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IEA-Equity Strategy India Equity Analytics 6th March, 2014 Daily Fundamental Report on Indian Equities Edition
IEA-Equity
Strategy
India Equity Analytics
6th March, 2014
Daily Fundamental Report on Indian Equities
Edition : 219

Hindustan Zinc LTD : Good gains ahead

"BUY"

6th Mar 2014

 

Zinc fundamentals are becoming attractive with suppotive lead prices brings a positive outlook for Hindustan Zinc.With a cash-rich balance sheet and strong visibility over production growth of zinc, lead and silver over FY2013-15, we are positive on HZL.Being an integrated & dominant player in the domestic industry with low cost of production, the company is poised to benefit in the long run. Now the stock is trading at 1.6x in one year forward P/B we estimated it at 1.8x for 2015.At current level we see a significant growth in the stock. We valued & reaffirm our

positive stance on HZL and assign a BUY rating to the stock with a target price of Rs.

( Page : 2-4)

Voltas Ltd : Downgrade to "Neutral"…….

"NEUTRAL"

6th Mar 2014

 

The company has been evaluating strategic alternatives since 2012, we believe the company is not inclined to sell at valuations multiple of 2 times of its FY15E book value. However, If the company if things will going positively we could rationalize valuations near Rs. 145 per share, but we don't believe buyers would be willing to pay a premium to BVPS more than 2 times at this time. We are downgrading Voltas to Neutral given

the recent rise in its share price following 3QFY14 earnings and revised our price target to Rs. Page : 5-6)

 

(

and revised our price target to Rs. Page : 5-6)   ( S W A R
and revised our price target to Rs. Page : 5-6)   ( S W A R

SWARAJ ENGINES Ltd :

"BOOK PROFIT"

6th Mar 2014

N E S L t d : "BOOK PROFIT" 6th Mar 2014 In our earlier report

In our earlier report dated 25-04-13, we had recommended readers to buy the scrip with a view to earn healthy gains. As expected, the counter have given a premium of 40 per cent over its recommended price. We expect the current price growth rally factored all the fundamental changes, and we advise our readers to book profits at the current levels. Our bearish attitude on the counter stems from its valuations. At a P/BV of 2.8x of its annualised FY14E RoE of Rs 28.7%, we believe that the counter is very expensive in comparison of its own past historical data . ( Page : 7-8)

EROSMEDIA :"Moving to Blockbuster"

"BUY"

5th Mar 2014

 

Healthy movies pipeline for FY15E; Company is expecting to release more than 8 big budget movies across Hindi and regional languages. Likewise, company is going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April, 2014. Its well positioned to monetize rich

content of library ensures annuity and regular set of

( Page :9-11)

Escorts Ltd: "Volume Growth Remains The Key;Retain Buy"

"BUY"

5th Mar 2014

 

Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to- medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175 ( Page : 12-13)

Infosys : "Meritocracy to growth"

"BUY"

4th Mar 2014

 

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in

Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion, also operating metrics will turn into greenery from hay. At a CMP of Rs 3793, it trades at 17.4x FY15E earnings. We retain our “BUY” view on the stock with a

target price of target price of Rs 3910

( Page : 14-16)

Powergrid :

"BUY"

3th Mar 2014

 

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further

equity dilution is reduced

(Page : 17)

Narnolia Securities Ltd,
Narnolia Securities Ltd,
Hindustan Zinc LTD. "BUY" 6th March' 14 Good gains ahead
Hindustan Zinc LTD.
"BUY"
6th March' 14
Good gains ahead

Result Update

 

BUY

CMP

 

123

Target Price

 

148

Previous Target Price

 

148

Upside

 

20%

Change from Previous

 

0%

Market Data

 

BSE Code

 

500188

NSE Symbol

 

HINDZINC

52wk Range H/L

 

142/94

Mkt Capital (Rs Crores)

 

51929

Average Daily Volume (Nos.)

 

5192

Nifty

 

6329

Stock Performance-%

 
 

1M

1yr

 

YTD

Absolute

 

4.3

-1.7

 

-3.4

Rel. to Nifty

 

0.0

9.2

 

11.3

Share Holding Pattern-%

 
 

3QFY14

2QFY14

1QFY14

Promoters

 

64.9

 

64.9

 

64.9

FII

1.8

1.8

 

1.5

DII

31.4

 

31.4

 

31.5

Others

 

1.8

1.8

 

2.1

1 yr Forward P/B

 

450

400

400

350

300

250

200

150

100

50

0

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

 

Source - Comapany/EastWind Research

Zinc market was bearish during last consecutive years having surplus in inventory, but now sentiment is slowly turning positive showing some uptrends in Zinc LME prices. Visible inventories on the London Metals Exchange, as well as on the Shanghai Futures Exchange, are down about 30% over the last year. And zinc demand is increasing steadily.

We believe Zinc price will be the core fundamental behind the Hindustan zinc’s bull story in the coming years. We see a improving volume of production through FY15.More So Govt. The attorney-general’s clearance for the Centre’s proposal to divest its residual stake in Hindustan Zinc Ltd (HZL) lifted the Street’s mood. Again the board delayed this process and guided investors that disinvestment of government's remaining stake in Hindustan Zinc will happen next fiscal year. Stake sale in HZL again seems to be back burner now. We also see gradual and sustainable recovery in global macro Scenario which supports a positive cycle in industrial metals. So, we believe there exists a strong case for significant earnings estimate for Hind Zinc in coming months.

