Buy

FIL has state of art facility with unique double beam technology which has diverse applications supplied by the renowned manufacturer, REIFENHAUSER Gmbh of Troisdorf, Germany. Hence the products of the company are of best quality and have been accepted by giant companies as end-users in many advanced countries. It has certificates like ISO 9001-2008, 14001-2004, OHSAS 18001:2007 Certified by quality Registrar Intertek and UKAS. Apart from the above, the Company also holds authorization/accreditation conforming to Oeko-Tex standards from Hohenstein Textile Institute, Germany. The company’s ability to produce superior quality product and continuous Research & Development would help the company to sustain its revenue growth from export markets.

Valuation: We believe, going forward the non-woven Technical Textile sector would grow globally as well as in India led by 1) changing perception of consumers towards disposable products 2) increasing per capita income 3) increasing awareness of hygiene. We like the stock as it is uniquely placed in the organized sector with low cost of production, strong order book and robust expansion plan by FY18 due to growing demand in TT products. The stock is currently trades at 24.1x/ 16.7x / 14.2x / 11.6x of FY16/17/18/19e. We initiate a coverage on FIL with BUY rating and a price target of Rs. 158 with a potential upside of 55% (18x PE multiple to FY19e EPS;10 year average PE).

Shriram Group is one of the largest financial conglomerates significant presences in small enterprising financing, commercial vehicle financing business, retail finance, life and general insurance, stock broking, chit funds and distribution of financial products. The group is also present in businesses such as property development, engineering projects and information technology.

They initiate coverage on Shriram City Union Finance Ltd as a BUY @2100 with an immediate target of Rs 2350 representing a potential upside of 12% from the buy price. Shriram City Union is trading at a PE of 24.64.

Castrol India (CSTRL), represents the Indian operations (59.5% stake owned indirectly by British Petroleum) of global lubricant leader Castrol. Castrol operates in the domestic B2C automotive lubricants industry (~89% of sales) where it has a ~20% market share, with remaining sales from industrial lubricants. Globally, the lubricant industry is fairly stable as gradual declines due to extended oil replacement intervals (led by better lubricants) are offset by strong realization growth. Key Investment Rationales: 1) While long term volumes of Castrol have been subdued (-1% CAGR over CY01-15) Castrol is likely to see improved growth on the back of a rising share of the faster growing personal mobility segment (PV,2W lubricants - now ~40% of volumes). Personal mobility holds stronger...

Demerged from IDFC, IDFC bank has formed and forayed into banking business from 2015. It has started its journey by launching 23 branches across India on October 2015. Since 2015, IDFC Bank has expanded its branches and took the total number of branches to 300, having presence in 7 states and servicing to 1.1 million customers. On 6th November 2015, IDFC bank shares...

Cabinet’s approval of NITI Aayog’s measures to revive construction sector would augur well for HCC. Under the new measures approved by the Cabinet Committee on Economic Affairs, government agencies would pay 75 % of the arbitral award amount to the contractors in those cases where the award is challenged. HCC has claims receivables of Rs 31.8 bn in its favor up to Aug 2016 and company expects 75% of the amount (~Rs 24 bn) will be received in near term. We expect the gross debt (~Rs 49 bn in FY16 on standalone level) come down going ahead on account of debt restructuring & claims settlement.

Outlook and Valuation: They increase our earnings estimates for FY17E/18E by 15%/86% on account of reduction in interest cost. The order backlog (including L1) at 5x of TTM sales provides better visibility over the medium term. We believe that better clarity on the core construction business led by increase in profitability and reduction in debt during FY16-18E (net D/E expected to decline to 1.4x in FY18E from 2.6x in FY15) to bode well for HCC. The payment of the arbitration awarded claims by the government will be the key driver of reduction in debt going ahead. We maintain ‘BUY’ with a SOTP target price of Rs 46.

Atul Auto Ltd has reported decrease in its operating revenues to Rs. 930 mn in Q1FY17 Vs Rs. 1,068 mn in Q1FY16 and Rs. 1,297 mn in Q4FY16. Decrease in the company’s volumes was majorly on account of VAT issue in the state of Gujarat till May 19, 2016 and some registration issues in the state of Punjab. Exports volumes for the quarter stood at 336 vehicles as against 567 vehicles in the same quarter of last year. This was mainly due to the unfavourable conditions in terms of product approvals and currency deterioration in its export countries. Considering good prospects of monsoon and the festive season in Q2FY17E and Q3FY17E, We expect the company to register volume growth of 7.0% in FY17E to sell 46,966 vehicles and around 10.0% volume growth in FY18E to sell 51,662 vehicles. Accordingly, we expect the company to register operating revenue CAGR of around 10.0% during FY16-FY18E to reach Rs. 5,688 mn in FY17E and Rs. 6,426 mn in FY18E.

