L&T. 9%. Century Plyboard. 7%. Infosys. 7%. PNC Infratech. 8%. DHFL. 8%. HCL Tech. 8%. CG Power & Industrial Sol
Premia Research
Usher in this Diwali with Dhan Ki Baat Dear Investor, We at IIFL, constantly strive to be the engine of imparting financial education. Taking forward this drive, this Diwali, we have joined hands with Zee Business and launched a 26episode televised series – Dhan ki Baat - your complete guide to understanding and managing your finances. Dhan Ki Baat will come to you every Monday at 10 PM and Saturday at 1:30 PM for the next 25 weeks. You can also catch the episode at Dhankibaat.co.in, our exclusive website on the show. The website will list investors’ FAQs besides addressing your queries. With Dhan Ki Baat, we aim to reach more than 5 crore people by 2018 end. It will tell you all that you need to know about financial planning, mutual funds, stock market investing basics, IPO investing, F&O trading, SIP, insurance and loans. We will also include specialized topics such as Succession Planning, AIF investing etc. which are topics of significant interest to HNI clients. This Diwali, celebrate the festival of lights by pledging to brighten up your life with sound Financial Planning. The average Indian investor has matured by leaps and bounds in the past few months. The Indian Mutual Fund Industry has shown immense promise and the Average Assets Under Management (AAUM) are at an all time high of `20.97 lakh crore. Today, investors are upbeat about investing in both mutual funds and equity, despite recent disruptions such as demonetization and the GST. The trend is likely to continue as investors today is more financially aware and is receptive to financial education. Looking at the economy, we believe with RBI inflation projection being raised to 4.6% from 4.2%, the prospects of reduction in rate cut in this financial year looks slim. RBI also reduced the GVA growth for FY18 to 6.7% from 7.3% on the back of lower growth in Q1FY18 because of the implementation of GST. However, from Q3FY18, we expect acceleration in the GDP growth due to lower base and increase in rural demand. In the next 2 years, we expect a surge in earnings growth at ~18-20% CAGR, mainly due to decline in interest cost, improving business environment and lower base that will further push the Nifty to new highs. In the bond market, we believe there would be uncertainty in the near-term till there is more clarity on growth and inflation. Bonds are expected to remain range-bound with an upward bias in the near-term on concerns of rising inflation, fiscal slippage, slowing FII inflows and surge in global interest rates. The report includes a SWOT analysis of the Indian economy. This report will offer our sector-wise view, and offer recommendations on the top Mutual Funds and Stocks.
Wishing you a very happy and prosperous Diwali IIFL Research
Premia Research
Indian Economy – SWOT Analysis
Strengths The government is on the path of fiscal consolidation
Weakness Implementation of GST lowered business activity for a short term
Government policies have attracted FDI investments (around Stressed balanced sheets of banks and large corporate $15 Bn for Apr-Jun 2017) Forex reserves have crossed $400 billion
State governments to see a rise in their fiscal deficits
Revision of GST will boost business momentum Government to take every possible step to boost infrastructure development National debt to GDP will fall to 63.3% by 2020 from ~69% in 2017, according to IMF GDP to grow at 7.4% and 7.8% for FY18 and FY19 respectively, according to IMF
Opportunities
Threats
Release of locked up resources is expected due to reforms in bankruptcy laws Low slippage due to direct benefit transfer and Aadhaar card linkage with accounts Exports are expected to grow on the back of recovery in the developed economies
No credit upgrade has been initiated on India International economies are changing towards isolation and protectionism Rise in commodity prices and oil prices Increase in global interest rates may hinder investment flow in India
Emerging countries such as Vietnam, Bangladesh and Philippines are a serious threat to India’s exports and competitiveness
Sector View
Premia Research
