Where To Invest In 2016

As we prepare to bid goodbye to 2015 and welcome 2016, a quick look on the happenings in the equity sphere during the year passing by shows a clear seesaw ride for the investing community in India. The markets clocked record high but failed to hold for long thus shredding investors’ earnings and dampening their enthusiasm.

Unfortunately, all these days of ups and downs in the market, every bad news has been interpreted as a good one for no reason. Every occasion unimpressive macro-economic data emanated from the USA is cheered by equity market whereas better numbers created sombre mood in the markets. Worst is that even the recent terrorist attacks in Paris failed to dent the global markets’ sentiments and construed as good news. One of the reasons for such change in approach ofthe market participants is every event somehow has been linked to the US Fed rate action. Surprisingly, most of the bad news be it macro-economic or otherwise, is considered as good news with the belief that it will postpone the rate hike thus delaying the damage. 

As a matter of fact, when we had kick started the year 2015, even during the early days, investors were worried about the Fed’s steps on rates and their timing on finally raising the rates. As we are approaching the end of the calendar year, uncertainty still has been hanging on Fed’s rate decision. Hopefully we may see some certainty in that front by the time you are reading this. Other important global factors prevailing in the mind of investors, were the Greek debt crisis and China’s economic growth slowing and its effect on rest of the world including India.

Domestically, we were hopeful that FIIs would continue to increase their exposure in the Indian equity market as they had invested to the tune of Rs 97,736 crore in 2014 after investing more than Rs one lakh core in 2013. Nonetheless, this year till December 02, FIIs had bought net Rs 18,845 crore worth of Indian equity, significantly lower than last three years’of their investment.

Thanks to the investment made by the mutual funds that gave the much needed support to the market. Mutual fund in year 2015 (YTD) has invested Rs 67,019 crore, more than twice what they did in previous year. Despite such major investment by mutual fund, benchmark equity indices are still lower by 4.85 per cent than what we started this year.

As we are now ready to embrace 2016, all of you must be wondering what type of returns we can expect from the equity market, especially after witnessing a volatile and negative return this year. To understand the expected returns, we first need to know what are the factors that will determine the return and how are they going to shape up in 2016 so that you can make sound investment decisions in next 12 months.

[PAGE BREAK] 

Macro-Economic Factors

GDP Growth (reforms and government)

The Indian economy through quarter ended September 2015 grew by 7.4 per cent, faster than 7 per cent growth in the first quarter of FY16, however, slower than 8.4 per cent in Q2FY16. Going forward, we believe that remaining two quarters of this fiscal will maintain the momentum and we will see some positive surprises in the fourth quarter of FY16. The growth will be driven by structural reforms, higher public investment in infrastructure and strong consumer spending. There is no doubt that India will remain the fastest growing major economy in the world for the next few years, a bastion it acquired in 2015.

Although, the growth rate has been revised downward by many global and Indian agencies in last one month, it has remained one of the fastest globally. For example, IMF has marginally lowered its FY16 growth forecast to 7.3 per cent this year, lower than the 7.5 per cent it projected in July. But it expects growth to accelerate to 7.5 per cent the following year. Fitch Rating expects economy to grow by 8 per cent next year after growing at 7.5 per cent this year. Only risk to such growth will be the sharp deterioration in external demand scenario. As the winter session of Parliament is in progress, there are hopes of GST bill being passed. It has the potential to lift GDP growth by almost 1-1.5 per cent annually, as taxation becomes less complex and goods can move easier between states overcoming a bunch of hurdles of pre-GST days.

Inflation

Indian economy currently has been witnessing one of the worst disinflations in last several years when measured by wholesale price index or WPI. The WPI has declined from a level of seven per cent two years ago to negative four per cent currently. It has been in the negative territory for more than 12 months now. When inflation measured by consumer price index (CPI), retail prices in the country too have seen a good fall this year thanks to lower commodity prices both crude oil and gold.

However, on the back of less than desired monsoon and changing sowing pattern led to rise in CPI to a four-month high of 5 per cent YoY in October ’15 up from 4.4 per cent in September’ 15. Core inflation, however, remained largely stable at 4.5 per cent YoY compared to 4.4 per cent YoY in September. Eventually we will see lower inflation in the second half of 2016.

