect the Sensex to touch for 2013?

Our target for the Sensex is 17200.

2. What are the three scrips that you recommend for Muhurat trading?

JBF Industries: A likely fall in forex losses by 75.1 per cent will improve profitability in FY14. The volume growth would support falling PET film realisations. Better dividend yield and attractive valuation are other factors in favour of the counter.

MindTree: This scrip currently trades at 8.2x FY14E EPS, leaving room for an upside given the improving client metrics, impressive margin performance and a 24.4 per cent EPS CAGR over FY12-14E. Improving client metrics drive confidence on the revenue front, while a focus on hiring freshers has led to a strong margin performance.

IRB Infra: We believe that the company offers a good blend of growth and sustainable cash flow. It is the biggest beneficiary of traction in the roads segment. Its EPC order book of Rs 100 billion will drive robust growth going forward.


Nagji K Rita
CMD
Inventure Growth & Securities

1. What level do you expect the Sensex to touch for 2013?

In 2013, the Sensex could come closer to its previous major highs and trade in the range of 19500-20500.

2. What are the three scrips that you recommend for Muhurat trading?

Reliance Industries: This stock is attractive for the long term. It is able to hold strong even when the overall markets are under selling pressure, which clearly shows buying interest in the stock.

JP Associates: The stock is good for long-term investment. It has come out of its trading range and is poised for decent appreciation.

Sun Pharmaceutical Industries: This stock has been a consistent performer and is on a strong long-term uptrend.

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Performance Of Diwali 2011 Muhurat Buys

We, at Dalal Street Investment Journal, always try to maximise investors’ wealth, and we do this by discovering value very early. We have done it again, and the performance of our recommended portfolio for Diwali 2011 Muhurat buys attests to this. Our portfolio recommendation consisting of seven stocks has provided an astounding appreciation of 29 per cent since last Diwali as against a meagre 11 per cent by the Sensex.

The best part is that the returns provided by our portfolio are in terms of capital appreciation and we have not considered the dividends received by investors. If the dividends are also considered, the returns would have been higher still.

One of the stocks, Ajanta Pharma, has provided returns of as much as 156 per cent. Even Castrol and City Union Bank have provided returns of more than 30 per cent each.

Just to put our performance in perspective, our returns have been so strong that we have managed to beat all equity diversified mutual fund schemes (excluding sector funds) during the period under consideration. Here too, the outperformance is quite significant. While we have provided 29 per cent returns, the highest returns by a fund stand at 22.86 per cent. Surely our readers would agree that beating the best minds in the industry by such a margin is no mean achievement.
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Needless to say, it is always good to review one’s own performance as it allows you to gauge yourself and also set higher benchmarks for future performances. This time too, we have created a model portfolio for our investors and expect another round of encouraging performance for next Diwali.

ASIAN PAINTS

BSE Code: 500820
Face Value: Rs 10
CMP: Rs 3884

HERE IS WHY:

  • A very resilient stock
  • Current and planned capex ensure growth and a positive long-term outlook
  • Ability to pass on increasing costs to customers in major operational segments

In a volatile market, a stock that outperforms the benchmark in an uptrend and declines relatively lower than the benchmark in a downtrend makes a comfortable investment. These are exactly the traits found in Asian Paints (APL). In a highly uncertain global environment and despite difficult operating conditions, prompted by higher costs the stock has yielded a return of 51.56 per cent from the beginning of this fiscal. As compared to this, the Sensex has yielded a 20.65 per cent return.

APL’s operations are broadly categorised into three units, decorative paints, industrial paints and international business. Decorative paints contribute to more than 75 per cent of APL’s consolidated revenues, and this segment has been witnessing a growth in terms of both; volume and revenues. This growth has come despite frequent price hikes, which were prompted by a drastic increase in prices of Titanium Dioxide that accounts for 20-25 per cent of its raw material costs. This ability to pass on costs to its customers in an area that contributes to a large chunk of the company’s revenues has been the key driver of APL’s outperformance.

On the other hand, a pricing pressure has been affecting the industrial paints division, which contributes to 6.87 per cent of APL’s revenues. Though the company has been passing on higher costs to its customers to a certain extent in the Refinish business, this has been challenging in the case of OEMs (Original Equipment Manufacturers). Moreover, the slowdown in the automobile industry has been further affecting volumes. This segment is likely to be pressured in the near term, but the long-term growth prospects seem promising.

Rising raw material prices have been exerting a downward pressure on the company’s margins. However, APL has been softening the impact of this by enhancing capacity and improving operational efficiency. Moreover, the company has been growing healthier in terms of its product mix. Higher growth seen in emulsions and exteriors has been reducing its dependence on enamels and distempers and helping it successfully establish itself in the premium segment.

