07/02/2013
Buy Thermax For Target Rs.770
 
Thermax (TMX) is benefiting from few structural trends: (1) continued energy shortages and increased energy pricing, driving demand for energy efficiency products, (2) hunt for alternative energy, given demanding regulations and improving viability, (3) increased environmental concerns and stringent regulatory intervention, (4) currency depreciation leading to increased possibilities of exports (currently at 22% of revenues), etc.
* There are also initial signs that the capex environment in base sectors (like Food Processing, Pharmaceuticals, Textiles, Chemicals, Engineering, etc) is improving. Few large Cement / Refinery projects are likely to be awarded in 1HFY14, leading to improved trend in Gross Fixed Capital Formation (GFCF). * We expect TMX to report acceleration in revenue growth, driven by improvement in GFCF (particularly in base industries) and interplay of several structural trends. The company's revenues have been largely stagnant over FY11-13, impacted by
macroeconomic volatility, and we expect 15% CAGR over FY13-15. While exports would grow at 27% CAGR, the domestic business is likely to grow at 11% CAGR.
* We believe TMX is uniquely positioned to benefit from the current trends, which will enable it to make a transition to the 'Big League' in the next economic upturn. We expect TMX to report earnings CAGR of 22% over FY12-15. The stock quotes at 20x FY14E and 15x FY15E EPS. We upgrade the stock to Buy, with an upgraded price target of INR770 (upside of 33%).
 
 Buy Glenmark Pharmaceuticals Ltd. For Target Rs.608.00

 
Glenmark Pharmaceuticals Ltd, together with its subsidiaries, engages in the manufacture & marketing of pharmaceutical formulations &  active pharmaceutical ingredients in India and internationally.
* Glenmark Pharmaceuticals S.A, has entered into an agreement with Forest Laboratories, Inc. for the development of novel mPGES-1 inhibitors to treat chronic inflammatory conditions, including pain.
* During the quarter, the robust growth of Net Profit is increased by 180.64% to Rs. 1567.52 million.
* Glenmark has granted approval from USFDA for Crofelemer 125 mg tablets for the symptomatic relief of diarrhea in patients with HIV/AIDS  on anti-retroviral therapy.
* Glenmark Generics Inc., USA, has granted approval from USFDA for Rizatriptan Benzoate tablets.
* Glenmark Generics Inc., USA has been granted final ANDA from the USFDA for Montelukast Sodium Tablets, 10mg.
* Net Sales and PAT of the company are expected to grow at a CAGR of 24% and 13% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.538.00, the stock P/E ratio is at 25.53 x FY13E and 22.29 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs 21.08 and Rs.24.13 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 24% and 13% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 17.07 x for FY13E and 15.07 x for FY14E.
* Price to Book Value of the stock is expected to be at 4.90 x and 4.02 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.608.00 for Medium to Long term investment.
Buy RCF- Good Bet In Urea Segment For Target Rs.62.00

 
Rashtriya Chemicals and Fertilizers Ltd (RCF) is a leading urea player in the fertilizer industry. Urea alone contributes 46% of the top line. The company also manufactures and markets other fertilizers such as Complex Fertilizers, DAP, MOP, and SSP as well as industrial chemicals such as Methanol, Ammonia, Ammonium Nitrate Melt, Methylamines, and Ammonium bi-carbonate. Rubber, chemical, pharmaceutical, dyes, leather and real estate industries are the key customers for the industrial products.
Investment Rationale
* Capacity expansion to boost top-line growth- The ammonia and urea capacity expansion in Q1FY13 is likely to boost the company’s top-line growth FY13 onwards. In addition to that, RCF has huge capacity expansion plans in urea, ammonia, nitric acid, SSP, ammonium nitrate at Thal and Talcher, which will be funded with the combination of debt and equity.
* Government divestment is likely to improve performance as well as liquidity in the stock.
* RCF is planning to do long term contract for one of the key raw material named rock phosphate to ensure uninterrupted supply, which is likely to improve margins.
*  The expected urea investment policy is likely to encourage capital investment in the urea segment. This could reduce dependency on import that may decrease Govt expenditure too some extent.
* RCF has entered into Joint Venture with FACT in FY13 for manufacturing of plaster wall and panel which are sold mainly to the builders.
Valuation
At the CMP of `52.4, the stock discounts it’s FY13E and FY14E EPS of `5.43 and `6.92 by 9.65x and 7.57x. Due to the expected urea investment policy, Govt divestment, capacity expansion plans and looking out for long term raw material contract, we are bullish on the company, but being a PSU company and its presence in the Govt regulated industry, the implementation of projects might get delayed. Hence, keeping in view the above factors, we have assigned a P/E multiple of 11.42x to arrive at the target price of `62 for the stock. Any positive move in divestment and urea policy may change our target price in the upward direction.
Risk
* Volatility in the price of Rock Phosphate, Muriate of Potash, Mono-ammonium phosphate and natural gas and foreign currency fluctuation may impact profitability
*  Irregularity of monsoon is likely to impact the top-line of the company.
* The highly regulated industry may face risk in policy front and its implementation.
Buy Greaves Cotton Ltd. For Target Rs.85