Pharmaceuticals • Pro: Valuations are attractive due to stock price corrections. • Con: Earnings are expected to be under pressure in FY18E due to pricing pressure and delays in USFDA approvals. • Recommendation - UNDERWEIGHT
NBFCs • Pro: Improving government thurst on affordable housing and falling interest rates would benefit the sector. • Recommendation - OVERWEIGHT
Infrastructure • Pro: Improving capex cycle and government thrust on infrastructure spending are the key triggers. • Con: Delays in project finalization are a major risk. • Recommendation - OVERWEIGHT
Information Technology • Pro: Depreciating rupee augurs well for the sector. • Con: Earnings likely to remain under pressure due to lack of pickup in BFSI segment and structural weakness in retail business. • Recommendation - NEUTRAL
Banking • Pro: Banks (private sector banks) with major focus on retail segment are likely to perform well. • Con: Deteriorating asset quality and poor capital base are key concerns for PSU banks. • Recommendation - OVERWEIGHT
Auto Ancillaries • Pro: Falling rubber prices, replacement market share gains and GST to drive organised sector. • Recommendation - NEUTRAL
Metals • Pro: Expected cutdown of steel & aluminium capacities in China, resulting in an increase in commodity prices auger well for the sector. • Recommendation - OVERWEIGHT
Premia Research
Gold’s Golden Era to Continue From the start of Samvat 2073, Gold prices have been flat though they are up 12% from start of the calendar year. A key factor aiding this upward movement is the geopolitical uncertainty arising from the volatile situation between the US and North Korea. Historically, Gold has been perceived as a safe haven which has protected its investors during economic downturn. India, the world’s second biggest metal consumer, was expected to witness a fall in its Gold imports prior to the removal of Prevention of Money Laundering Act (PMLA). The removal of this Act will provide the impetus to boost Gold imports in the coming months. On October 7, 2017,the government removed the Gems and Jewelry industry from PMLA. The removal of Gem and Jewelry from the ambit of the PMLA has come as a big relief for the sector. Following the move, jewelers need not verify the identity of their clients by a KYC process (PAN/Aadhaar Card details) for every transaction of `50,000 or more made through a single or multiple transactions. Gold purchase’s during religious festival accounts for 12% of the total demand in India as per the World Gold Council data. The move is expected to boost demand for gold jewelry during the festival season as jewelry makers are bombarding consumers with offers ranging from free silver coins to waiving off making charges to lure them into stores as sales plummeted by 50% even after prices of the precious metal fell this year. India's Gold import stood at 60 tons in August 2017, according GFMS data. As compared to this, India imported 97 tons of Gold in October 2016. Interestingly, the demand for Gold during festival of Dusshera was down 25% compared to last year. On MCX, Gold prices have been trading in higher top higher bottom formation. Recently in July, Gold has maintained its legacy and has taken support at 27,600 levels and bounced back till 30,500 mark. Moreover, Gold prices have been trading above its 100-week exponential moving average. We may see Gold prices testing its multiple high of 32,500 levels till Samvat 2074; however, a move above 32,500 mark could extend its life time high of 35,000 levels.
CMP: ` 29,720
IIFL Diwali 2017 Picks
Premia Research
Century Plyboards India Ltd
Stock Data Sensex
31,847
52 Week h/l (`):
314 / 154
Market cap (`Cr) :
5,538
BSE code:
532548
NSE code:
CENTURYPLY
FV (`):
1.0
Div yield (%):
0.39
Performance vs Sensex 130
Century Plyboards Ltd
Sensex
110 90 70
[CMP: `254; Target: ` 325; Upside: 27.9%]
Century Plyboards (CPBI) is expected to benefit from Government’s thrust on host of