International business accounts for more than 18 per cent of APL’s revenues. The geographies that the company operates in have been facing a highly unstable environment. However, even in this situation, APL’s export revenues grew by a healthy 16.84 per cent.

With volumes doubling nearly every five years, APL has been adding capacities to match the growing demand across geographies. Among these are planned and recently executed capacity additions at Khandala, Rohtak, Sriperumbudur, Bangladesh and Nepal. This validates a robust upside potential in terms of demand.

Going forward, we expect short term uncertainty in certain geographies that the company is present in. We also expect raw material prices to remain high and add to the margin pressures. However, APL’s strong performance during tough times, its ability to pass on costs to customers, a healthier product mix, massive capacity additions and a positive long-term outlook give the company a good chance to continue performing well regardless of the environment. Add this stock to your portfolio for superior returns going forward.[PAGE BREAK]

AXIS BANK

BSE Code: 532215
Face Value: Rs 10
CMP: Rs 1185

HERE IS WHY:

  • Robust and sustainable business (advances and deposits) growth
  • Improving margins and stable asset quality
  • Good bottomline growth and the stock is available at a fair valuation

With the government getting aggressive on the reforms front, the economy is soon expected to get back on the growth track. As the economy improves, the banking space is one which would be among the greatest beneficiaries. We have always maintained that private players have an edge over PSBs, and therefore, we have selected Axis Bank as a Muhurat buy. Improvement in margins, good business growth, almost stable asset quality and its availability at fair valuations all make it a good bet for investors.

Axis Bank is the fourth largest bank in India by market capitalisation. It has seen a robust business growth in the past. As at the end of FY12, total deposits with the bank stood at Rs 220104 crore while its total advances stood at Rs 169759 crore, registering a five-year CAGR of 30.22 and 35.71 per cent respectively. Its Net Profit stood at Rs 4242 crore, having registered a five-year CAGR of around 45 per cent. Even in an uncertain environment, the bank has seen a good growth, which is very commendable. Further as on 31st March, 2012, its CASA ratio stood at around 42 per cent.

Its current position too is looking to be very good. For the September quarter of 2012, its Net Interest Margin (NIM) improved by nine basis points to 3.46 per cent on a sequential basis, which is commendable. Further, as on 30th September, 2012, its overall Capital Adequacy Ratio (CAR) stood at 13.92 per cent, which is higher by 172 basis points on a YoY basis and within that, the Tier I CAR stood at 9.92 per cent.

The bank continues to face marginal headwinds on the asset quality front. As on 30th September, 2012, its Gross and Net NPAs increased by four and two basis points to 1.1 and 0.33 per cent respectively on a sequential quarter basis. Further, of the total loan book, around 10 per cent is to power generation and distribution companies, which is slightly on the higher side and could be risky. However, we believe the bank would not face any major issues on its asset quality front as it is maintaining a higher Provision Coverage Ratio (PCR) of around 80 per cent.

On a half-yearly basis, its Net Interest Income (NII) increased 21 per cent to Rs 4507 crore while Net Profit grew by 22 per cent to Rs 2277 crore on a YoY basis. The Net Profit of the bank grew despite higher provisioning, which was up 32 per cent at Rs 768 crore on a YoY basis.

Its branch network stands at 1741 domestic branches and extension counters and 10297 ATMs. Going ahead, we believe that the management is quite capable of sustaining the current growth rates. Further, FIIs have increased their stake to 32.78 per cent during the September quarter against 27.27 per cent that they held in the June quarter of 2012. This indicates a very high interest of this vital constituent in the scrip.

On the valuation front, the stock is currently available at a 12-month trailing PE of 11x and a Price to Book Value of 2x. One should buy the scrip keeping in mind a long term horizon to garner better returns.[PAGE BREAK]

BAJAJ CORP

BSE Code: 533229
Face Value: Re 1
CMP: Rs 186

HERE IS WHY:

  • Market leader in the light hair oil segment, with Bajaj Almond Drops having a share of 54 per cent of this
  • Robust business growth, majorly volume driven
  • Immense opportunities from rural areas from where it draws 38 per cent of its total revenues

It is very necessary to have a defensive bet in one’s portfolio, which could provide decent returns even during uncertain times. Therefore, we at DSIJ, have selected Bajaj Corp (BCL) from the FMCG space, which we believe is not only a defensive bet but also a good investment bet for the growth potential that it has. The company has a strong market share, good rural presence and most importantly, it has reported strong financials driven by a volume growth. Its availability at a fair valuation is factor which too goes in its favour.