Despite the recent spurt in retail inflation, it has remained within the comfort level of RBI for the most part of 2015, which helped its Governor to reduce key policy rates by 125 basis points since the start of the year. Going ahead, the trajectory of the key policy rates will depend upon the how government handles its fiscal math what it does in coming union budget. Till now finances of the government has remained better than last year. Although India reached 74 per cent of the fiscal deficit target for the full year till October 2015, it was mainly due to front-loading of expenditure and low revenue from disinvestment.

Fiscal deficit in the corresponding period last year was around 90 per cent of the full year target. Even the current account deficit has been in control in first seven months of this fiscal. According to available official figures, trade deficit in the first seven months of the current fiscal (April-October) has shrunk to USD 77.76 billion as against USD 86.26 billion last fiscal. This is largely due to fall in commodity prices. According to global financial services major, Citigroup, CAD is likely to be about USD 20.6 billion (1 per cent of GDP) in 2015-16, as against UD 28 billion (1.4 per cent of GDP) last year. We feel that for the entire year the CAD will remain in the vicinity of one per cent of GDP.

Only thing that can derail the government finances is if the recommendations of Seventh Pay Commission are implemented from January 2016. This will impact the last quarter of the current fiscal and we may see a jump in revenue expenditure.

Therefore, we believe that interest rate is firmly in a downward trajectory and we may see one more rate cut after the union budget and before this fiscal year ends. For the remaining part of the year too we believe that there will be rate cuts by the country’s apex bank. This is because real interest rate (nominal interest rate less inflation) is still high in India compared to other major economies. Moreover, policy rates are still 250 basis points higher than what we had in 2010.

[PAGE BREAK]

With this macro-economic set up for 2016, we believe that there will be good improvement in the corporate earnings. Although, in Q2FY16 we saw revenue and profit both declining on aggregate basis, this may stabilise and improve as we enter 2016. The revenue for Nifty based companies for Q2FY16 were down by 7.4 per cent on yearly basis while net profits were down by 3.5 per cent, if we exclude finance companies. Nonetheless, if we leave out companies dealing in commodities that have suffered most due to fall in commodity prices, the profit has actually increased by 7.5 per cent.

The reasons for such poor show by India Inc. is due to lower investment by corporate owing to lower overall demand in economy, muted rural demand and finally lower commodity prices that majorly impacted the commodity companies such as Reliance, SAIL, Tata Steel, NMDC etc. Some of you will argue that lower commodity prices would have helped those companies that are using commodities as raw materials. Nonetheless, most of the gain on account of fall in commodity prices has been offset by lower demand. Therefore, despite expansion in margins net earnings saw a downward momentum.

Although, at the start of FY16, the consensus expectation of earnings growth for Sensex based companies was estimated at 16-17 per cent on yearly basis, however, as year progressed and results continued to disappoint the expectation were trimmed down and currently it stands at 6-7 per cent y-o-y. Such lowered expectation has one positive impact, it reduces the base and we will see good growth in FY17.

Regardless, the second half of the current financial year too will be better than the first half. The reason being base impact will start come into play. As Sensex earnings had dipped by nine per cent in the third quarter of FY15 and four per cent in 4QFY15. This in our view should help to arrest the momentum of negative earnings growth witnessed in past few quarters. Beside this there are early signs of recovery in the economy. Apart from pick-up in sales of commercial vehicles, recent sales of passenger vehicles also picked up. Tax collection has also been cheerful, diesel consumption has been too growing in teens on yearly basis for the past two months. All these are considered as very potent signs of economic recovery, which is expected to ultimately impact the corporate earnings.  Other important indicator of improving earnings is number of consensus EPS upgrades among BSE 100 stocks. After Q2FY16 results upgrades have increased to 29 from 23 earlier while EPS downgrades, though higher, has come down from 72 to 66. All these number clearly points towards better 2016, in terms of corporate earnings.

Despite all the under-performance by the Indian equity market, its frontline equity indices are still currently trading at a premium to their long term averages. For example, BSE Sensex is currently trading at 17.5 times of its one year forward earnings, which is 8 per cent premium to the average five year multiple. Similarly, Nifty is trading at 15.6 times of its one year rolling forward earnings again higher than its long term average of around 15 times. When compared to other emerging markets, Indian equity market is again trading at a premium to them baring Mexico.

What has led to such dichotomy (negative market returns and premium valuation) is sharp earnings cut that we witnessed in the last few quarters that has kept valuations at higher level. Nonetheless Indian market has always traded premium to other emerging markets because of its better return ratios.