Robust Q3FY14 Performance :

Hindustan Zinc’s (HZL) Q3FY14 performance was inline to our estimates on the back of healthy zinc sales volumes and higher metal premiums. Total operating income for Q3FY14 stood at Rs. 3450.1 crore higher by 8.6% YoY but lower by 3.1% QoQ. Total zinc sales in Q3FY14 came in at 196,000 tonne, up 17% YoY and 2% QoQ . The company realised premium on metal sales amounting to $241/tonne for zinc (Zn) & $305/tonne for lead (Pb) . Lead sales volume for the quarter stood at 23500 tonnes (lower by 24% QoQ and 22% YoY), while silver sales volumes stood at 78500 kg (lower by 31% YoY and 14% QoQ) . EBITDA came in at Rs.1823.8 crore and inline to our estimate of Rs. 1829.6 crore. Subsequently, net profit stood at Rs. 1722.7 crore .

Valuation & Recommendation Zinc fundamentals are becoming attractive with suppotive lead prices brings a positive outlook for Hindustan Zinc.With a cash-rich balance sheet and strong visibility over production growth of zinc, lead and silver over FY2013-15, we are positive on HZL.Being an integrated & dominant player in the domestic industry with low cost of production, the company is poised to benefit in the long run. Now the stock is trading at 1.6x in one year forward P/B we estimated it at 1.8x for 2015.At current level we see a significant growth in the stock. We valued & reaffirm our positive stance on HZL and assign a BUY rating to the stock with a target price of Rs. 148/-.

Financials :

Q3FY14

Y-o-Y %

Q-o-Q %

Q3FY13

Q2FY14

Net Revenue

3450

8.6

-9.8

3178

3826

EBITDA

1824

22.1

-3.1

1494

1883

Depriciation

210

18.6

12.9

177

186

Tax

305

50.2

20.1

203

254

PAT

1723

6.8

5.1

1613

1640

(In Crs)

Hindustan Zinc LTD.

Lower Production Guideline HZL has marginally downward revised its mined metal production guidance for FY14 from 950,000 tonnes earlier to 900,000 tonnes. This reflects slower-than-expected ramp up of underground mining projects and some changes in mining sequence wherein preference has been given to primary mine development during this period.

Key Concerns

A.

Volatile Desel Price and high Sulphuric acid price affecting the company,s PAT adversly.

B.

A

reason to wait and watch , is since the government is looking at auction, how much

will Vedanta be able to garner and what price it is willing to pay is not known.

C.

HZL’s revenues are directly linked with the global market for products essentially, Zinc and Lead which are priced with reference to LME prices and Silver to LBMA (London Bullion Metal Association) prices.

D.

Lower than expected demand by galvanizing industries for zinc and industrial batteries, car batteries industries for lead would affect the company estimates.

E.

Disruptions in mining due to equipment failures, unexpected maintenance problems , non-availability of raw materials of appropriate price, quantity and quality for energy requirements, disruptions to or increased cost of transport services or strikes and industrial actions or disputes.

Key Triggers for Growth

A.

Company is tracking on 95% capacity utilization.

B.

Captive plants enjoy the lower Tax rate and company enjoys zero tax from tax free geographycal areas.

C.

Smelting Plants are improvised and management is confident that the smelting plants will maintain their stance for the coming quarters also.

D.

The Rampura Agucha underground mine project is operational via ramps (tunnel driven

downward from the surface) and commercial production already ramp up in Q3 and will

in

Q4 of FY14 . The Kayad mine project will also commence commercial production in

the current fiscal year.

E.

A

cash-rich balance sheet, low cost of production and inexpensive valuations make HZL

an attractive bet at the current price levels.

F.

Disinvestment of government's remaining stake in Hindustan Zinc and Bharat Aluminium (Balco) will happen next fiscal year .

G.

In

the past Vedanta Group has said it wanted majority control when Vedanta had earlier

offered Rs 149 a share . If this is any benchmark,then investors will stand to gain.

H.

Zinc premium reaches six year high as inventories shrink

I.

Fees that zinc smelter charge to refine the metat that probably to increase 5%.

LME Price/Ton

Silver(rs/ounce) 1800 1600 1400 1200 1000 800 600 400 200 0 Jan-13 Feb-13 Mar-13 Apr-13
Silver(rs/ounce)
1800
1600
1400
1200
1000
800
600
400
200
0
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

Source - Comapany/EastWind Research

LME Price/Ton

Lead 160000 140000 120000 100000 80000 60000 40000 20000 0 Jan-13 Feb-13 Mar-13 Apr-13 May-13
Lead
160000
140000
120000
100000
80000
60000
40000
20000
0
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

Source - Comapany/EastWind Research

LME Price/Ton

Zinc 125000 120000 115000 110000 105000 100000 95000 90000 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
Zinc
125000
120000
115000
110000
105000
100000
95000
90000
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

Source - Comapany/EastWind Research

Narnolia Securities Ltd, 3
Narnolia Securities Ltd,
3

Hindustan Zinc LTD.