Bajaj Corp, part of the reputed Bajaj Group, is the third largest player in the overall hair oil market and a market leader in light hair oil segment. Its key product Bajaj Almond Drops Hair Oil (ADHO) is a market leader, with a share of around 54 per cent and is also a major contributor to its topline. The company has different products like Bajaj Kailash Parbat Cooling Oil, Brahmi Amla, Amla Shikakai, Jasmine Hair Oil and an oral care product named Kala Dant Manjan in its portfolio. The company has a broad network of 2.43 million retail outlets serviced by 6456 direct distributors and 14118 wholesalers.

Currently, around 38 per cent of its total sales come from the rural area. With a higher disposable incomes, availability of its products in smaller pack sizes and the potential that the untapped rural market has, we believe, there is an immense growth opportunity in this market.

BCL’s performance for the September quarter was good, where its topline increased by 27 per cent to Rs 136 crore (with volume growth of 18.7 per cent) while the bottomline grew by 34 per cent to Rs 38 crore on a YoY basis. The decline in raw material costs coupled with a price hike effected in the past helped the company in expanding its EBITDA by 308 basis points to 28.76 per cent. The raw material-to-sales ratio declined by 383 basis points to 42.87 per cent after prices of its key raw material declined considerably. Its advertisement-to-sales ratio increased by 132 basis points to Rs 13.82 per cent.

According to the management, the company aims to achieve a market share of 65 per cent for ADHO by FY2016. It is planning to buy some land in Gujarat which would result in an outlay of approximately Rs 28 crore. Going ahead, with the implementation of the GST, the company would set up a plant there, which would help in its operations. It will also be constructing its corporate headquarters at Worli, Mumbai, which is expected to be completed by mid-2015. The company is also looking to grow through the inorganic route in the FMCG sector and in the hair oil market through mergers and acquisitions. We believe concrete steps in the same direction could be a positive trigger for the company as well as for the stock.

For FY2012, BCL declared a dividend of Rs 4 per share, resulting in a dividend yield of around 2.2 per cent. On the valuation front, the stock is available at a trailing PE multiple of around 19x. We believe, one could invest in the scrip with a long-term view as it is available at fair valuation and is poised to grow going ahead.[PAGE BREAK]

CERA SANITARYWARE

BSE Code: 532443
Face Value: Rs 5
CMP: Rs 371

HERE IS WHY:

  • A high brand recall entails that it does well even in difficult economic conditions
  • Capacity expansion has been in line with expected demand growth
  • It has been a consistently dividend paying company

Despite a weak sentiment prevailing in the realty sector, stocks of sanitaryware companies have been performing well on the bourses. An increased awareness of sanitation and rising disposable incomes have been major demand drivers for this sector. Cera Sanitaryware is among the few listed companies in this sector that we are bullish on. Cera’s revenues have shown a very high growth despite all the gloom surrounding the sector that it services. The company in fact has aggressively added new capacities which will fuel its growth in future.

Cera Sanitaryware is a manufacturer of faucets, shower panels, kitchen sinks, mirrors, bathroom cubicles, bath tubs, bath fittings etc. Located in Kada, Gujarat, its current sanitaryware manufacturing capacity (other than faucets) stands at two million pieces per annum (MPA). Its faucetware manufacturing capacity stands at 2500 pieces per day. For some products, it is dependent upon contract manufacturing and outsourcing. The company has been consistently ramping up its capacities from FY07, which is showing up in its topline.

The capacity of Cera’s faucetware manufacturing plant can go up to 10000 pieces per day, which will address its future capacity constraints. It is also expanding its sanitaryware production capacity to 2.7 MPA, which should happen by the second half of this fiscal and yield even better results.

The company’s strong brand value has been a major contributor to its success. It has been adding new products, which has helped it to accelerate its growth rates from 20 per cent in FY10 to about 50 per cent in FY13. The company also intends to add more products, which means there is a high probability of improvement in its fundamentals going forward. Its healthy relationship with architects and interior designers acts as a major trigger for its sales. Cera Style Studios and Cera Style Galleries are initiatives which have added a shine to its marketing capabilities, as they generate an interest about its products.

In FY10, the company doubled its advertising expenses, which translated into a growth of over 30 per cent each in FY11 and FY12. It intends to continue with this strategy, and hence, we expect growth to continue in the future as well.

The sanitaryware market is favouring organised players as the small players are taking hit on their margins. Cera’s margins in the latest quarter have seen an expansion of 58 basis points Y-o-Y, indicating that the company is enjoying profitability at that level. Besides, it also enjoys pricing power – the company had earlier said that it will increase the prices of some of its products.