Going forward, we believe that the premium will further rise as we will see acceleration in the earnings from second half of current fiscal that is likely to continue next year. According to a report prepared by JP Morgan, “By our calculations, the Indian economy is now operating about 2 percentage points below potential. If the cyclical upside were to close that gap, then arguably profits today would be running about 40% below a top-down inferred normal. The same analysis would show an output gap for emerging markets as a whole, but much smaller than India’s. Inferring the gap between current EM earnings relative to a notional normal, it is about 24 per cent vs. India’s 40 per cent.” Hence, we believe that after recording negative return in year 2015 (year till date), we may see 2016 giving returns in the range of 15-20 per cent.

The sectors that will do well and we are bullish on is anything that has to do with urban consumption. This is evident from the consumption pick up during the current festive season that can be gauged from significant pick-up in cash in circulation during Diwali festival in November, double digit growth reported by most offline retailers and record sales by online retailers. Passing of GST in Parliament will also add to this theme. Besides, infra and all other sectors which are benefited by public spending will give better returns in 2016. We are giving you seven recommendations, that will help you outperform markets next year.

Happy investing!
[PAGE BREAK]

Stock yourself with Asian Paints stocks this new year

Here is why:

·        Revival in economy would lead to volume led growth

·        Favourable raw material prices to aid margin and profitability

·        Strong focus on new products and capacity expansion

Ambitious reforms agenda and push for infrastructure spending by the government in the centre will set the stage for higher momentum in economic activities leading to sustained growth. Ambitious initiatives in urban development sector including concepts like Smart Cities and Make in India will augur well for Asian Paints which has a presence across all the paint segments such as decorative paintings, industrial coatings and home improvement solutions. The current lower per capita consumption of paints in the country coupled with rising aspirations of the younger generation offers tremendous growth opportunities for the company’s products.

Asian Paints is India’s largest and Asia’s third largest paint company with operations spread across 19 countries with 26 paint manufacturing facilities in the world. Asian Paints has been pioneer in pushing new concepts in India across segments. Asian Paints manufactures a wide range of paints for decorative and industrial use. The company has a dedicated Group R&D Centre in India for paints. Asian Paints has been using cutting edge technology to integrate all its plants, distribution centres and branches in India, which has played a pivotal role in improving operational efficiencies, by lowered output time and reduced delivery costs, while improving customer-servicing levels.

Financially, Asian Paints has been performing well with revenue CAGR of 10 per cent in the last five years driven by volume CAGR of 8 per cent during the same period amid economic slowdown. During the same period, the company was able to maintain its gross margins, clearly indicating Asian Paint's pricing power. Company’s Q2FY16 results showed a revenue increase of 4.3 per cent compared to the same period in the previous year. Asian Paint's EBITDA grew by a strong 15.70 per cent year on year (Y-O-Y) from Rs 536.22 crore to Rs 620.80 crore. Margins expanded by 167 basis points in Q2FY16 to 16.43 per cent on a yearly basis. Net profit rose by 16.38 per cent Y-O-Y compared to the same period in the previous fiscal. The company with Dividend Payout ratio of more than 50 per cent is quite an attractive proposition for the investors.

Asian Paints is the industry leader in the decorative paint segment with 53 per cent market share and a dealer network of over 35,000 across India, which is nearly double of its 2^nd place competitor. It derives 81 per cent of its topline from the decorative segment while the rest comes from the industrial segment. Lower raw material prices due to lower crude prices supported the company to improve margins. Further, the crude price scenario is expected to remain at current level over next one year. Its international business too reported good performance in recent times. Asian Paints now intends to go ahead with capacity expansion in order to cater to the rising demand in the decorative segment.

Going forward, company continues to remain fairly optimistic on domestic demand outlook as rising urbanisation, shorter repainting demand and launch of premium products would give company more competitive edge. Raw material prices expected to remain low in the near term which would help in growing margins and profitability. The company would continue to leverage on its distribution strengths to grow in the coming years. On the valuation front, Asian Paints share is available at trailing twelve months (TTM) price earnings ratio (PE) of 53.43x times which is more than the industry PE of 46.46x due to fact that market continues to instil confidence in the company's market leadership position.
[PAGE BREAK]

Bajaj Finance

Here is why:

·        Highly impressive growth due to leadership position and innovative ideas

·        Highest ever asset under management and most ever customers acquired in H1FY16

·        With the economic revival BFL showed improving asset quality on sequential basis

Non-Banking Financial Companies (NBFC) have rapidly emerged as an important segment of the Indian financial system. Moreover, NBFCs assume significance in the small business segment as they primarily cater to the credit requirements of the unorganised sector such as wholesale and retail traders, small-scale industries and small borrowers at the local level.