 
GCL earnings were flat for the quarter given decline in 3W industry volumes. EBITDA margins were lower due to margin decline in core business
of engines as well as due to continued loss in infrastructure equipment division.
* Valuations are attractive for a company with high return ratios of ~ 20%. We maintain BUY with a revised target price of Rs 85 (Rs 84 earlier)
* Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise 3W LCV volumes which is the stronghold of GCL. We would remain
watchful about this emerging threat.
Valuation
GCL is currently trading at 12.0x and 11.2x FY13 and FY14 earnings respectively. While industry outlook remains weak, we believe valuations are reasonable at this price. Hence maintain BUY with an revised DCF based price target of Rs 85 (Rs 84 earlier).Buy Apollo Hospitals Enterprise Ltd. For Target Rs.945.00

 
Apollo Hospitals Enterprise Ltd. is the leading private sector healthcare provider which owns & manages specialty hospitals, clinics,
pharmacy retail outlets
* During the Second quarter ended the robust growth in the Net Profit of the company and it is rose by 49.28% to Rs. 832.40 million.
* Apollo has introduced India’s first 320-slice CT scanner.
* The company is planning to add 15 new hospitals and 3,140 owned beds by the end of the financial year 2015.
* Apollo has entered into partnership with healthcare division of Philips offer MRI guided high intensity focused ultrasound solution.
* Apollo entered into agreement with Cytori Therapeutics to offer Celution R system in India, to provide the best-in class regenerative medicine technology.
* The company signed an agreement with Govt of Tanzania to start 250-bed super-specialty hospital offers world class healthcare services.
* Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively.

Outlook and Conclusion
* At the current market price of Rs.844.00, the stock P/E ratio is at 38.85 x FY13E and 32.50 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.21.73 and Rs.25.97 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 19.94 x for 17.41 x respectively for FY13E and FY14E.
* Price to Book Value of the stock is expected to be at 4.36 x and 3.90 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.945.00 for Medium to Long term investment.
  Buy Castrol India For Target Rs.349

 
Geared For Growth
Castrol India has so far ably defended its market share in the lube oil industry despite its premium product offerings by leveraging on its  strong brand. We view the street’s concerns over continued pressure on volume/market share as overdone as we expect:
(1) Stagnancy in the industrial segment to be offset by robust retail demand, thus keeping overall volume stable, and
(2) Pressure on margins in the coming quarters to ease with a judicious product mix. We expect volume CAGR at 1.9% over CY11-CY14E  driven by retail/workshop channel, while adjustment in product pricing and launch of low-premium products are likely to help it recapture market share. We have assigned a Buy rating to Castrol India with a target price of Rs349 using weighted average methodology.
Renewed focus to capture market share:
Our interaction with industry experts/dealers/mechanics/lube companies revealed that the company has regained market share at ~22% in  September 2012 after shedding almost 200bps last year as a result of its premium product offerings (premium touched 30%-35%). The  gain is on account of:
(1) Premium pricing versus rivals stabilising in the band of 20%-25%,
(2) Castrol being relatively immune to cost pressures, considering the company’s positioning as price leader,
(3) Launch of low-premium products like Activ Go for bikes and RX Super for commercial vehicles to mark its presence in the mid-size segment.
Volume growth, palpable signs of recovery visible:
We expect volume to grow 2.4%/3.4% in CY13E/CY14E, respectively, after posting negative growth in CY11/CY12E. We expect it to report  volume of 208mn/213mn/220mn litres in CY12E/CY13E/CY14E, registering volume CAGR of 1.9% over CY11-CY14E compared to 0.5%  likely over CY09-CY12E. We believe volume growth would be driven by:
(1) Rising exposure of the company towards the personal mobility segment,
(2) Retail/workshop volume growth (on YTD basis volume grew 7% though industrial volume declined),
(3) The company’s renewed focus on capturing market share by offering lowpremium products,
(4) Growing penetration of Hub & Spoke  model in commercial vehicles, where volume growth in light commercial vehicles (LCVs) arrests the decline in volume from heavy commercial vehicles (HCVs), and
(5) Increased focus on small towns and rural areas, a key growth market in the personal mobility space, in conjunction with its plan to capture the business from the tractor segment.
Assign Buy rating to the stock:
We have assigned a Buy rating to the stock with a target price of Rs349 using weighted average methodology to capture medium to  longterm potential. We assign 60% weight to PE and a 20% weight each to DCF/Gordon dividend discount methodology. We believe a PE  multiple of 30xCY14E earnings (two year average of 27x) will sustain to reflect:
(1) Volume CAGR of 1.9% over CY11-CY14E compared to 0.5% over CY09-CY11,
(2) Expansion in margins of 300bps over CY12ECY14E,
(3) The company regaining market share with the launch of low-premium products and
(4) MNC parentage aiding the launch of innovative products to compete with Shell and Petronas
(5) Company’s price leadership position
(6) Earnings growth at 13%/16% in CY13/14, which would result in RoE to improve to 72.7%/78.8% compared to 69.5% in CY12E.
  Buy Dish TV India Ltd. For Target Rs.94 

