TVS Motors - Buy

Our research team has analyzed the performance of TVS Motors in the past month has shown good accumulation and consolidation around 80-87 levels and is poised to jump sharply in the coming days.

Company Background :

TVS Motor Company Limited is a two-wheeler manufacturer in India. The Company manufactures a range of two-wheelers from mopeds to racing motorcycles. The Company’s products include domestic range of two-wheelers, three-wheelers and international range of two-wheelers. The Company’s motorcycles products include Apache RTR 180, Flame DS 125, Flame, TVS Jive, StaR City, Sports. 

The Company’s Variomatic Scooters products include TVS Wego, Scooty Streak, Scooty Pep+, Scooty Teenz. The Company’s Mopeds include TVS XL Super and TVS XL Heavy Duty.  The company has been posting good set of numbers QoQ the sales in the month of February 2014 has been quite impressive and the positive trend continues for Q4 of current fiscal.

TVS Motor Company Ltd announced its Q3 FY14 results on 29th January 2014. The company's Net sales increased by 3.48% and 12.96% on QoQ and YoY basis respectively. EBITDA increased by 15.41% on YoY basis. EBITDA Margin of the company increased from 5.87% to 6.00% on YoY basis. PAT excluding excp items increased by 17.49% and 31.17% on QoQ and YoY basis respectively.

Price Performance :

The stock jumped more than 50% during the last 4 month period and is now poised to scale newer heights.  From around Rs.60 levels it is hovering near 3 digit Rs.100 we expect a positive break out leading the stock to move beyond Rs.130 in coming weeks.  With the Q4 results likely to be released shortly indicating strong volume and revenue growth, punters have started accumulating this stock on all declines.

Recommendation :

We strongly recommend both the long term and short term investors to get into the stock on all declines, keeping a strict loss around Rs.87 and continue to hold for a target price of Rs.130

Raghav
Equity Research Analyst

Ravina Consulting
No.24 Pattamal Plaza
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Buy GAIL on dips

The company plans to almost double its pipeline network and capacity over the next four-to-five years.

Anand Kalyanaraman

Investors with a high-risk appetite can consider buying the stock of GAIL (India), the country's predominant natural gas transmission and trading player.

At its current price of Rs 472, the stock has gained almost 70 per cent over the past year and discounts its trailing 12 month earnings by around 18 times. Though it trades close to its all-time high, we believe the stock still offers scope for upside, primarily due to the company's strong positioning, good performance and massive expansion plans in the burgeoning Indian gas market, where demand growth outpaces rapid growth in supplies.

The sanguine outlook is reinforced by recent regulatory surprises — on the tariff front and on marketing margins on administered pricing mechanism (APM) gas. Also, good showing and expansion plans in other major segments such as petrochemicals lend confidence about the company's prospects. Contingent positives (success in exploration efforts and removal of subsidy overhang), if they materialise, may further improve returns.

Ramping up

GAIL has lined up massive expansion plans to capitalise on favourable demand-supply dynamics in India. Despite increased supply of gas from domestic sources (mainly Reliance's KG-D6) and augmentation expected from new domestic finds and imported liquefied natural gas, the demand is expected to outstrip supply in the country.

GAIL, being in a position of eminence in the gas trading and transmission market, is in a sweet spot, and is the process of ironing out the infrastructural creases to cater to the market expansion.

The company, which has a current gas transmission network of around 7,200 km and transmission capacity of about 160 million metric standard cubic meter per day (mmscmd), plans to almost double its pipeline network and capacity over the next four-to-five years.

Capex plans worth around Rs. 35,000 crore have been lined up and expansion plans include currently under-served markets of the country including South India. In the near term, GAIL which had laid around 800 km of pipeline in 2010, plans to spend around Rs. 8,000 crore to lay 1,200 kms of pipeline in 2011 and increase transmission capacity to 200 mmscmd by the end of the year.

Expansion plans have also been lined up in other key segments such as petrochemicals and the high-margin city gas distribution. The company is also investing more in its exploration and production efforts (the company has 27 oil and gas blocks, and three coal bed methane blocks).

GAIL's wide range of businesses, including transmission (natural gas and LPG), commodity (petrochemicals, LPG and other liquid hydrocarbons), gas trading and city gas distribution helps de-risk the business model and mitigates cyclical fluctuations in the petrochemicals and other business.