Bajaj Finance (BFL) is a non-banking finance company engaged in lending and allied activities. The company is engaged primarily in the business of financing. It is focused on five categories: consumer lending, small and medium-sized enterprises lending, commercial lending, rural lending, and fixed deposits and fee based product distribution.

BFL has a stronghold in its consumer durable (CD) and lifestyle product financing business (15 per cent of the AUM) wherein it does not have any major competition. These segments are under penetrated and growing in size, thus providing a lucrative opportunity for growth. Further the portfolio consist of consumer finance (40 per cent of AUM), Small and medium enterprises (SME -54 per cent of AUM) and commercial & rural category (6 per cent of AUM). Such diversity gives them edge as they acquired maximum number of customer in first half of financial year 2016.

The reason for such strong performance of company is owing to its leadership position in the short duration, lower ticket size, CD financing and lifestyle product financing business initiatives along with the diversified nature of its loan portfolio. Further the company also has now come up with innovative ideas like a mobile app recently launched which can approve loan upto Rs 3 lakh instantly. Finding new methods to acquire customers and expanding into new geographies is a key to their growth. Going forward the diversified portfolio, ease of providing loan, growth in working population  and GDP per capita of the country will definitely help Bajaj Finance for multi-fold increase.

Net interest income (NII) of the company increased by 27 percent from 2500 crores in FY14 to 3170 crores in FY15. It is increasing at the CAGR of 39 percent from last 6 years. Further, the asset under management (AUM) increased at CAGR of 31 per cent from last 6 years. For FY15, AUM stands at Rs 32410 crores compare to Rs 24061 crores for FY14 an increase of 35 per cent on yearly basis. AUM increased to its life time high in last 6 months. On asset quality front, BFL’s asset quality seems to be improving as Gross NPA and Net NPA as of 30 September 2015 stood at 1.67 per cent and 0.46 per cent against 1.69 and 0.55 per cent in Q1FY16 respectively. The provisioning coverage ratio (PCR) too improved to 73 per cent as of 30 September 2015 against 68 per cent in Q1FY16.

Over past one year, BFL’s shareholding pattern showed an expansion of 498 basis points to 17.59 per cent in FII holdings and contractions of 57 basis points to 6.28 per cent in DII holdings as of September 2015 quarter. Overall its institutional holdings expanded by 431 basis points to 23.87 per cent in Q2FY16. On the valuation front, BFL’s stock is available at Price to book value (P/BV) of 6.16x times and trailing twelve months (TTM) price earnings ratio (PE) of 32.96x times.
[PAGE BREAK]

Bosch

Here is why:

·        One of the biggest players with strong technology leadership and market share

·        Virtually debt free company across the debt-laden auto ancillary sector

·        Top line and bottom line showed robust growth of more than 40 per cent in FY15

Automobile sector is considered to be an important economic indicator. By 2016, India is expected to be the third largest automotive market globally when it comes to the tally considering volumes. Current government’s thrust on infrastructure investment, ease of doing business and ‘Make in India’ initiatives are definitely positive news for Bosch, engaged in manufacturing and trading of superior automotive products.

The company operates through the segments of automotive products and others. Bosch is one of the biggest players in the auto ancilliary industry in India with more than 70 per cent market share. It has a strong technology leadership which gives them significant bargaining power.

On financial front, the total income from operations of Bosch has increased by 37 per cent to Rs 12086 crores from Rs.8820 crores in the year ending December 2013. Substantial increase has been reported on the back of auto sectors revival in 2014 from decline of 2013. EBITDA increased by 53.50 per cent from Rs 1291 crores to Rs 1981 crores for the same period. EBITDA margin for the year ending March 2015 stands at 16.40 per cent in comparison to 14.64 per cent for the year ending December 2013 showing good operational efficiency. Net profit of the company increased by 51.20 percent to Rs 1338 crores from Rs 885 crores for the same period mentioned above.