schemes (Building smart cities, affordable housing) due to its leadership position in the organized plywood market (~25% market share) and being the 3rd largest player in the laminates market (~12% market share). The expansion of laminates capacity (~50% expansion) and high-margin MDF (medium density fibre) foray at an opportune time would add ~`320 Cr of incremental revenue (to form ~12% of FY19E revenues) over FY17-19E. We forecast its Debt: Equity ratio to decline by ~48 bps to 0.32 over FY17-FY19E. The GST reforms would have a structural impact leading to shift in demand for wood panel industry products from unorganized to organized players, benefiting CPBI as it has a leading market share profile and strong brand recall. We expect it to register ~25% earnings CAGR over FY17-19E. We value the stock at 25x on FY19E P/E to arrive at the target price of `325. We recommend BUY for next 12 months horizon. Financial Summary
50 Oct-16
Feb-17
Jun-17
Oct-17
Prices as on 09/10/2017
`cr
Revenue
EBITDA margin %
EPS (`)
EPS growth %
P/E (x)
ROE (%)
ROCE (%)
FY18E
2,256
17.6
10.5
25.3
24.1
25.6
23.3
FY19E
2,595
18.4
13.0
24.3
19.4
24.9
25.0
Source: Company, IIFL Research
Ujjivan Financial Services Ltd
Stock Data Sensex
31,847
[CMP: `340; Target: `423; Upside: 24.3%]
70
We are upbeat on growth outlook for Ujjivan Financial Services (UFSL) as a SFB (small finance bank). The growth in business and lowering cost of funds will aid margin expansion. The company is adequately capitalized for next two years. We expect the overall loan growth of ~18% in FY18E and a CAGR of ~26% over FY17-19E. Incrementally, the focus will be on secured segments like housing and MSME, which are expected to grow from 3% of the loan book currently to one-third of the loan book by FY20E. UFSL has got the scheduled bank status approval which will allow it to raise deposits from big institutions like MF, insurance companies, etc. We expect improvement in net interest margin by 140 bps over FY17-19E as cost of funds are anticipated to go down by 230 bps over the similar period. Going forward, we believe that the asset quality will improve as the company in Q1 FY18 took provisions and write-off of ~`159 Cr. Furthermore, the current collection efficiency is ~99% post demonetization while the management guided for 4% credit cost for FY18E. We value the stock at 2.8x on FY19E Adj. BV and recommend Buy with a target price of `423 for next 12 months horizon.
50
Financial Summary
52 Week h/l (`):
475 / 285
Market cap (` Cr) :
4,042
BSE code:
539874
NSE code:
UJJIVAN
FV (`):
10
Div yield (%):
0.19
Performance vs Sensex Ujjivan Financial Services
Sensex
110
90
Oct-16
Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
FY18E
Net interest income 7,471
Pre-provision profit 2,818
FY19E
9,520
3,954
`cr
Source: Company, IIFL Research
EPS (`)
EPS growth %
P/BV (x)
1.5
-
2.5
RoA (%) 0.2
16.4
-
2.3
1.7
RoE (%) 1.0 10.7
IIFL Diwali 2017 Picks
Premia Research
ICICI Prudential Life Insurance Ltd
Stock Data Sensex
31,847
52 Week h/l (`):
509 / 271
Market cap (` Cr) :
58,596
BSE code:
540133
NSE code:
ICICIPRULI
FV (`):
10
Div yield (%):
1.01
Performance vs Sensex 160
ICICI Prudential
Sensex
140 120
`cr
80 Oct-16
IPru Life is well positioned to capture growth opportunities arising from the buoyant equity markets, given its predominant positioning as seller of unit-linked products (ULIPs) and aided by robust distribution architecture and cost competitiveness. IPru Life has strong financials and a healthy balance sheet. Its persistency ratio and solvency ratio are higher than peers. We forecast IPru Life to deliver ~26% CAGR in value of new business (VNB) over FY17-19E driven by 14% CAGR in NBP (new business premium) and 390 bps increase in VNB margins. Embedded Value (EV) will likely grow at ~11% CAGR over FY17-19E. Return on Embedded Value (ROEV) should remain robust at 14-16.5% over the medium term. A strong market and capital position, rapidly improving profitability metrics and potential upside to earnings from stronger franchise growth should place IPru Life favourably among competitors. We value the stock at 2.6x on FY19E P/EV and recommend Buy with a target price of `512 for next 12 months horizon. Financial Summary
100
Feb-17
Jun-17
Oct-17
Prices as on 09/10/2017
[CMP: `403; Target `512; Upside: 27.2%]
FY18E FY19E
Net Premium Income 26,400 31,200
VNB Margins (%) 12.0 13.0
EPS (`) 11.7 13.5
EPS growth % 0.0 15.4
P/EV (x) 2.3 2.0
RoE (%)
RoEV (%)
24.3 24.1
14.0 14.8
Source: Company, IIFL Research
Stock Data
CG Power & Industrial Solutions Ltd
Sensex
31,847
52 Week h/l (`):
97 / 56
Market cap (` Cr) :
5,011
BSE code:
500093
NSE code:
CGPOWER
FV (`):
2.0
Div yield (%):
-
Performance vs Sensex 120
CG Power & Industrial Solutions Sensex
100
80
60 Oct-16
Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
[CMP: `80; Target `99 Upside: 23.8%]
Divestment of ailing units (Ziv, US Power, Hungary business) would help international subsidiaries to breakeven in FY18E and turn positive in FY19E that should boost consolidated recurring EPS CAGR to 35% over FY17-20E. Power Systems EBIT margins have recovered in FY17 led by cost efficiency initiatives and turnaround in distribution transformers. With likely closure of the loss-making projects (Power Solutions) in FY18E, Power Systems EBITDA margins are expected to be 10% plus. CG saw a significant traction in the railways segment during FY17 and targets to consistently increase market penetration supported with new product offerings. Product portfolio expansion, new BEE norms for motors, and increasing presence in railways would drive high growth in Industrial Systems. We forecast 15% earnings CAGR over FY17-20E vs 3% in FY15-17 for this segment. The above initiatives will strengthen the balance sheet and help ROCE expand to 8.2% level in FY19E. With the worst behind, we believe that successful closure of the Hungary deal and improvement in core business would support re-rating of the stock. CG Power on 14.5x FY19E EPS is at a significant discount to most capital goods peers. We recommend BUY with the target price of `99 for next 12 months horizon. Financial Summary `cr
Revenue
EBITDA margin %
EPS (`)
EPS growth %
P/E (x)
ROE (%)
ROCE (%)
FY18E
6,123
8.1
3.4
17.2
23.5
5.2
8.2
FY19E
6,880
9.3
5.5
61.8
14.5
8.2
10.5
Source: Company, IIFL Research
IIFL Diwali 2017 Picks
Premia Research
Tata Motors DVR
Stock Data Sensex
31,847
52 Week h/l (`):
378 / 208
Market cap (` Cr) :
12,130
BSE code:
570001
NSE code:
TATAMTRDVR
FV (`):
2.0
Div yield (%):
0.08
Performance vs Sensex 115
Tata Motors - DVR
Sensex
Jaguar Land Rover volumes are expected to ramp up on account of three new launches over the next 12 months. EBITDA margins were impacted on account of weakness in volume growth and model mix in the past are expected to improve with new launches. Moreover, its hedging losses are expected to decline from Q4 FY18 thus aiding margin expansion. Historically, the DVR share has traded at a discount of ~35% over the FY15-17 to the ordinary share. However, this discount has widened to ~44% since Sep 2017. Narrowing spread between the two makes DVR an ideal investment opportunity. We arrive at target price of `317 for the DVR share based on 35.7% (3 year average) discount to our exit price of `492 for the ordinary share. Financial Summary
95
` Cr. FY18E FY19E
75
[CMP: `239; Target: `317; Upside: 32.7%]
Revenue 2,99,013 3,40,975
Growth YoY 10.9 14.0
EBITDA Margin 12.1 13.5
EPS (`) 25.1 39.4
Growth YoY 14.4 56.7
P/E (x) 9.5 6.1
P/ ABV (x) 0.9 0.8
ROE 12.2 14.5
Source: Company, IIFL Research
55 Oct-16
Feb-17
Jun-17
Oct-17
Prices as on 09/10/2017
Stock Data
Grasim Industries Ltd
Sensex
31,847
52 Week h/l (`):
1,375 / 782
Market cap (` Cr) :
76,024
BSE code:
500300
NSE code:
GRASIM
FV (`):
2.0
Div yield (%):
0.48
Performance vs Sensex 140
Grasim Industries Ltd
Sensex
120 100
[CMP: `1,157; Target: `1,499; Upside: 29.6%]
On account of consolidation in the cement industry, we expect UltraTech Cement to increase its market share which will result in volume growth. Since Grasim has ~60% stake in UltraTech, we expect strong momentum in UltraTech’s earnings to drive Grasim’s share price. The standalone businesses have been performing well with strong performance in Q1 FY18 aided by higher realizations (VSF) and higher caustic soda prices (Chemicals) and the outlook for the same remains bright. We value these at 8.0x its FY19E EBITDA. Merger gives Grasim shareholders access to fast growing financial services business. Aditya Birla Capital currently trades at a premium of ~25% to Premji Invest transaction value. Valuing the company on SOTP basis, Grasim remains inexpensive considering the positive traction in each of the major businesses (Cement, Chemicals & VSF and Financial Services). Considering the value of its investments (25% holdco discount) we arrive at the target price of `1,499 for Grasim.