P/L PERFORMANCE

FY11

FY12

FY13

FY14E

Net Revenue from Operation

9912

11405

12700

13577

Other Income

979

1543

2032

1787

Total Income

10891

12948

14732

15364

Power, fuel & water

1023

1228

1070

1291

Repairs

492

568

696

707

Expenditure

4417

5336

6218

6484

EBITDA

5496

6069

6482

7093

Depriciation

475

611

647

718

Interest Cost

19

14

29

37

Net tax expense / (benefit)

1059

1419

921

1097

PAT

4900

5526

6899

6967

ROE%

22.0

21.0

21.0

19.0

B/S PERFORMANCE

FY10

FY11

FY12

FY13

Share capital

423

845

845

845

Reserve & Surplus

17701

21688

26036

31431

Total equity

18124

22533

26881

32276

Trade payables

478

475

410

484

Short-term provisions

340

567

504

825

Total liabilities

20238

25053

29485

35465

Intangibles

109

109

47

10

Tangible assets

6071

7145

8466

8474

Capital work-in-progress

1113

875

445

1082

Long-term loans and advances

361

594

876

1898

Inventories

452

762

798

1111

Trade receivables

152

209

332

403

Cash and bank balances

928

5633

5255

6942

Short-term loans and advances

96

158

233

373

Total Assets

20238

25053

29485

35465

RATIOS

FY10

FY11

FY12

FY13

P/B

3.2

2.2

2.1

1.7

EPS

95.6

11.6

13.1

16.3

Debtor to Turnover%

1.9

2.1

2.9

3.2

Creditors to Turnover%

6.0

4.8

3.6

3.8

Inventories to Turnover%

0.6

0.8

0.7

0.9

CASH FLOWS

FY10

FY11

FY12

FY13

Cash from Operation

4001

4483

4553

4935

Changes In Working Capital

77

-212

-61

-183

Net Cash From Operation

4077

4272

4492

4752

Cash From Investment

-3881

-3658

-3499

-3234

Cash from Finance

-187

-363

-1242

-1257

Net Cash Flow during year

8

250

-248

262

Net 4500 Revenue 4000 from 3500 Operatio n 3000 Revenue 2500 Growth 2000 1500 1000
Net
4500
Revenue
4000
from
3500
Operatio
n
3000
Revenue
2500
Growth
2000
1500
1000
500
0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

-5.0

Source - Comapany/EastWind Research ZinC Productions:

Zinc Production

250000

200000

150000

100000

50000

0

(tons)

Zinc Production 250000 200000 150000 100000 50000 0 (tons)
Zinc Production 250000 200000 150000 100000 50000 0 (tons)
Zinc Production 250000 200000 150000 100000 50000 0 (tons)
Zinc Production 250000 200000 150000 100000 50000 0 (tons)
Zinc Production 250000 200000 150000 100000 50000 0 (tons)

Source - Comapany/EastWind Research

EBIDTA & Margin : 2500 60 EBIDTA 49 EBIDTA % 49 50 2000 47 43
EBIDTA & Margin :
2500
60
EBIDTA
49
EBIDTA %
49
50
2000
47
43
40
43
42
41
1500
30
1000
20
500
10
0
0
Source - Comapany/EastWind Research
Voltas Ltd. "Neutral" 6th Mar' 14 Downgrade to "Neutral"…….
Voltas Ltd.
"Neutral"
6th Mar' 14
Downgrade to "Neutral"…….

Company update

Neutral

CMP

139

Target Price

125

Previous

95

Upside

-10%

Change from

32%

Market Data

BSE Code

500575

NSE Symbol

VOLTAS

52wk Range

65/143

Mkt Capital

4,609

Average Daily Vol. (Nos.)

624,126

Nifty

6,329

Stock Performance-%

1M

1yr

YTD

Absolute

28.5

75.2

84.2

Rel. to Nifty

23.1

64.0

72.9

Share Holding Pattern-%

3QFY14

2QFY13

1QFY14

Promoters

30.3

30.2

30.2

FII

15.2

14.5

18.1

DII

29.8

29.8

25.6

Others

24.8

25.6

26.1

1 yr Forward P/B
1 yr Forward P/B

What New ??? Voltas Ltd has proposed to form a new joint venture (JV) company named –“ Voltas Water Solutions” which will have equal capital contribution from “Voltas” and “Dow Chemical Pacific” (Singapore) Pte (Dow). This JV company will market and distribute standard packaged Water Treatment Systems and Waste Water Treatment Systems of capacity up to 20 m 3/hour, to residential and commercial complexes and light industrial markets in the Indian subcontinent. The entity's operations would include designing, procuring, testing, marketing, selling and servicing of such standard water treatment systems and waste water treatment systems.

Management comment on above JV :

Water has been identified as a key focus area for the Tata group. With its unrivalled know-how and technological leadership in the water treatment space, the partnership, will help Voltas Water Solutions cater to the growing water treatment requirements of the Indian subcontinent. They further believe that partnership will simultaneously leverage the brand and distribution strength of Voltas, along with the technology prowess of the water and process solutions division of the Dow Group.