Key Regulatory upsides

Positive developments on the regulatory front in the recent past have given GAIL a shot-in-the-arm.

First among these was the notification of provisional tariffs by the downstream gas regulator, PNGRB. Though the tariff of Rs 25.46/mBtu (applicable retrospectively from November 2008) notified for the existing HVJ-GREP-DVPL pipeline was around 10.6 per cent lower than existing tariff, this was more than offset by the almost 88 per cent increase in the tariff to Rs 53.65/mBtu for the new DVPL/GREP upgradation pipeline. The new pipeline with almost similar capacity as the existing pipeline is likely to be commissioned in the second half of the current fiscal. GAIL stands to benefit significantly from an increase in the blended rate.

Also, GAIL will gain handsomely from the government move allowing it to charge a marketing margin of 11.2 cents/mBtu on APM gas, since around 60 per cent of the gas marketed by GAIL currently is from APM sources.

Healthy Financials

GAIL's financial performance over 2006-2010 has been healthy with the consolidated topline and bottomline growing at an annual rate of close to 16 per cent and 8 per cent respectively. In FY-10, sales grew around 9 per cent to Rs. 27,035 crore, while the bottomline increased 17.7 per cent to Rs. 3,328 crore.

Better growth in profits in the last fiscal was primarily driven by strong showing by the high-margin gas transmission business, and lower subsidy burden compared with the previous year. Overall, consolidated operating margins have been maintained above 20 per cent, while net margins continue to be in the early teens. Return on equity (close to 20 per cent) is healthy.

While natural gas trading continues to occupy the lion's share of revenues (in excess of 60 per cent), gas transmission (the main contributor to profit) increased its share in profits and accounted for more than half of the company's EBIT in 2010. This trend is expected to continue with the gas transmission business expected to grow strongly, going forward. This bodes well for the company's prospects, since the transmission business generates the highest margins.

EBIT margins in gas transmission further improved in FY-10 and touched 71 per cent. With the improvement in blended rate, this is expected to further improve. Also, margins in the gas trading business are also expected to improve significantly, with marketing margins allowed on APM gas.

However, the cyclical petrochemicals business, which accounts for around 30 per cent of EBIT, is expected to see margin pressure over the near term due to significant new capacity additions in many geographies.

In the latest quarter, GAIL registered good performance due to strong showing by most segments and reduced subsidy burden. This more than offset the one-time charge for the retrospective reduction in tariff (from November 2008) notified by PNGRB for the existing HVJ pipeline.

Comfortable cash position (in excess of Rs 4,500 crore), low leverage (around 0.3 debt to equity) and good operating cash flows provide the company enough headroom to fund its capital expansion plans.

Opportunities, risks

Big wins in its exploration and production efforts could integrate the company across the energy value-chain and provide a significant upside trigger for the stock.

This will also mitigate risks if expected gas volumes from other sources do not meet expectations. Lack of success, however, will result in an increase in write-off of exploration expenses and could prove to be a drag.

On the other hand, subsidy overhang continues to be a drag and a major risk factor for the company. GAIL's share (around Rs. 1,320 crore) of the subsidy burden in FY-10 on transport fuels accounted for more than 20 per cent of its operating profits for the year.

The Kirit Parikh committee recommendations on fuel price deregulation include exempting GAIL altogether from the subsidy sharing mechanism. The government move of more than doubling APM gas prices in May sent positive signals on its intent on fuel price deregulation.

However, it remains to be seen whether the powers-that-be will implement the recommendations, especially in the current high inflation environment. Any positive move on this front could provide another positive trigger for the stock. A business-as-usual scenario could depress the stock's prospects, especially in a regime of high crude prices and inflating subsidy bills.

Q1 Resules of 2010

GAIL (India) Ltd has reported a 35 per cent increase in its net profit for the first quarter of the current fiscal, as it transported more natural gas and LPG as well as made more revenues from marketing margins.

The company's net profit for the quarter stood at Rs 887 crore against Rs 656 crore in the corresponding previous quarter. GAIL has registered an increase of 18 per cent in turnover at Rs 7,096 crore (Rs 6,039 crore).