 
Q3FY13 Results Highlights
Dish TV India Ltd (Dish TV) Q3FY13 performance was below the street expectations largely on all fronts. During the quarter, revenue went up by 4.5% qoq (+13.7% yoy) to Rs.5,578 mn (Bloom est. Rs.5,646 mn). This was driven by 5% qoq increase (to 10.5 mn v/s 10.0 mn) in net subscriber addition and 0.6% qoq increase (to Rs.160 v/s R.159) in ARPUs. The subscription revenue
contributed nearly 88.6% of overall revenue and grew by 4.6% qoq and 16.2% yoy to Rs.4,943 mn. Others segment contributed nearly 11.4% of the overall revenue, went up by 4.3% qoq (down 2.4% yoy) to Rs. 635 mn. Gross subscriber stood at 14.7 mn (v/s 13.9 mn in Q2FY13 and 12.5 mn in Q3FY12) leading to the gross subscriber addition of ~0.80 mn (v/s 0.50 mn in Q2FY13 and 0.76 mn in Q3FY12). EBITDA for the quarter stood at Rs.1,377 mn (Blom est: Rs1,309 mn), down 11.5% qoq (+14.6% yoy) due 11.2% qoq increase in total operating cost.
The total operating cost was led by +13.8%, +8.9%, +20.7% and +2.1% qoq increase in programming & content, others, S&D and personal costs, respectively. As a result, EBITDA margin contracted 449 bps qoq to 24.7% in Q3FY13. Depreciation went up by 11.7% qoq to Rs.1,713 mn (v/s Rs.1533 mn in Q2FY13) led by high fixed investments and change in the accounting treatment (write-off the Set-Top boxes from other expenditure to depreciation). During the quarter, DishTV reported forex gain of Rs.60 mn (v/s forex loss of Rs.110mn in Q2FY12). Other income (incl forex) went up 118.4% qoq to Rs.175 mn (v/s Rs.80 mn in Q2FY13). Interest expenditure (net forex gain) declined 9.2% qoq to Rs.288 mn (v/s Rs.317 mn in Q2FY13). The company reported net loss of Rs.449 mn (v/s net profit of Rs.551 mn in Q2FY13). Adjusting forex and other one-offs, net loss widened to Rs.509 mn (v/ s net loss of Rs.323 mn in Q2FY13).
Valuation
At the CMP of Rs.74, the stock is trading at 12.7x FY13E and 10.6x FY14E EV/EBITDA Bloomberg estimates. We like the company’s recent quarter performance on subscriber addition front and ARPU expansion along with decline in churn rate. We believe company is well placed and made all required investments to capitalise on upcoming digitisation opportunities. Further, the relaxation of FDI norm remains positive for the sector. Given its leadership position in industry, Dish TV could be the preferred pick for international investors. Any price correction from the current levels could be used as an entry point. We maintain BUY with a target price of Rs.94 per share.