Valuation Outlook: The company’s optimism in maintaining the growth rate for the year despite dismal performance in Q1FY17, considering the company’s performance in the last 5 years, we expect the company to gain further market share in 3-wheeler segment. We reiterate our “BUY” recommendation, however lowering from our previous target price by valuing it at 20.7x of its FY18E EPS of Rs. 25.8, which is forward mean P/E over its last 5 years for a target price of Rs. 533.

Mirza International Ltd (MIL) is engaged in manufacturing and marketing leather and leather footwear. It exports its products to the European Union, Germany, the United Kingdom, the United States, Italy, and France among other geographies. Its brands include Red Tape and Oaktrak.In the branded domestic segment, we expect the company to report a ~24% CAGR over FY2016-18E to `346cr. We anticipate strong growth for the company on the back of (a) the company’s wide distribution reach through its 1,000+ outlets including 120 exclusive brand outlets (EBOs) in 35+ cities and the same are expected to reach 200 over the next 2-3 years and (b) strong branding (Red Tape) in the shoes segment. Further, MIL is enhancing its brand visibility owing to higher ad spend in FY2017. MIL has doubled its ad spend over the last five years; ad spends as a proportion of branded product sales now stand at 9-10%.

Valuation: At the current market price of `84, the stock trades at a PE of 12.2x and 10.5x its FY2017E and FY2018E EPS of `6.9 and `8.0, respectively. They initiate coverage on the stock with a Buy recommendation and target price of `113 based on 14x FY2018E EPS, indicating an upside of ~34% from the current levels.

IOC reported strong results in 1QFY17 led by the inventory gains of ~Rs 70bn. EBITDA was Rs 136.8bn and RPAT was Rs 82.7bn. Results are not comparable owing to inventory and forex impacts. FY16 has been outstanding for OMCs led by (1) Strong GRM, (2) Higher profits in the marketing owing to higher volumes at lower product prices and healthy marketing margins, and (3) Reduced interest burden owing to lower subsidy receivables.Growth in FY17 may be challenging for OMCs considering the higher base and muted GRM trend in 2Q. The benefits of lower crude prices (balance sheet healing and lower interest cost) are mostly priced in. Expansion in marketing margins is the only trigger left for OMCs. However, IOC has an additional trigger of Paradeep refinery (15-mtpa capacity, Nelson index 13, likely to reach 95%+ utilisation by Dec-16).

They are structurally positive on IOC owing to its diversified business model, ramp-up of Paradeep refinery and possible upside in marketing segment. However, the stock has moved up by ~43% over the past 3-months and we see a correction in the near term (better entry point) led by the weakness in GRM and low chances of inventory gains. SOTP target is Rs 650 (3.5x FY18E EV/e for standalone refining, 6x EV/e for marketing, 7x EV/e for pipeline and Rs 137/sh from investments). Maintain BUY.

Zee has shown superior ad?revenue growth over the last five quarters; it was +29% in FY16 vs. our estimate of an industry growth rate of 15?16%. This outperformance mainly came from market share gains in the regional space and the launch of its second Hindi GEC channel. Despite softness in FMCG ad spends (the sector contributes 50?55% of total TV ad revenues), we believe there are enough drivers for Zee’s ad revenue growth rate to be higher than the industry’s, including: (1) market?share gains in the Tamil GEC space, (2) monetisation of Zee Anmol (Zee’s Hindi GEC FTA channel), and (3) launch of a new/movie channel in the regional space. We estimate Zee’s ad revenue CAGR at 19% in FY16?18.

Valuation: Driven by consistent outperformance in ad revenue, Zee’s 12?month forward PE multiples have rerated to 36x vs. a five?year average of 26x.  We believe that the company will sustain premium valuation driven by – (1) industry?leading ad revenue growth, and (2) robust subscription revenue growth translating into an operating?margin expansion of 200bps over FY16?18. We maintain our BUY rating with an increased TP of Rs 590 (vs. the earlier TP of Rs 540), which is based on 35x FY18 EPS.

Change in methodology from EV/EBITDA to PE as profitability improves: After taking a re-look at an improved leverage situation (a legacy issue for the company in the last five years) we have critically evaluated our earlier methodology of applying EV/EBITDA gauge for valuation. We believe it is the right time to change the same to PE gauge as the debt component in EV has come down substantially as reflected in Exhibit 2, besides waning debt stress and improved business mix (hence EBITDA margins). The situation is likely to improve further in FY16-19E. Accordingly, we arrive at our new target price of | 635 (from | 420 earlier) based on 10x FY19E EPS of | 63.5. We still value Jubilant at a substantial discount to peer pharma companies due to the blended business model (47% of revenues from commoditised LSI segment) besides a volatile past. However, we do not rule out a further re-rating in the stock.