Our View on said JV :

In today scenario major Water and Waste Water Treatment market is mostly and largely catered by unorganized players. And the market which is targeted by this new joint venture will provide a branded and differentiated product line in the sector, with a focus on quality and service delivery.

About Dow Group :

Dow Chemical Pacific (Singapore) Pte Ltd was established in 1992. Catering to customers in Asia Pacific, particularly South East Asia, Dow Group combines the power of science and technology to passionately innovate what is essential to human progress. The company is driving innovations that extract value from the Intersection of chemical, physical and biological sciences to help address many of the world's most challenging problems such as the need for clean water, clean energy generation and conservation, and increasing agricultural productivity. The company's integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in high growth sectors such as packaging, electronics, water, coatings and agriculture. Valuation :

The company has been evaluating strategic alternatives since 2012, we believe the company is not inclined to sell at valuations multiple of 2 times of its FY15E book value. We estimate that at the lower end of management's guidance this translates into a 12.1%/12.7% RoE forFY14/15E. We believe management is attempting to be conservative regarding the guidance for FY14 & FY15, but even with a 60/90 bps improvement in the operating margin the RoE would be approximately 12.1%/12.7% for FY14/15E , which we believes would translate into a P/B multiple of approximately 2.0x to 2.2x. This translates to a 12 month price target of approximately Rs. 120 based on our FY14E BVPS of Rs. 59. However, If the company if things will going positively we could rationalize valuations near Rs. 145 per share, but we don't believe buyers would be willing to pay a premium to BVPS more than 2 times at this time. We are downgrading Voltas to Neutral given the recent rise in its share price following 3QFY14 earnings and revised our price target to Rs. 120.”

Voltas Ltd.

Key financials :

PARTICULAR

2009A

2010A

2011A

2012A

2013A

2014E

2015E

Performance

Revenue

4326

4757

5191

5186

5531

5320

5852

Other Income

94

78

58

98

90

84

100

Total Income

4420

4836

5250

5284

5621

5404

5952

EBITDA

283

460

463

336

245

261

296

EBIT

262

438

442

303

217

237

268

DEPRICIATION

21

21

21

34

28

24

28

INTREST COST

11

10

17

31

40

35

42

PBT

372

532

524

219

280

286

326

TAX

117

147

172

57

73

74

85

Extra Oridiniary Items

26

25

40

-150

12

0

0

Reported PAT

255

385

352

162

207

211

241

Dividend (INR)

73

73

73

73

73

54

54

DPS

2.2

2.2

2.2

2.2

2.2

61.5

61.5

EPS

7.7

11.6

10.6

4.9

6.3

6.4

7.3

Yeild %

EBITDA %

6.5%

9.7%

8.9%

6.5%

4.4%

4.9%

5.1%

NPM %

5.8%

8.0%

6.7%

3.1%

3.7%

3.9%

4.0%

Earning Yeild %

16.2%

6.5%

6.2%

4.4%

8.3%

4.4%

5.0%

Dividend Yeild %

4.7%

1.2%

1.3%

2.0%

2.9%

42.4%

42.4%

ROE %

32.2%

35.4%

25.8%

11.0%

12.7%

11.9%

12.3%

ROCE%

27.3%

35.2%

24.6%

11.4%

13.1%

12.3%

13.0%

Position

Net Worth

790

1085

1362

1478

1626

1775

1955

Total Debt

181

35

137

223

261

225

225

Ammount in crores

Capital Employed

No of Share (Adj)

971

33

1120

33

1498

33

1701

33

1887

33

(Source: Company/Eastwind)

2000

2180

33

33

INR in crores

CMP

Ammount in crores

48

178

172

112

75

(Source: Company/Eastwind)

(Source: Company/Eastwind)

145

145

Valuation

Book Value

23.9

32.8

41.2

44.7

49.1

53.7

59.1

P/B

2.0

5.4

4.2

2.5

1.5

2.7

2.5

Int/Coverage

23.8

44.5

26.7

9.6

5.5

6.8

6.4

P/E

6.2

15.3

16.1

22.9

12.1

22.7

19.9

22.7 19.9

Ammount in crore

(Source: Company/Eastwind)

22.7 19.9 Ammount in crore (Source: Company/Eastwind) Narnolia Securities Ltd, 6 Please refer to the Disclaimers
Narnolia Securities Ltd, 6
Narnolia Securities Ltd,
6

Please refer to the Disclaimers at the end of this Report.