Going ahead, Bosch is planning newer products for its existing segments and is also tapping the newer segments (2 wheeler space). Management of the company is expecting an increase in sales of the company's passenger vehicle and commercial vehicle segment for next two to three years of period. As regards to non-automotive segment, its presence across various businesses enables synergies to tap the existing and prospective customer base. Its consistent focus on newer product, segment & customer is likely to drive its growth going forward.

Bosch enjoys zero debt company status. Total debt of the company for year ending March 2015 was mere Rs 55.50 crore, a decrease by 55 per cent from a year before that. The total debt equity ratio of the company stands at 0.01. Interestingly, over past one year, Bosch’s shareholding pattern showed an expansion of 137 basis points to 8.42 per cent in FII holdings and contraction of 107 basis points to 10.95 per cent as of September 2015 quarter. Overall its institutional holdings expanded by 76 basis points to 19.37 per cent in Q2FY16. On the valuation front, Bosch’s share is available at trailing twelve months (TTM) price earnings ratio (PE) of 55.57x against the industry PE of 42.19x.
[PAGE BREAK]

Cadila Healthcare

Here is why:

·        Aggressive filings and product launches in the world’s largest pharmaceutical market

·        Increasing focus on complex and niche products to drive profits

·        Robust financial performance

India is fast emerging as the global hub for contract research and pharmaceutical manufacturing services due to its low cost advantage and world class quality standards. In the recent years, Indian pharmaceutical companies have shifted their strategies more towards Research & Development, which has led to phenomenal growth. Gujarat-based Cadila Healthcare, also known as Zydus Cadila Healthcare Limited is among the few companies to harness the benefit of R&D as it spends 7 per cent of its total revenues on it.

Cadila Healthcare is an innovative, Indian pharmaceutical company with a global outlook that discovers, develops, manufactures and markets a broad range of healthcare therapies. Cadila’s operations range from API to formulations, animal health products and cosmeceuticals. The company promoted by Pankaj R Patel has an impressive range of products which is a result of in-house R&D initiatives and collaborations with world-renowned institutions. Cadila's product basket includes: branded and generic formulations covering more than 50 therapeutic spread across twelve specialities, Biotechnology products and diagnostic kits, Plant Tissue Culture, etc. Cadila conforms to the most stringent international current good manufacturing practices (CGMPs) norms.

In future, Cadila will continue to focus on launching complex, difficult-to-make oral solids and formulations in order to enhance its share in the USA generics market which is approximately USD 200 billion. Despite being a late entrant in the US market, the company has achieved significant scalability. The US grew at a CAGR of 38 per cent during FY10-15 backed by aggressive filings and product launches. US sales constitute 39 per cent of the total turnover. In terms of number of prescriptions, the company figures among the top eight generic companies in the US. The US pipeline (cumulative) consists of 270 filed ANDAs, 102 approvals and 73 launches. Latin American business too continues to see traction with new branding initiatives and product launches.

The company recently launched Exemptia, the world’s first biosimilar of Adalimumab which is world’s largest selling therapy to treat arthritis. With a market share of 3.73 per cent, Cadila is the third largest player in the domestic formulations market. Domestic formulations comprise 31 per cent of total revenues. With planned forays into biosimilars and vaccines, the company is likely to shift its focus on high investment/niche segments. Currently, the company owns a pipeline 22 biosimilars and three novel biologics. It also owns 10 vaccines in different stages of development which would drive future revenues.

On financial front, the company has just delivered very strong Q2FY16 results, where revenue grew by 16.7 per cent year on year (Y-O-Y) from Rs 2108 crores to Rs 2460 crores on the back of strong US formulation business. Cadila's EBITDA increased by 47.58 per cent Y-O-Y to Rs 621 as compared to the same period in the previous fiscal. Margins expanded by 529 basis points to 25.26 percent a substantial jump compared to the previous fiscal. PAT increased by 40.57 per cent Y-O-Y to Rs 391 crores boosted mainly by a strong operational performance.

