Buy

Ajcon Global Services Ltd. research reports are also available on Bloomberg [AGSL] Research Analyst (Mentored by CA Ashok Ajmera, CMD)...

Takeaways : 2Ws have evolved into a marketing-led industry, not an engineering-led industry. Focus key to leverage on large global opportunity in motorcycle segment.Targeting niche vehicles for urban markets, including electric 2Ws .Sees opportunity in value (Splendor/Passion) and sports (Royal Enfield) segments. For customer acquisition, differentiation is the key – offer what the key competitor does not. Novelty trumps trust at the market place. BJAUT prefers the strategy of differentiation over the strategy of familiarity. Losing differentiation is a fundamental mistake. In Discover, BJAUT diluted the differentiated positioning of 'Joy to Ride' bike. It has learnt from the mistake of extending the Discover brand. Every brand that BJAUT has launched since January 2015 has been successful, as it has been positioned distinctly.

Valuation : At 17x FY18E S/A EPS are reasonable, considering (a) scope of profitable market share gain, (b) high visibility of sustenance of superior profitability, (c) lower capex requirement, driving high RoIC, and (d) increasing cash, driving possibility of higher dividend payout. We value BJAUT at INR3,455 (18x FY18E S/A EPS and add INR187/share for its KTM stake). Maintain Buy

JLR Aug-16 wholesale volumes grew ~28% YoY (-3.8% MoM) to 42,260 units (estimate: 43,500 units), driven by F-Pace and XE. Jaguar volumes grew ~98% YoY to 13,038 units (estimate: 13,500 units), driven XE and F-Pace. However, volumes of other Jaguar models continued to moderate. Land Rover (LR) volumes grew ~10% YoY to 29,222 units (estimate: 30,000 units), driven mainly by growth in Freelander and Discovery Sports. JLR Aug-16 retail volumes grew ~26% YoY (-17% MoM) to 36,926 units, driven by 104% growth in retail volumes of Jaguar and 9% growth for LR. Jaguar retail volume growth was driven by recently launched F-Pace (at ~4.5k units) and XE (+50% YoY).

The stock trades at 13.3x/10.4x FY17/FY18E consolidated EPS. We raise our FY17E/18E EPS estimates by 8%/3%. We also increase our EV/EBITDA multiple for JLR to 4.5x (v/s 4x previously) to factor in a) stronger Cherry JV performance and b) favorable GBP not reflecting in FY18 estimates due to hedges. Maintain Buy with a TP of INR647 (FY18 SOTP-based) for ordinary shares and INR452 for DVR (~30% discount to TP for ordinary shares).

Mangalam Cement Profit after tax has turned positive from last two quarter, the company has registered a growth of 6.66% in its quarterly sales from Rs. 210.23 crs in Q4 FY16 to Rs. 225.17 crs in Q1 FY17. The company has lowered down its total expenditure by 16.97% YoY from Rs. 224.18 crs in FY16 Q1 to Rs. 186.12 crs in FY17 Q1.Company’s operating Profit showed jump of 57.01% in QoQ with operating profit margin of 17%. Net Profit margin stands at 10.08%, and Net profit jumped by 60.25% QoQ. Company has zero down its promoter pledge from 51.86% in FY16 Q3.

Mangalam Cement started commercial production in March 1981 with an installed capacity of 4 lakh tonne per annum of Cement. The Company then took up two further expansion scheme envisaging increases in the installed capacity from 4 tonne per annum to 20 lakh tonne per annum in between 1994 to 2005. The Company has recently expanded its capacity from 2.0 MTPA to 3.25 MTPA upgrading its Kiln I capacity by 0.5 MTPA in 2013 and establishing a New Cement Mill of 1.25 MTPA in 2014. They recommend BUY in Mangalam Cement @ 350 with the target of 395.

GAIL reported robust results in 1QFY17 led by improved profitability in gas trading and petrochemical segment. EBITDA was at Rs 15.9bn (+54% YoY) and APAT was at Rs 8.5bn (+65%). RPAT was higher at Rs 13.4bn including profits of Rs 4.9bn from partial divestment of its stake in MGL.The past two years have been challenging for GAIL given the fall in gas volumes and lower profits in petchem/LPG segment (lower realisation and higher feed cost).