80
Financial Summary
60 Oct-16
Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
FY18E
44,419
Growth YoY --
FY19E
54,037
21.7
`Cr.
Revenue
Source: Company, IIFL Research
EBITDA Margin 21.1 22.4
53.3
Growth YoY --
72.8
36.6
EPS (`)
P/E (x)
P/ ABV (x)
ROE
21.7
1.6
10.6
15.9
1.4
13.1
IIFL Diwali 2017 Picks
Premia Research
Sintex Plastics Technology Ltd
Stock Data Sensex
31,847
52 Week h/l (`):
103 / 88
Market cap (` Cr) :
5,344
BSE code:
540653
NSE code:
SPTL
FV (`):
1.0
Div yield (%):
--
Performance vs Sensex 115
Sintex Plastics Technology Ltd
Sensex
95
The recent demerger of the Plastic and EPC business into Sintex Plastics Technology (SPTL) will unlock value for the Plastics business in our opinion as it will be re-rated on account of better operational metrics. 87% of SPTL’s FY17 Custom Molding business revenue comes from industrial verticals, which are mainly composite plastics. There is an increasing trend of composite plastics replacing metal part in applications covering Auto, Aviations, Electronics, Mass transit, etc. owing to its light weight. Higher substitution along with potential demand from shift towards Electric Vehicles can boost volumes for SPTL. We expect steady deleveraging over FY17-19E on account of minimal capex, lower allocation towards w/c intensive monolithic business and improving profitability. The stock is trading at 10.7x its FY19E earnings, which is attractive considering other plastic companies like Nilkamal and Supreme Industries that are trading at ~15.0x and ~21.0x their FY19E earnings. Financial Summary
75 Aug-17
Sep-17
Oct-17
Prices as on 09/10/2017
[CMP: `92; Target: `147; Upside: 59.5%]
FY18E
6,457
EBITDA Margin 16.9
FY19E
7,083
17.1
`Cr.
Revenue
7.4
Growth YoY 6.1
8.7
17.6
EPS (`)
P/E (x)
P/ ABV (x)
ROE
ROCE
12.5
1.6
13.4
7.7
10.7
1.4
13.9
8.7
Source: Company, IIFL Research
Stock Data
InterGlobe Aviation Ltd
Sensex 52 Week h/l (`):
1,347 / 807
Market cap (` Cr) :
42,300
BSE code:
539448
NSE code:
INDIGO
FV (`):
10.0
Div yield (%):
3.1
Performance vs Sensex 140
[CMP: `1,101; Target: `1,381; Upside: 25.4%]
31,847
Interglobe Aviation Ltd
Sensex
InterGlobe Aviation (IndiGo) is India’s largest passenger airlines with market share of ~38% as of August 2017. InterGlobe is transforming strategically, and its moves include 1) shifting from pure sale and leaseback models to buying aircrafts, 2) targeting shorter term leases while the Neo engine issues are resolved and 3) increasing focus on regional routes (inducting ATRs Vs single aircraft type). These are expected to aid market share gains for IndiGo. The company has sufficient cash on the books ~`8,000 Cr (post QIP @ `1,130 per share) which should enable it to fund its fleet acquisitions. InterGlobe is trading at an attractive valuation of 14.4x its FY19E earnings. Considering huge penetration opportunity available, stable yields, and strong return ratios, we value the stock at 18.0x its FY19E EPS and arrive at price target of `1,381.