Going ahead, US and Indian formulations business will be the main growth drivers. The management expects 40 filings in the US market during FY16. Strong presence in the USA market, higher number of product filings and approvals in the subsequent years will aid margins and profitability for the company. Cadila has given a handsome ROE of 30.85 per cent which is best among its closer rivals.
[PAGE BREAK]

Indraprastha Gas

Here is why:

·        MNGL and CUGL will give higher exposure to IGL across wider customer base

·        Upcoming regulatory actions will increase the CNG demand

·        Virtual debt free status

Oil and gas sector is among the six core industrial sectors in India and it plays a key role in influencing decision-making process for other important sectors, part of the growing economy. Already Government of India has introduced several policies to fulfil the increasing demand.

Indraprastha Gas Limited (IGL) is engaged in retail gas distribution business for supply of compressed natural gas (CNG) to public transport sector and piped natural gas (PNG) to both domestic and commercial segments. The company has core operations in national capital region (NCR) offering good demand potential due to lower CNG and PNG penetration in the region and the potential can be further utilised at ease. It has investment in Maharashtra Natural Gas Limited (MNGL)

worth of Rs 181 crore and MNGL is giving it access to industrial gas demand in Pune. With this, the company also has made an investment of Rs 69 crore in Central UP Gas (CUGL), which is engaged in city gas distribution (CGD) in the cities of Kanpur and Bareilly, Unnao and Jhansi in Uttar Pradesh. The investments in MNGL and CUGL presents a good growth opportunity for IGL in coming days. 

In July this year, the Supreme Court pronounced a judgement and dismissed the special leave petition of Petroleum and Natural Gas Regulatory Board (PNGRB) filed against IGL by which the regulator’s order of fixing the prices of CNG and PNG in Delhi and adjoining areas was quashed. The court’s decision removes the uncertainty regarding IGL as it would be allowed to fix the final retail prices to customers. IGL would now continue to maintain high pricing power. Further the current low oil prices scenario too will give the company to maximise its profitability over at least next one year as the crude oil prices are expected to remain lower for the same period.

On financial front, though the total operating income of IGL in FY15 decreased by 6.15 per cent compared to last year, its EBITDA increased by 1.36 per cent during the same period. Interestingly, EBITDA margin for FY15 stood at 21.54 per cent compare to 19.95 per cent for FY14. The increase in EBITDA is mainly driven by decrease in cost of fuel by 12.70 per cent. The cost of fuel consist of around 64 percent of total revenue from operations. The net profit for FY15 increased by 21.50 per cent against FY14. The total debt of IGL for FY15 is Rs 145 crore, a decrease of around 55 per cent from last year which helped in decreasing interest expenses. The debt equity ratio of the company stood at just 0.06 as of FY15.

Going ahead, the news flows such as central government’s directive to increase public transport running on CNG, a recent order of Delhi High Court to run taxi on CNG to transport service providers like Ola and Uber are positives for the company. The company's investments in MNGL and CUGL with pricing power can help to improve financials in the upcoming period. Interestingly, IGL’s institutional holdings expanded by 481 basis points to 42.27 per cent in Q2FY16 compared to same period last year.
[PAGE BREAK]

·        Robust financial performance in the current half year

·        Strong Order book almost three times of the revenue

·        Lower Debt to Equity ratio giving it a cutting edge among the industry players

India's estimated spending on infrastructure would be USD 19 billion during FY12-17 as per the India Brand Equity Foundation. The government already declared the list of 98 ‘smart cities’ that will help the industry to build strong order book in near term future. International Finance Corporation (IFC) plans to invest at least USD 700 million in existing transport and logistics infrastructure projects in India. MMRDA sanctioned Rs 35400 crs for 118 km of Mumbai metro rail network expansion. The Brihan Mumbai Municipal Corporation (BMC) is conducting study on coastal road across Mumbai. J Kumar Infraprojects (JKIL) is one of the leading civil engineering and construction companies focused on transport engineering, civil construction and irrigation works. The company undertakes projects in Maharashtra, Rajasthan, Delhi and Gujarat. JKIL has a track record of completing more than 81 projects and it has 44 ongoing projects.

JKIL has a large fleet of owned machinery and equipment providing company to execute projects with efficiently. The model allows company to reduce huge dependency on rented equipment which lead for cost effectiveness and timely execution of projects.

Recently, JKIL – China Railway joint venture was the lowest bidder for the 6.99 km long Dharavi to domestic airport in Santa Cruz for Mumbai Metro 3rd phase. JKIL's total order book including L1 projects stood at Rs 4027 crore as of Q2FY16. The company has strong order book about three times of the top line of the company as of FY15. JKIL's order book is concentrated mainly as 98.23 per cent on transportation and engineering. JKIL's order book constitutes about 95.54 per cent of government contracts and remaining 4.46 per cent private contracts.