This is despite the heavy subsidy burden which GAIL had to share along with ONGC and Oil India to partially compensate the public sector oil retailers. GAIL has shared Rs 445 crore towards domestic LPG and PDS Kerosene subsidy in the first quarter (Rs 75 crore).

Net Sales

Addressing newspersons after the board meeting, GAIL Chairman and Managing Director, Mr B.C. Tripathi, said: “The net sales from natural gas trading during the first quarter increased by 17 per cent to Rs 5,452 crore and revenue from natural gas transmission business rose by 22 per cent to Rs 897 crore.”

“During the quarter GAIL's revenue from LPG transmission increased by 8 per cent to Rs 114 crore and the net sales from LPG and liquid hydrocarbons business increased by 14 per cent to Rs 781 crore,” he said.

OUR RECOMMENDATION :

Buy on dips around 430 levels and hold for a target of 525.

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Tata Chemicals - Value Pick

Tata Chemicals
Acquisitions of soda ash makers (UK-based Brunner Mond in FY06 for Rs 800 crore and US-based General Chemical Industrial Products in March 2008 for $1.05 billion) have placed Tata Chemicals in the big league. It has not only emerged as the world's second largest producer of soda ash (capacity of 5.5 million tonne), but it now has an enhanced presence in US, UK and Africa. Soda Ash forms a large part of the chemicals division (sodium bi-carbonate and edible salt are the other major contributors), while crop nutrition (urea, DAP; mainly domestic focus) accounts for the rest.

Notably, while the chemicals business accounts for 40 per cent of consolidated revenues, it enjoys higher Ebidta margins (about 20 per cent) giving it a 55 per cent share in profit. With the overall economic environment having turned weak - prime users of soda ash are glass, soap, detergent, paper and textile industries - realisations and volumes have been under pressure. However, analysts expect Ebdita margins to remain stable in FY10 helped by a sharp decline in input prices (coal and coke; locally) and better realisations in the US (new long-term contracts at higher prices). Notably, majority of Tata Chemicals' production is of low-cost 'natural' soda ash (balance is produced through 'synthetic' route) and is supported by reserves in the US and Kenya. In the edible salt business, the company has been gaining ground and is expected to sustain profitability and growth.The crop nutrition business was impacted by lower realisation of DAP even as input prices were higher, which is also reflecting in its Q3 FY09 performance.

A shutdown at its Uttar Pradesh-based fertiliser plant to stabilise operations of the expanded capacity (up by 33 per cent to 1.16 million tonnes per annum) also impacted operations. Going ahead, lower input costs and higher capacity (and benefits of new urea policy) in the fertiliser business will mean better margins. Also, as the gas supply from Reliance Industries KG-basin is made available, margins should perk up in FY10.

With expansions scaled down, the cost will come down by 28 per cent to Rs 400 crore, which can be funded through annual cash generation of over Rs 1,000 crore. This should also help lower debt further. Operationally, although revenues are expected to decline in FY10 (due to lower realisation), expansion in margins and lower debt should help sustain net profit at FY09 levels; in FY11, it should rise. Expect the stock to deliver good returns.

source : business-standard

Tanla Solutions - Value Pick

Tanla Solutions

For this mobile value added service (MVAS) player, which gets over three quarters of its revenues from UK and Ireland, the recession in these markets have dampened the business outlook in the near term.

The company offers telecom infrastructure solutions through its four segments---products, network aggregation (SMS, MMS), professional services (infrastructure management) and mobile payments (smart phones) in about 28 markets around the world. Though the UK market is growing at just 10 per cent, VAS contributes to nearly a fifth of total mobile usage. With a shift to higher usage of 3G and mobile internet on the rise, Tanla with a 5 per cent market share in the UK market should benefit. For Q3FY09, except for the mobile payments segments, all others reported a decline of over 20 per cent q-o-q (sequential) due to a combination of slowing growth, regulatory changes in UK and weakening of the British pound.