SWARAJ ENGINES Ltd. V- "Book Profit" 6th Mar' 14 " Book Profits While The Going
SWARAJ ENGINES Ltd.
V-
"Book Profit"
6th Mar' 14
" Book Profits While The Going Is Good…. "
Company update Book Profit CMP 648 Target Price 648 Previous Target Price 600 Upside 0%
Company update
Book Profit
CMP
648
Target Price
648
Previous Target Price
600
Upside
0%
Change from Previous
7%
Market Data
BSE Code
500407
NSE Symbol
SWARAJENG
52wk Range H/L
382/672
Mkt Capital (Rs Crores)
801
Average Daily Volume
1,015
Nifty
6,329
Stock Performance-%
1M
1yr
YTD
Absolute
5.3
47.8
63.4
Rel. to Nifty
(0.2)
36.6
52.0
Share Holding Pattern-%
3QFY14
2QFY14
1QFY14
Promoters
50.6
50.6
50.6
FII
1.9
1.9
1.5
DII
10.6
10.4
10.6
Others
36.9
37.1
37.3
1 yr Forward P/B

In our earlier report dated 25-04-13, we had recommended readers to buy the scrip with a view to earn healthy gains. As expected, the counter have given a premium of 40 per cent over its recommended price. We expect the current price growth rally factored all the fundamental changes, and we advise our readers to book profits at the current levels.

We are quite positive on the Swaraj Engines, owing to its strong tractor volume growth, capacity expansion to 1,05,000 engines pa from 75,000 of current level, softening of commodity prices and company presence in all HP segments. We are upbeat on the stock on the account of core business momentum remains robust with healthy EPS growth, cash flow generation and high RoE.

Moreover, we feel that caution is necessary over the recent robust financial as well as operational performance that the company has delivered over the past year. With 90 per cent of its turnover generated through parent company, the revenue stream also seems concentrated. In conclusion, looking at the above mentioned woes, we advise readers to book profits in the counter at its current levels and fresh buying may be considered at cheaper levels of around Rs. 500-550 a share.

Our bearish attitude on the counter stems from its valuations. At a P/BV of 2.8x of its annualised FY14E RoE of Rs 28.7%, we believe that the counter is very expensive in comparison of its own past historical data

Recommendation History

Date

25th April' 13

17th June' 13

10th July' 13

1st Aug' 13

26th Nov' 13

3rd Feb' 14

13 1st Aug' 13 26th Nov' 13 3rd Feb' 14     Change From Report Type
13 1st Aug' 13 26th Nov' 13 3rd Feb' 14     Change From Report Type
13 1st Aug' 13 26th Nov' 13 3rd Feb' 14     Change From Report Type
   

Change From

Report Type

CMP

Target Price

Previous in %

Company Update

460

515

NA

Company Update

511

535

3.9%

Company Update

533

535

0.0%

Result Update

484

535

0.0%

Result Update

610

600

12.1%

Result Update

602

648

8.0%

Valuation At the CMP of INR610, the stock discounts its FY14E EPS of Rs. 54.20 by 12.0x and FY15E EPS of Rs. 61.7 by 10.5x. Given the strong revenue growth at a CAGR of 21%; PAT growth at CAGR of 26% post acquisition and stable margins at ~15%, the company is poised to grow further and capable of ustaining its healthy earnings. Furthermore, despite the capex of Rs. 38 crore, the company has strong cash flows and the company is debt free. Also, Company assurance of 30- 60% dividend payout ratio implies an attractive dividend yield of 4-9%.

9

SWARAJ ENGINES Ltd.

Key financials :

PARTICULAR

2009A

2010A

2011A

2012A

2013A

2014E

2015E

Performance

 

Revenue

208

282

361

449

479

600

680

Other Income

5

10

8

12

15

18

20

Total Income

213

292

369

461

494

618

700

EBITDA

32

50

61

69

71

89

102

EBIT

27

45

56

65

64

80

91

DEPRICIATION

5

5

4

4

7

9

11

INTREST COST

0

0

0

0

0

0

0

PBT

32

55

64

77

79

98

111

TAX

11

17

20

24

24

30

34

Reported PAT

21

37

44

53

55

67

77

Dividend

7

12

14

19

48

24

30

EPS

17.2

30.1

35.4

42.5

44.6

54.2

61.7

DPS

5.9

9.3

11.6

15.1

38.4

19.3

24.2

Yeild %

 

EBITDA %

15.3%

17.6%

16.8%

15.5%

14.9%

14.8%

15.0%

PBT %

15.5%

19.4%

17.8%

17.2%

16.6%

16.3%

16.3%

NPM %

10.2%

13.2%

12.2%

11.8%

11.6%

11.2%

11.3%

Earning Yeild %

8.0%

31.6%

12.2%

9.9%

11.3%

8.4%

9.5%

Dividend Yeild %

2.7%

9.8%

4.0%

3.5%

9.7%

3.0%

3.7%

ROE %

21.9%

30.4%

28.8%

28.4%

28.6%

28.5%

26.6%

ROCE%

21.9%

30.4%

28.8%

28.4%

28.6%

28.5%

26.6%

Position

 

Net Worth

97

123

152

186

194

236

287

No of Share

1

1

1

1

1

1

1

CMP

214

95

290

429

395

648

648

(Ammount in crore)

Valuation

(Source: Company/Eastwind)

Book Value

78.3

98.8

122.6

150.0

156.0

190.2

231.5

P/B

2.7

1.0

2.4

2.9

2.5

3.4

2.8

P/E

3.5

5.3

5.6

5.1

6.8

12.0

10.5

Net Sales/Equity

2.1

2.3

2.4

2.4

2.5

2.5

2.4

2.4

(Source: Company/Eastwind Research)

(Figures In crore)

2.4 (Source: Company/Eastwind Research) (Figures In crore) Narnolia Securities Ltd, 8 Please refer to the Disclaimers
Narnolia Securities Ltd, 8
Narnolia Securities Ltd,
8

Please refer to the Disclaimers at the end of this Report.