On the financial front, it has been witnessing an over 30 per cent growth in topline over the last two years. EBITDA margins have also remained intact at 19-20 per cent. Even for the first two quarters of the current fiscal, its growth has been nearly 50 per cent, indicating that Cera will achieve its revenue target Rs 500 crore in FY13. On the valuation front, the scrip is priced at a TTM PE of 12.5x and a forward FY13 PE of 10.8x. We expect it to generate a return of over 30 per cent in one year.[PAGE BREAK]

PERSISTENT SYSTEMS

BSE Code: 533179
Face Value: Rs 10
CMP: Rs 471

HERE IS WHY:

  • Concentration on emerging verticals with high growth potential positioning itself better than its peers
  • Strategic alliances and acquisitions leading to inorganic growth
  • Consistent financials and inexpensive valuations

IT companies today are having a tough time dealing with slowing demand and rapidly changing technological trends. The trend is clearly moving from vanilla application development and maintenance to more complex deals based on execution  and multiple offerings. IT companies are displaying dynamism by changing their strategy towards new disruptive technologies of social, mobile, analytics and cloud computing. However, Persistent Systems has been focussing on these for quite some time now, and has been successful in capturing the opportunity offered by these emerging areas.

The company has in place a 4x4x4 (read as four by four by four) strategy that focusses on growth areas including mobility, collaboration, analytics & business intelligence and cloud computing. These are areas which serve the industry verticals of banking and finance, infrastructure and systems, life sciences and telecom using the business model and solutions that concentrate on OPD (Offshore Product Development), Sell-With Business, Technology Consulting and IP-based business models.

In Q2FY13, 18.9 per cent of the company’s revenues came from the IP-led business that grew by 48.5 per cent sequentially. Persistent plans to increase its focus on this area, and is expecting it to contribute a larger chunk of the total revenues going forward. Though revenue growth from this area has been volatile and is expected to remain so, the company has been actively making acquisitions and mobilising resources towards generation of IPs to capture on this high margin business.

Of the three acquisitions made by the company in FY13, the latest includes Doyenz’s rCloud that provides backup and disaster recovery for physical and virtual servers under the cloud for SMBs. Apart from bolstering the company’s presence in this area, this acquisition will start adding to its revenues from October onwards. Moreover, the management has expressed its intention of actively pursuing acquisitions.

Persistent has managed to maintain its momentum and a growth trajectory based on its sell-with initiative that partners with IBM, Salesforce.com and Oracle, among others. The strategy of focussing on emerging areas in a manner that optimises sales has been working well for Persistent and will continue to show results in the coming quarters.

In terms of financials, Persistent has been showing consistent growth in its topline. For H1FY13, its topline stood at Rs 644.42 crore and the bottomline at Rs 86.23 crore. With the current strategy in place, we expect this trend to continue. However, on the margin front, we expect some pressure on account of acquisitions which have led to higher employee expenses. While the company was slow on hiring in H1FY13, it plans to start acquiring talent in H1FY13 with utilisation rates going up. It also plans to incur capital expenditure to the extent of Rs 60-70 crore with regard to this.

The shares of Persistent are currently trading at a PE of 11.29x, making it an inexpensive buy promisingly poised for better returns. Considering a well-positioned strategy as well as its presence in high growth areas and strategic alliances and acquisitions, the company is all set to embark on a steep growth trajectory.[PAGE BREAK]

SHREE CEMENTS

BSE Code: 500387
Face Value: Rs 10
CMP: Rs 4155

HERE IS WHY:

  • Demand for cement is on the upswing
  • Higher capacity utilisation and improving realisations
  • Despite a run-up on the bourses, the stock is still available at a decent valuation

After reporting a subdued performance for a long time, most cement companies have recovered strongly over the last one year. This is reflected in the outperformance of the stocks of cement companies on the bourses. A revival in demand, improving price realisations and a strict production discipline have helped cement companies post a strong year-on-year quarterly growth in revenues and profitability over the last one year. Among cement companies that we track closely, Shree Cements is one which we would like to recommend as a Muhurat buy. Shree Cements is the largest cement manufacturer and power producer in North India that derives 80 per cent of the revenue from cement and 20 per cent from power.

The company is a market leader in the northern region and has the lowest cost operating efficiency. It has good capacity expansion plans in place and its financial performance in last one year has been pretty strong. All this, coupled with a positive outlook for the cement sector, makes this scrip an attractive buying opportunity. Moreover, the government’s thrust on higher infrastructure development will be a major growth driver for the company in the coming years.