A turnaround is expected in FY17 led by (1) Lower RLNG/domestic gas prices, which will improve profitability of petchem/LPG, (2) Rise in crude prices as the petchem/LPG realisations will rise in sync. Gas costs will remain muted owing to the global glut, (3) Increase in gas transmission volumes on account of power pooling and higher demand at the petchem plant, (4) Likely upward revision in network tariff, and (4) Strong marketing margins at lower gas prices.They see structural improvement across all segments. And  their SOTP target is Rs 475/sh (~7.2x FY18E standalone EV/EBITDA and Rs 110/sh from investments).

Oil India Ltd (OIL) reported 29% YoY decline in EBITDA to Rs 8.6bn mainly led by lower net oil realisation (-21% in INR terms). Impact of lower other income and higher depreciation was negated by lower tax rate. APAT was Rs 4.9bn (-34%). Crude prices were highly volatile in FY16 and ranged from US$ 62/bbl in 1QFY16 to US$ 33/bbl in 4QFY16. Crude volumes will remain flat in the near term, however, OIL may get YoY higher crude realisations in 2HFY17. OIL’s profits remain largely unaffected if crude is in the range of ~US$ 47/bbl to ~US$ 57/bbl. However, at lower crude prices, negatives from lower net realisation outnumber the benefits from reduction in oil under-recovery. We expect no subsidy sharing by upstream players for crude below US$ 47/bbl. Natural gas price has been reduced 20% to US$ 3.4/mmbtu for 1HFY17.

OIL has moved up by 29% over the past 6-months led by strengthening of crude prices and increase in IOC’s share price. Investment in IOC contributes Rs 91/sh in OIL’s fair value (by assigning 20% discount to IOC’s CMP). Factoring higher value from investments in IOC, They revise SOTP target from Rs 430 to Rs 455/sh (7.5x FY18E standalone core EPS + Rs 206/sh from investments). Maintain BUY.

Capital First Ltd. (CFL) is a strong retail NBFC play with a differentiated business model and strong loan product portfolio with promising long term opportunities. It is well managed and engaged in retail segment i.e. MSME funding, Consumer Durables and 2W financing. Strong growth in AUM with diversified portfolio without any impact on asset quality is commendable. Backed by strong and consistent AUM growth, healthy capital adequacy position, changing borrowing mix, we expect RoAA/RoNW to improve by 33/588 bps respectively over the next two years. We believe CFL will command a higher valuation on the back of strong AUM growth, improvement in ratios, experienced management and with...

ONGC’s 1QFY17 EBITDA was above estimates at INR92.7b (est INR82b; -23% YoY, +55% QoQ) led by lower opex at INR35b (-22% YoY, -27% QoQ) as service costs have reduced. PAT was further boosted to INR42b (est INR32b; -22% YoY, -4% QoQ) led by lower D,D&A of INR37b (est INR45b; -19% YoY, -10% QoQ), partly negated by interest cost at INR2.9b (v/s almost nil earlier). The stock trades at 13.1x FY17E EPS of INR18.8 and 11.1x FY18E EPS of INR22.1. Implied dividend yield is at ~3-4%. Our DCF based fair value is at INR282. Buy.

 

In-line operational performance: Solar Industries’ (SOIL) consolidated revenue for 1QFY17 grew 10% YoY to INR4.2b (v/s our estimate of INR4.4b), EBITDA was up 21.2% YoY to INR866m (v/s our estimate of INR836m), and EBITDA margin expanded by 170bp YoY to 20.4% led by better product mix. Better margin cartridge sales formed 35% of sales as against 29% in 1QFY16. Adjusted net profit grew 13.9% YoY to INR471m (v/s our estimate of INR486m).

Valuation : They maintain Buy rating on the stock, with a target price of INR725 and value SOIL at 30x FY18E EPS (earnings CAGR of 15% over FY16-18E) to factor in the possibility of continued strong growth, with ramp-up in mining / infrastructure activities in India, increasing penetration overseas and also an inflexion point in defence revenues. The premium valuations are also justified given that optimum revenues for defence business stands at ~INR5b (possibly ~FY20) .