EROSMEDIA "BUY" 5th March' 14 "Moving to Blockbuster"
EROSMEDIA
"BUY"
5th March' 14
"Moving to Blockbuster"
Initiating Report Buy CMP 160 Target Price 200 Healthy movies pipeline for FY15E; Company is
Initiating Report
Buy
CMP
160
Target Price
200
Healthy movies pipeline for FY15E; Company is expecting to release more than
8 big budget movies across Hindi and regional languages. Likewise, company is
going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April,
Previous Target Price
-
Upside
25%
Change from Previous
2014. Apart from this, company is expected to release Dishkiyaaoon, Shadi Ke
Side Effect, Action Jackson, Tanu weds Manu season 2, Sarkar3, Chalo China,
NH-10, Dekho Magar Pyaar Se, Happy Ending and Rana in FY15E.
Market Data
BSE Code
533261
NSE Symbol
EROSMEDIA
52wk Range H/L
195/107
Mkt Capital (Rs Crores)
1467
Average Daily Volume
26241
Nifty
6298
It has largest Indian content library of films with 1100+ films and digital rights
to an additional 700 films. Its well positioned to monetize rich content of
library ensures annuity and regular set of revenue.
Considering diversified and sustainable Business Model along with well
positioned to monetize rich content of its library and block buster success ratio
of movies (out of the top 10 grossing films in recent years, 3 are from Eros.)
make us positive view on the stock.
Stock Performance
1M
1yr
YTD
Absolute
13.1
-7.3
-
Rel. to Nifty
8.2
-17.4
-
Share Holding Pattern-%
Current
2QFY14
1QFY14
Promoters
74.88
74.88
74.88
FII
12.45
12.16
11.35
DII
1.56
1.87
2.95
Others
11.11
11.09
10.82
P/BV-1 year forward
About Company: Eros International Media (EROS) is one of the largest films co-
production and distribution company in India and overseas, engage with pre-
sales of overseas rights, music rights and broadcasting rights. It recovers 35-40%
of its costs by selling movie rights to channels, recovers another 35-40% from
selling its overseas rights to overseas entities. Similarly, it gets 10-15% of the
cost of movies by selling music rights .
Robust 3QFY14 Result: Company reported better numbers with sales growth of
17% (YoY) led by huge spurt in catalogue monetization, which increase by approx-
75% (YoY). Its PAT grew by 41%(YoY).
During the quarter, Its EBITDA margin improved by 680bps (YoY) to 31.3%
because of reduction in operational expenses and employee expenses.
Management expects to see EBITDA margin at 25% in FY14E and FY15E than 20-
22% range of margin in previous 4 years.
Recent initiatives: Eros has struck new deals during the period with MSM
Satellite Singapore private ltd for broadcast of films on Sony as well as with
Viacom18 media for broadcast films on colours.
Recently Eros International media has launched two new movie channels HBO
DEFINED and HBO HITS, which will reduce its dependence on highly
unpredictable revenue streams going forward.
View and Valuation: Management is very excited to invest into different
medium like internet and launching channels to generate revenue. Company’s
optimistic stance towards maintaining margins, strong movies slate and very low
valuation makes attractive. At a CMP of Rs 160, stock trades at 1.1 P/BVx FY15.
We initiate “BUY” with a target price of Rs 200.
Financials
Rs, Crore
3QFY14
2QFY14
(QoQ)-%
3QFY13
(YoY)-%
Revenue
432.68
201
115.2
369.3
17.2
EBITDA
135.6
51.2
165.0
90.6
49.6
PAT
92.0
37.0
148.8
65.2
41.1
EBITDA Margin
31.3%
25.4%
590bps
24.5%
680bps
PAT Margin
21.3%
18.4%
290bps
17.7%
360bps
(Source: Company/Eastwind)
9 Narnolia Securities Ltd,
9
Narnolia Securities Ltd,

Please refer to the Disclaimers at the end of this Report.

EROSMEDIA

Sales and Sales growth(%)(yoy)

Sales and Sales growth(%)(yoy) (Source: Company/Eastwind) Margin-% (Source: Company/Eastwind)

(Source: Company/Eastwind)

Margin-%

Sales and Sales growth(%)(yoy) (Source: Company/Eastwind) Margin-% (Source: Company/Eastwind)

(Source: Company/Eastwind)

Upcoming Movies:

Date of Release

Q4FY14E

Upcoming movies

Director

28-Feb-14

Shaadi Ke Side Effects

Saket Chaudhary

21-Mar-14

Dishkiyaaoon

Sanmjit Singh Talwar

28-Mar-14

Happy Ending

Raj and DK

Q1FY15

11-Apr-14

Kochadaiiyaan

Soundarya Ashwin

6-Jun-14

Action Jackson

Prabhu Deva

Q2FY15

FY15E

Tanu Weds Manu Season 2

Anand Rai

R. Balki Untitled

R.Balki

Aankheen 2

Apoorva Lakhia

Illuminati Untitled

Arif Ali

Dekh Tamasha Dekh

Feroz Abbas Khan

Purani Jeans

Tanushree Basu

Chalo china

Shashank Ghosh

Key Concerns:

1. Piracy is the key concern for the company. Indian film industry loses approx. Rs.2000 cr. every year due to piracy (source: FICCI-KPMG report 2009).