The company continues to perform well and its performance in FY13 has taken off well from where it had ended FY12. The September quarter was expected to be a bit subdued due to the monsoon. But surprisingly, the topline of the company jumped by 54.6 per cent on a YoY basis to Rs 1323 crore while the bottomline grew significantly by 492 per cent to Rs 228 crore.

This spectacular performance was on account of the increase in capacity utilisation and a jump in the realisations. The capacity utlisation during the quarter stood to 90 per cent against that of 70 per cent in the corresponding period last year, which resulted in a 21 per cent increase in the sales volume to 3 million tonnes. This, coupled with a jump of 16 per cent in the cement realisation to Rs 3950 per tonne resulted in a better than expected performance during the quarter.

Since beginning commercial production in 1985, the company has more than quadrupled its capacity in the past five years to reach the current 13.5 million tonnes per annum (MTPA). Not only that, it has doubled its power producing capacity from 260 MW to 560 MW in a span of just two years. Further, to meet the rising demand for cement, the company has planned to increase its cement grinding capacity to 15.5 MTPA, which is expected to be completed by June 2014 respectively. The company has a strong balance sheet with its debt-to-equity ratio at 0.35x as on 31st March, 2012. We believe it will not face any financing issues for any future expansion plans that it may have.

On the valuation front, despite a run-up on the bourses, the scrip is trading at a PE of 19x, which looks attractive at a TTM EPS of Rs 216.17. Also, if we look at the company on its EV/Tonne basis, it is available at Rs 1041/tonne, which looks attractive as compared to other players. In view of the above factors, we recommend, buy this scrip from a one year perspective.[PAGE BREAK]

TALWALKARS BETTER VALUE FITNESS

BSE Code: 533200
Face Value: Rs 10
CMP: Rs 197

HERE IS WHY:

  • It is among the largest fitness chains in India, with a strong brand recall
  • Operates in owned, franchise-based and JV models
  • Constant innovations that are expected to drive revenues and margin growth

If fitness is the question, Talwalkars Better Value Fitness (TBVF) is the answer that will come to your mind. With a strong brand recall, this fitness chain has been doing exceptionally well. Its sturdy performance, fresh new initiatives and a rising health consciousness are factors which will take this company places.

TBVF is among the largest fitness chains in India, offering a wide range of services including gyms, spas, aerobics etc. thanks to which it enjoys a total market share of 10 per cent in the organised fitness market. The company has set up 130 health clubs in 69 cities under the brand name of Talwalkars and HIFI (Healthy India Fit India), a franchisee- based model to reach out to the Tier III and IV cities. Of the total 130 centres, 90 are owned, 17 are franchise-based (HIFI) and 23 are operated as JVs or subsidiaries.

As part of its expansion strategy and in order to increase its presence in Tier III and IV cities, the company had launched the HIFI model in FY12. This model enables the company to expand its presence at a faster pace to smaller cities. Also, the HIFI and the subsidiary-based models involve either no or lower capex helping the company break even faster and yield a higher ROI. Under these models, the company charges upfront royalty fees of six per cent, which add directly to the EBITDA resulting in higher margins.

In addition to HIFI gyms, the company has launched other fresh initiatives like ‘NuForm Studios’ (a weight loss programme) and ‘Zumba’ (aerobics). Offered at the existing gym base at a premium price, ‘Zumba’ first introduced in 2001, has become the largest dance fitness program and does not require much upfront investment.

We believe HIFI, NuForm and Zumba will drive revenues and margin growth for the company in the coming years, while it continues to grow on the owned gym front at a steady pace. It is steadily increasing investments in Zumba and this along with the weight loss program ‘REDUCE’ (NuForm) will help the company increase its same store sales growth by leveraging its current assets and existing customer base.

On the financial front, its topline and bottomline registered a robust CAGR of 36 per cent and 68 per cent over the last two years on the back of a strong addition in the number of centres from 60 to 128 in two years’ time. As for the latest quarter that ended in September 2012, TBVF posted a strong set of results with net sales growing at 20 per cent on a YoY basis to Rs 46 crore on the back of a price hike of 6-8 per cent that it had put into effect. This was also backed by a robust renewal rate of 76 per cent. The bottomline was up by 47 per cent to Rs 12 crore on the back of significant margin expansion. The EBITDA margin improved by 438 basis points on the back of some really strict cost control measures, the royalty income that it earned and the new offerings, which eventually helped the company post a 47 per cent YoY increase in profitability.

At its CMP of Rs 197, the stock discounts its TTM EPS of Rs 9.75 by 19x. The valuation looks attractive. It offers a unique play on the fitness market, and the scope of opportunity is immense considering the low share of the organised market. Therefore, we recommend a ‘buy’ on the scrip.

DSIJ MINDSHARE

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