The company is expanding into the Indian market and has deployed the 3G platform for MTNL and launched the missed call alert for Aircel among other projects. While Tanla is debt free and sitting on a cash of about Rs 150 crore, its debtors at Rs 278 crore and an increase in debtor days to 119 days in Q3 are causes for concern. The management, however, believes that this will come down going ahead and Ebidta margins, which have dropped (768 bps q-o-q) to 38 per cent, should stabilise on higher transaction volumes and cost cutting efforts. The stock which has corrected substantially over the year and on the back of robust growth prospects should fetch returns of about 40 per cent over the next one year.

source : business-standard

Sintex Industries

Sintex Industries

Despite the economic slump, Sintex Industries has been able to maintain its growth. The company's Q3FY09 sales were up by 30 per cent followed by 22 per cent growth in net profit. The company has been growing consistently in the past led by investments in fast growing businesses and partly due to acquisitions. Sintex manufactures plastic products such as custom mouldings and, prefabricated and monolithic structures, which are widely used in different industries, household and construction of temporary and permanent housing. The company has also extended its product portfolio covering sectors like aerospace, wind power, defence and consumer durables by way of acquiring new technologies and companies in the overseas markets (five companies in last 15-18 months).

While margins contracted to 13.2 per cent (down 340 basis point y-o-y) on account of high raw material prices and inventory losses (Rs 25-30 crore) in Q3FY09, they should improve in the coming quarters due to the 30-40 per cent correction in petrochemical prices (main raw material) and absence of inventory losses.

Overall, in the near term, there could be some concerns regarding its international operations given the slowdown in global markets (especially automotive plastic segment). However, the company is still expected to maintain a healthy revenue growth of about 25 per cent over the next two years. Notably, valuations are attractive as the stock is trading at 0.55 times its estimated book value and 3.9 times its estimated earnings for FY10.

source : business-standard

Simplex Infra - Value Pick

Simplex Infrastructures

About 30 per cent of Simplex Infrastructure's Rs 10,200 crore total order book (3.6 times FY08 revenue) comprises orders from West Asian countries. Also, within the total order book, about 50 per cent is from the private sector, including 20 per cent from industrial sectors. These are some concerns being cited by analysts with the stock is down 72 per cent in the last one year. However, the 84-year old engineering and construction company has superior execution capabilities, high operating margins and a less leveraged balance sheet (debt-equity ratio of about one currently), which makes it a good investment case.

Moreover, these concerns are already factored into the share price and valuations-the stock is currently trading at four times its estimated earnings and 0.5 times estimated book value for FY10. These valuations are low, as historically (during FY97-FY08) the stock has traded at an average price-to-book value of 1.3 times (and high of 7.5 times).

Importantly, fundamentally, things are now progressing on a positive note. Led by improvement in working capital, the company has repaid part of its debt recently which should lead to better profitability. Also, the fall in commodity prices would add to the operating margins, which is seen at about 10 per cent in FY10 compared to 9.7 per cent in FY09 and 9.5 per cent in FY08.

Although, there could be some slowdown in orders in the short-term (about six months), the company is confident of maintaining revenue growth of about 25 per cent over the next two years on the back of a strong order book. Additionally, the company's diverse presence across sectors like power, marine, industrial, roads, railways, bridges, urban infrastructure and housing provides comfort. Its recent foray into mining, onshore drilling and power T&D segments could prove to be future growth drivers and provides stability in the event of any slowdown in a particular segment or geography. 

IVRCL Infra Value Pick

IVRCL Infrastructures The fall in interest rates and commodity prices and the improving availability of funds are some good signs for infrastructure and construction companies. Nonetheless, it is prudent to be selective. Among companies, analysts prefer IVRCL Infrastructures & Projects, a leading player in the water and irrigation segments (account for over 60 per cent of total revenue), which has better visibility in terms of continuous flow of orders and is less leveraged (debt-equity of 0.7 times). As about 90 per cent of these projects are government-sponsored, the company has been a key beneficiary of increased capital expenditure on irrigation projects. The company generates about 30 per cent of revenues from the transportation sector, wherein the order book stood at about Rs 1,257 crore in December 2008. The company is constructing three road projects on a BOT basis (worth Rs 1,080 crore), which are expected to be commissioned by May 2009. Analysts value these projects at about Rs 20 per share of IVRCL, based on future cash flows. IVRCL's total order book is about Rs 15,000 crore, which is four times its FY08 revenue and provides good visibility. Thus, revenues should grow at 30 per cent, while earnings are likely to increase by 25 per cent over the next two years. Besides its core business, the company also has an exposure in the real estate business through its subsidiary IVR Prime (62.3 per cent stake) and industrial water treatment and environment equipment segment through a 70 per cent controlling stake in Hindustan Dorr Oliver, (a listed domestic company). Meanwhile, based on estimated FY10 projections, IVRCL Infrastructure's stock is trading at a PE of 6.4 times and 0.87 times its book value of Rs 155 per share. Source : Business-standard