2. Lower consumer discretionary demand.

3. Difficult to predict fate of films.

demand. 3. Difficult to predict fate of films. Starcast Farhan Akhtar,Vidya Balan Sunny Deol, Harman

Starcast

Farhan Akhtar,Vidya Balan

Sunny Deol, Harman Baweja

Saif Ali Khan, Ileana D'Cruz

Rajnikanth, Deepika Padukone

Ajay Devgn, Sonakshi Sinha

Anushka sharma,Neil bhoopalam

R.Madhavan,Kangana Ranaut

Amitabh Bachchan, Dhanush

Abhishek Bachchan

Armaan Jain

Satish Kaushik and Others

Aditya Seal

Vinay Pathak, Lara Dutta

Bachchan, Dhanush Abhishek Bachchan Armaan Jain Satish Kaushik and Others Aditya Seal Vinay Pathak, Lara Dutta
Bachchan, Dhanush Abhishek Bachchan Armaan Jain Satish Kaushik and Others Aditya Seal Vinay Pathak, Lara Dutta
Bachchan, Dhanush Abhishek Bachchan Armaan Jain Satish Kaushik and Others Aditya Seal Vinay Pathak, Lara Dutta
Bachchan, Dhanush Abhishek Bachchan Armaan Jain Satish Kaushik and Others Aditya Seal Vinay Pathak, Lara Dutta

12-Sep-14

NH-10

Navdeep singh

(Source: Company/Eastwind)

EROSMEDIA

Management Guidance:

1.

Catalogue monetization will continue to grow strong in the upcoming quarters.

2.

Company will monetize entire portfolio across different platforms

3.

Catalogue monetization will increase from 13%-14% to 20-25% of overall revenue in coming 3 to 4 years.

4.

Management is looking for more and more free cash flows going forward.

5.

Q4 will be very positive and going forward FY15E will also be very positive for the company.

6

Management is very confident about its performance going forward and expects EBITDA margin to be around 25% in FY14E and FY15E.

Financials;

Rs,cr Sales RM Cost(Operatinal expenses) FY10 640.88 480.33 FY11 706.97 495.13 FY12 943.88 665.45
Rs,cr Sales RM Cost(Operatinal expenses) FY10 640.88 480.33 FY11 706.97 495.13 FY12 943.88 665.45
Rs,cr Sales RM Cost(Operatinal expenses) FY10 640.88 480.33 FY11 706.97 495.13 FY12 943.88 665.45 FY13

Rs,cr

Sales

RM Cost(Operatinal expenses)

FY10

640.88

480.33

FY11

706.97

495.13

FY12

943.88

665.45

FY13

1067.95

765.78

FY14E

1110.8

766.5

WIP

0

0.84

-2.92

-2.55

-2.7

1110.8 766.5 WIP 0 0.84 -2.92 -2.55 -2.7 FY15E 1229.9 860.9 -2.9 36.9 36.9 931.8 298.1
1110.8 766.5 WIP 0 0.84 -2.92 -2.55 -2.7 FY15E 1229.9 860.9 -2.9 36.9 36.9 931.8 298.1
1110.8 766.5 WIP 0 0.84 -2.92 -2.55 -2.7 FY15E 1229.9 860.9 -2.9 36.9 36.9 931.8 298.1
FY15E 1229.9 860.9 -2.9

FY15E

1229.9

860.9

-2.9

36.9 36.9 931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8
36.9
36.9
931.8
298.1
9.2
12.3
288.9
26.0
275.2
80.4
194.8
931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8 Employee Cost 19.7 25.28 22.55 27.29 29.4
931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8 Employee Cost 19.7 25.28 22.55 27.29 29.4
931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8 Employee Cost 19.7 25.28 22.55 27.29 29.4
931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8 Employee Cost 19.7 25.28 22.55 27.29 29.4
931.8 298.1 9.2 12.3 288.9 26.0 275.2 80.4 194.8 Employee Cost 19.7 25.28 22.55 27.29 29.4

Employee Cost

19.7

25.28

22.55

27.29

29.4

Other expenses

27.81

29.57

42.96

47.47

29.4

Total expenses

527.84

550.82

728.04

837.99

822.7

EBITDA

113.04

156.15

215.84

229.96

288.1

Depreciation and Amortisation

4.39

3.82

6

6.45

7.7

Other Income

12.62

8.95

19.3

6.4

11.1

EBIT

108.65

152.33

209.84

223.51

280.4

Interest

9.02

9.39

13.44

9.22

25.4

PBT

112.25

151.89

215.7

220.69

266.2

Tax Exp

29.63

33.67

63.14

61.19

77.7

PAT

82.62

118.22

152.56

159.5

188.5

266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5
266.2 Tax Exp 29.63 33.67 63.14 61.19 77.7 PAT 82.62 118.22 152.56 159.5 188.5

