Buy

Diversification of Product Portfolio to Fuel Growth prospects: Exports to be a key driver - Aided by higher penetration in the passenger marketto luxury OEMs like BMW, Mercedes and Nissan, Suprajit has procured new orders for their cables division which is expected to be recorded in FY18E. Currently, thegeographical mix for SEL (incl Phoenix) stands at 65.0% domestic and 35.0% global, as compared to 34.0% for exports during Q4FY16.

Valuation and Outlook : At CMP of Rs. 191, the stock is currently trading at 11.9x FY18E EV/EBITDA. With increasing exports and the synergies expected to arise on account of Phoenix acquisition, we value the company at 13.5x EV/EBITDA having a target price of Rs.224 with an upside of 17%. Therefore, we recommend “BUY” rating on SEL with a target price of Rs.224 having an upside potential of 17%.

JBCPL, one of India's leading pharmaceutical companies, manufactures and markets a diverse range of pharmaceutical formulations, herbal remedies and APIs. JBCPL exports to many countries worldwide with a strong presence in in Russia, Ukraine, CIS countries and South Africa.

The income from operations in FY16, which was the highest in a decade, registered a growth of a 9.7% y-o-y. The company which has seen better profit margins in the past (read: FY10 and FY11), exhibited an operating profit margin of 16.4% and a net profit margin of 12.2 During the year, Biotech Laboratories (Pty.) Ltd., South Afri subsidiary of the company, with company’s interest going up to 95.24% from 49%. This strategic investment will allow the Company to expand its business in South Africa and SADC countries, which hold good growth potential.The domestic formulation business which somehow managed to contribute 35% in the Q4FY16, grew almost 31% q-o-q, contributing a beefy 43% last quarter i.e., Q1FY17. The volatile currency situation cast down the exports, which rendered a decline of 11.2% q-o-q.

TV Today Network (TTNL) reported a good set of numbers for 1QFY2017 with its consolidated top-line growing by ~8% yoy for the quarter. On the operating front, the company reported margin expansion on account of lower selling & administrative expenses, which lead to the net profit growing by ~24% yoy for the quarter.

Outlook and Valuation: We expect TTNL to report a net revenue CAGR of ~16% to ~`743cr and net profit to post a ~16% CAGR to `128cr over FY2016-18E. The company has sustained its leadership position in the Hindi news genre for14 consecutive years while in the English news genre it currently holds the No.2 position. Further, its exit from the radio business should boost profitability. The company is debt free with `201cr of cash on its balance sheet. Hence, maintain our Buy recommendation on the stock with a target price of `363.

Nalco’s 1QFY17 EBITDA of INR1.9b (-18% QoQ/-13% YoY) was below est. of INR2.4b on lower aluminum volumes and higher costs. PAT of INR1.3b (est. of INR1.8b) was down 35% QoQ/17% YoY on higher depreciation due to accounting policy change. The negative surprise on aluminum cost in the quarter was primarily on account of negative operating leverage from re-stocking led lower sales volume. We largely maintain our estimates and TP. We estimate Nalco’s aluminum production to increase from 372kt in FY16 to 441kt by FY18E as it increases smelter utilization on improved domestic coal availability.

With fixed cost of more than USD600/t, higher volumes would deliver better cost absorption. Its alumina business is in the 1 st quartile of global cost curve and would help tide through the current depressed alumina market. Cost of production has tailwind of improving domestic coal quality and start of its captive mines. Maintain Buy with TP of INR67.

After gap of 4 years, both UVs & tractors to deliver double digit volume growth. M&M is taking initiatives through product actions and increased marketing focus on TUV/KUV to drive recovery in UV business. Micro-hybrid opportunity to drive recovery in bigger SUVS and support margins. Levers to off-set headwinds on margins; estimate ~100bp improvement by FY18. Strong earnings traction in core (24% CAGR) + Potential reduction in losses of non-core (Consol EPS CAGR 36%) + Attractive valuations (14.5x FY18 consol PE) = Buy.