Gateway Distripacks - Value Pick

Gateway Distriparks

For the largest player in the container freight station (CFS) segment at Mumbai's JNPT and with a significant presence in other ports, weak demand from India's key trading partners has resulted in decline in volumes and revenues. In the December quarter, exports from India have registered negative growth, while import growth has moderated. The volume decline has meant that Gateway, (operates CFSs at Mumbai, Chennai, Vizag and Kochi) will finish FY09 with single digit growth y-o-y to about 4 lakh TEUs (twenty-foot equivalent units) compared with a 49 per cent y-o-y growth in FY08.

In addition to CFSs (over half of revenues), Gateway also has a presence in the rail freight (35 per cent of revenues) and cold chain (7 per cent) businesses. While profits at the operating level will come from its core CFS business (contributes 90 per cent to Ebidta), revenue growth in FY10 will be driven by its rail freight/inland container depot business. While its rail business (with 14 rakes operational) is currently loss-making, its advantages over road transport, large volumes and connectivity to industrial hubs is expected to translate into increased revenues for the largest private rail freight operator in the country. A strong presence in the CFS business and an expanding rail freight infrastructure with good business prospects will help the company post improved growth rates in the long term. And obviously, any improvement in economic growth rates will provide a trigger for this stock. Expect returns of about 15-20 per cent over the next 15 months

Source : Business-sandard

BEML - Value Pick

BEML BEML is a multi-product and multi-technology company. Its vast product range primarily caters to the needs of three segments, namely mining and construction (like hydraulic excavators, bulldozers, dump trucks), defence (field artillery tractor, tank transportation trailers, weapon loading equipment, armoured recovery vehicle) and railways and metro (metro trains, rail coaches, D-EMUs, wagons). BEML's other three divisions are technology (design and engineering solutions), trading (third party products) and exports. Little wonder, the current economic slowdown and high input prices (besides higher wages) has impacted its performance in the recent quarter. While topline growth has slowed, margins have also slipped. However, net profits haven't declined thanks to higher other income. Positively, receipt of a few high value orders recently has propped up its order book. In February 2009, BEML bagged a Rs 1,672.50 crore order from Bangalore Metro Rail Corporation for supply of 150 metro coaches (orders for another 63 is in pipeline). This is in addition to an Rs 1,365 crore metro coach order from Delhi Metro. Since new metro projects (Chennai, Mumbai) are coming up, BEML with the advantage of a local manufacturing base should gain. BEML has also been active in terms of strengthening its vast portfolio by entering into joint ventures with foreign players. On March 19, it tied-up with France-based NFM Technologies (second largest globally) to produce Tunnel Boring Machine in India. Likewise, an agreement with Indonesia-based Sumber Mitra Jaya (30 per cent stake by BEML) for contract mining opportunities in India was also signed recently; total number of foreign partners is now 20. To sum up, given the humungous investments planned in infrastructure, power, mining, steel, cement, transportation (air, road and rail) and urban infrastructure as well as focus on defence capex, the demand for BEML's offerings is likely to remain robust (equipment cost as a percentage of project costs range 4-15 per cent). BEML expects revenues to grow at a CAGR of 11-12 per cent to Rs 5,000 crore by 2013-14. In light of the underlying potential, this is a modest target and should be achieved beforehand. On the flip side, analysts believe its past record has not been very impressive, which is also one reason for this stock to quote at relatively lower valuations. For now, in 2008-09, BEML is expected to clock revenues of Rs 2,800 crore and currently has an order book of over Rs 5,000 crore. With cash profits of Rs 250 crore a year and negligible debt on books, the stock can deliver steady returns in the long run, while it offers a decent dividend yield too. Source : Business-standard