Growth-% (YoY)

Sales

16.9%

10.3%

33.5%

13.1%

4.0%

10.7%

EBITDA

52.8%

38.1%

38.2%

6.5%

25.3%

3.5%

PAT

72.1%

43.1%

29.0%

4.5%

18.2%

3.4%

Expenses on Sales-%

RM Cost

74.9%

70.0%

70.5%

71.7%

69.0%

70.0%

Employee Cost

3.1%

3.6%

2.4%

2.6%

2.7%

3.0%

Other expenses

4.3%

4.2%

4.6%

4.4%

2.7%

3.0%

Tax rate

4.6%

4.8%

6.7%

5.7%

7.0%

6.5%

Margin-%

EBITDA

17.6%

22.1%

22.9%

21.5%

25.9%

24.2%

EBIT

17.0%

21.5%

22.2%

20.9%

25.2%

23.5%

PAT

12.9%

16.7%

16.2%

14.9%

17.0%

15.8%

Valuation:

CMP

138.9

138.9

181.15

180.53

160.0

160.0

No of Share

9.14

9.14

9.17

9.19

9.2

9.2

N W

237.55

670.48

834.61

986.5

1158.6

1337.0

EPS

9.0

12.9

16.6

17.4

20.5

21.2

BVPS

26.0

73.4

91.0

107.3

126.1

145.5

RoE-%

35%

17.6%

18.3%

16.2%

16.3%

14.6%

P/BV

5.3

1.9

2.0

1.7

1.3

1.1

P/E

15.4

10.7

10.9

10.4

7.8

7.5

P/E 15.4 10.7 10.9 10.4 7.8 7.5

(Source: Company/Eastwind)

V- Escorts Ltd. "Buy" 5th Mar' 14 "Volume Growth Remains The Key; Retain Buy……."
V-
Escorts Ltd.
"Buy"
5th Mar' 14
"Volume Growth Remains The Key; Retain Buy……."
Company update Buy CMP 115 Target Price 175 Previous 95 Upside 52% Change from 84%
Company update
Buy
CMP
115
Target Price
175
Previous
95
Upside
52%
Change from
84%
Market Data
BSE Code
500495
NSE Symbol
ESCORTS
52wk Range
48/96
Mkt Capital
1,402
Average Daily
225,953
Nifty
6,298
Stock Performance-%
1M
1yr
YTD
Absolute
(7.5)
86.6
131.4
Rel. to Nifty
(10.9)
77.3
121.9
Share Holding Pattern-%
3QFY14
2QFY14
1QFY14
Promoter's
42.0
42.0
42.0
FII's
9.4
12.3
12.1
DII's
2.1
4.7
5.4
Others's
46.5
41.0
40.6

In February month company witnessed a good tractor volume number. In February 2014 company sold 4,627 tractors, growth of 7.5% against 4,305 tractors in February month of 2013. Domestic sales in February 2014 up by 6.8% stood at 4,581 tractors as against 4,288 tractors in February 2013. Export for the month of February 2014 stood at 46 tractors as that of 17 tractors in February 2013. Also during the last 17 months tractor sales grossed at 94553 units as against 86337 units sold during corresponding period of 15 months last year. Going forward management indicated that volume growth is to be in double digit and at arround 14%. The management further indicated that margins should improve from the current level on the back of improvement in the product mix, taking hikes in the prices, controlling inflation, rid of inflation, as well as cutting down on the other costs.

Tractor Volume

as well as cutting down on the other costs. Tractor Volume (Source: Company/Eastwind Research) Outlook An

(Source: Company/Eastwind Research)

Outlook An increase in volumes is an indication of healthy demand. The rise in volumes for this quarter can be attributed to a good monsoon. Tractor sales seem to have improved across all players, indicating an overall improvement in demand. We believe that this segment will continue to support the growth of the company. The adverse macroeconomic conditions, however, will see the performance of its construction equipment segment and auto ancillary segment remaining subdued. For these businesses, the firm is looking at premium product positioning and to deliver a better than expected customer experience. In addition, it is looking at the export market as a window of opportunity especially in the auto ancillary business Valuation The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction equipment segment due to adverse macroeconomic conditions . At current price of Rs. 117, the stock is trading at P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13 for FY14E and Rs. 12.98 for FY15E. An increase in volumes is an indication of healthy demand. Tractor sales revival has enabled the company to register strong result. Escorts’ EBITDA margin and bottom-line exceeded our expectations. Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to-medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175

Escorts Ltd.

Key financials :

 

2014E 18

PARTICULAR

2009A

2010A

2011A

2012A

Months

2015E

2016E

Performance

 

Revenue

2600

3353

4101

4049

7424

6186

7424

Other Income

53

27

56

48

75

60

72

Total Income

2653

3380

4157

4098

7499

6246

7496

EBITDA

160

220

168

190

438

402

557

EBIT

100

172

120

139

346

332

473

DEPRICIATION

60

48

48

50

92

70

84

INTREST COST

67

18

71

97

135

65

65

PBT

86

181

104

90

285

326

479

TAX

29

49

-15

19

77

88

129

Reported PAT

57

132

119

71

208

238

350

Dividend

11

11

13

13

13