Worst is over for M&M not only in its core businesses of tractors and UVs, but also in key subsidiaries. This would result in ~36% consol EPS CAGR over FY16-18E (v/s ~14% CAGR decline over FY14-16). With strong earnings cycle ahead in core business and potential reduction in losses of non-core business, valuations at ~16.9x FY18E S/A EPS, ~14.5x FY18E Consol EPS and ~6.3% FY18 FCF yield are very attractive. Maintain Buy, with SOTP based TP of ~INR1,713 (16x FY18 Core EPS + Subs at 20% HoldCo Discount).

Reliance Defence’s (RDE, erstwhile Pipavav Defence) Q1FY17 revenues were | 70.3 crore (vs. I-direct estimate: | 120 crore). Revenues in Q4FY16, Q1FY16 were at | 94.7 crore, | 107 crore, respectively. Lower execution in the quarter led to decline in operating expenses resulting in positive EBITDA of | 1.8 crore (I-direct estimate: positive EBITDA of | 1 crore). Lower employee expenses coupled with reversal of costs for revenue recognised earlier, accelerated EBITDA growth. The positive EBITDA performance was completely offset by higher interest expense that during the quarter grew 18%YoY (7% QoQ) to | 132 crore. Subsequently, PAT for Q1FY17 was at a loss of | 135 crore (I-direct estimate: loss of | 160 crore).

RDE’s management expects total naval defence order inflow of ~| 112500 crore for private shipyards in the next 10 years. Technological tieups with a slew of foreign partners SAAB, DCNS, Babcock, etc, position BDE at a vantage point. Near term financials continue to remain subdued. However, the sector opportunity justifies a valuation of 2.5x FY18 P/BV. A slower-than-expected ramp up in the order book results in a downward revision of our target price to | 68. We have a BUY recommendation.

Timken India Ltd (TIL) reported its Q1FY17 numbers that were lower than our estimates on the topline front. This was primarily due to a decline in export revenues • Revenues came in at | 282.2 crore, up 6.3% YoY but below our expectation of | 312.7 crore. Export revenues declined 1% YoY. Domestic revenues also grew slower-than-expected. The same grew 14% YoY against our expectation of 17% YoY • EBITDA margins for Q1FY17 improved 50 bps YoY to 17.4% vs. 16.9% in Q1FY16 due to an improvement in gross margins. Gross margins for the quarter jumped to 42.3% vs. 40.6% in Q1FY16 • PAT increased 21.5% YoY to | 28.4 crore (our estimate | 29.1 crore for the quarter).

Valuation : Timken has traded at a premium valuation given its leadership position in the segment, strong parentage and healthy balance sheet. Given the anticipated growth opportunity in majority its segments like railways, CVs, off-highway vehicles, repairs & services and exports, we the company will continue to command its premium valuations. Accordingly, we value the company at 31x FY18E EPS of | 19.8 to arrive at a target price of | 614. We retain our BUY recommendation on the company.

Sobha Developers (SOBHA) reported revenue of INR5.7b (our estimate: INR5.4b) for 1QFY17. Contribution from contract revenue was 29%. EBITDA was INR997m against our estimate of INR1.7b. Higher than expected costs led to EBITDA margin dropping to 17%. PAT grew 2% YoY to INR359m. Post the recent correction, the stock appears attractive, with operational negativity largely factored in.

However, given the continued slowdown in operating market, the visibility of an immediate revival is low. We await (a) visibility on the success of the NCR-Gurgaon launch in 1QFY17, and (b) approvals in the Cochin and Chennai projects. Re-rating hinges on operational normalcy, which might take another six months to play out. SOBHA trades at 17.1x/8.8x FY17/18E EPS and 1.1x FY17/18E BV. Maintain Buy with a target price of INR360 (30% discount to SoTP of INR500.