JKIL is witnessing robust financial performance over the last five fiscal years. The company's topline increased at 7.26 per cent CAGR over the same period. Its EBITDA boosted in past five financial years at CAGR of 12.17 per cent till FY15. JKIL's bottom line also rose at CAGR of 5.7 per cent till FY15. More importantly, the company's debt to equity ratio stood at 0.55 which is lowest in industry. The lower debt equity ratio of the company is the rarest in the infrastructure sector in India giving the company a cutting edge over others. It also delivering high return ratios such as ROE at 11.96 per cent and ROCE at 17.69 per cent.

During the last half year too, JKIL showed a robust financial performance. Half yearly performance wise JKIL's revenue increased by 9.05 per cent to Rs 694 crore in H1FY16 on yearly basis. Company's PAT increased by 13.79 per cent to Rs 49.11 crore in H1FY16 as compared to same period in previous financial year. It's PAT margin expanded by 30 basis points to 7.07 per cent in H1FY16 on yearly basis. On valuation front, JKIL is trading at trailing twelve months (TTM) price earnings ratio (PE) multiple of 28.55x against industry PE multiple of 22.67x. The company has earning per share (EPS) of Rs 26.52.
[PAGE BREAK]

Transport Corporation of India

Here Is Why

·        Implementation of GST to drive the growth with margin expansion

·        Strong business projections of 15 to 20 per cent business growth

·        Demerging of XPS Division will distress its balance sheet

The implementation of goods and services tax (GST), is expected to increase India's gross domestic product (GDP) by 1 to 2 per cent. There would be optimisation of larger warehouses and borderless movement of goods which would lead to increased transportation lot sizes. Lesser border checks and paper work would lead to faster movement of trucks. As a result, transit time and cost may reduce by 20 to 30 per cent.

Transport Corporation of India (TCI) is an integrated supply chain and logistics solutions provider. It has more than 1400 owned branches. TCI has five warehouses at four different corners of the country including two at Chennai, each at Nagpur, Hyderabad and NCR. TCI also formed multimodal logistics joint venture (JV) with Container Corporation of India with equity stake proportion of 51:49 respectively. The benefits of the JV will include integration of rail and cargo movement.

TCI's Board approved demerger of XPS into wholly owned subsidiary TCI Express on October 8, 2015. The demerging is largely to focus on ecommerce and the delivery system which has been rapidly expanding in the country. The equity shareholder of TCI will receive 1 equity share of Rs 2 each of TCI Express for every 2 equity share of Rs 2 each held on the record date of the Company. Post demerger, one third of the total debt will get shifted to a new formed subsidiary.

TCI is more confident on its business growth with projection of 15 per cent to 20 per cent by stressing on ecommerce, high consumption driven sectors. The company is going for better capacity utilisation and service automation which will help to generate improving operating margins. On segmental revenue front, TCI earned 36.90 per cent from freight and services segment, 28.49 per cent from XPS Division, 28.29 per cent from chain division, 5.70 per cent from TCI Seaways and remaining 0.47 per cent from wind power segment during Q2FY16.

TCI's topline witnessed CAGR of 5.46 per cent in the last five years to Rs 2417 crore in FY15. EBITDA of the company too rose with CAGR of 6.65 per cent during the same period. Interestingly, its net profit also increased over the past five fiscal years with CAGR of 10.18 per cent till FY15. TCI's ROE and ROCE stood at 15.23 per cent and 17.14 per cent respectively in FY15. Company's total debt stood at Rs 320 crore and cash & cash equivalent of Rs 42 crore as of FY15. Its total debt to equity ratio is quite healthy at 0.53 as of FY15.

On valuation front, TCI stock is available at trailing twelve month (TTM) price to earnings (PE) multiple of 31.45x which is quite lower as compare to its peers Gati, Aegis Logistics which trades at PE multiple of 42.15x, 33.35x respectively. Further, TCI's shareholding pattern indicates an expansion of 99 basis points to 2.86 per cent in FII holdings and 534 basis points to 6.51 per cent in DII holdings, as of September 2015 quarter compared a same period last year. The increment in institutional holdings is boosting investors’ confidence in the company's business.