120
Financial Summary
100
80 Oct-16
FY18E
22,947
Growth YoY 23.5
FY19E
28,490
24.2
`Cr. Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
Revenue
Source: Company, IIFL Research
EBITDA Margin 13.9 14.0
59.1
Growth YoY 28.7
76.7
29.8
EPS (`)
18.6
P/ ABV (x) 8.1
50.6
14.4
7.0
52.4
P/E (x)
ROE
IIFL Diwali 2017 Picks
Premia Research Stock Data
L&T Infotech Ltd
Sensex
31,847
52 Week h/l (`):
840 / 595
Market cap (` Cr) :
13,653
BSE code:
540005
NSE code:
LTI
FV (`):
1.0
Div yield (%):
2.1
Performance vs Sensex 140
L & T Infotech Ltd
Sensex
120
100
L&T Infotech Ltd’s (LTI) focus on micro-verticals (capital markets, property, casualty insurance, manufacturing and energy) and a track record of strong client mining is its competitive advantage. The top 20 clients (68% of its revenues in FY17) have driven ~11% revenue USD CAGR over the past three years. Pick up in BFS spending as the regulatory norms soften will lead to ~13% revenue USD CAGR (FY17-19E) from this segment. LTI is also banking on its digital offerings in insurance which is gaining traction amongst clients and is expected to grow at ~9% USD CAGR (FY17-19E). BFSI contributes ~34% to total revenues. North America is still the key market (69% of revenues), the company is making investments in UK, Germany, and Switzerland to diversify its geographical risk. We believe steady growth in top 20 accounts and execution of large deals in FY18E will help the company exceed the avg. industry revenue growth in FY18E. Also formidable hedging strategy (cash flow hedge book of ~$850mn) will keep margin stable at 14-15%. The stock trades at 12xFY19E EPS, relatively lower as compared to peers despite higher returns (ROE & ROCE). We recommend Buy (15xFY19E EPS). Financial Summary
80 Oct-16
Feb-17
Jun-17
Oct-17
Prices as on 09/10/2017
`Cr. FY18E FY19E
Revenue
EBITDA margin
EPS(`)
EPS Growth (%)
P/E (x)
ROE
ROCE
6,956 7,582
17.9% 17.8%
60.4 66.5
6.4 10.0
13.2 12.0
27.4% 27.8%
28.3% 28.6%
Source: Company, IIFL Research
Stock Data
IDFC Ltd
Sensex
31,847
52 Week h/l (`):
71 / 50
Market cap (` Cr) :
10,286
BSE code:
532659
NSE code:
IDFC
FV (`):
10.0
Div yield (%):
0.4
Performance vs Sensex 140 IDFC Ltd
Sensex
120 100
[CMP: `64; Target: `84; Upside: 30.9%]
IDFC has five business verticals - IDFC Bank (53% stake) and wholly owned businesses- IDFC Infrastructure Finance Ltd (IDFC IFL), IDFC AMC, IDFC Alternative and IDFC Securities. IDFC IFL has a well-diversified and healthy portfolio with loan book of `2,893 Cr (Q1FY18). IDFC AMC is the 10th largest fund house in India with an AUM of `61,491 Cr and a ~3.4% market share. IDFC Bank is the major contributor (75%-80%) of its operating income. IDFC Bank’s focus on customer acquisition (from 1.4mn to 10mn by FY20), diversification into retail/working-capital loans and increasing branch presence will drive its loan growth. We value IDFC’s stake in IDFC Bank at `75 and other businesses at `30.5. We arrive at SOTP based target price of `84 (20% holdco discount). Positive development on new merger structure with Shriram Group may provide further upside. Financial Summary
80
`Cr.
60 Oct-16
[CMP: `798; Target: `997; Upside: 24.9%]
Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
FY18E FY19E
Revenue
PBT
EPS (`)
12,341 15,056
2,126 2,980
5.3 7.5
Source: Company, IIFL Research
EPS Growth (%) 21.7 40.2
P/BV (x) 0.9 0.8
ROE
ROCE
7.3% 9.4%
8.6% 8.8%
IIFL Diwali 2017 Picks
Premia Research
Apollo Tyres Ltd
Stock Data Sensex
31,847
52 Week h/l (`):
288 / 172
Market cap (` Cr) :
12,150
BSE code:
500877
NSE code:
APOLLOTYRE
FV (`):
1.0
Div yield (%):
0.8
Performance vs Sensex 140 Apollo Tyres Ltd
Sensex
120 100 80 60 Oct-16
Feb-17
Prices as on 09/10/2017
Jun-17
Oct-17
[CMP: `239; Target: `299; Upside: 25.1%]
Apollo Tyres Ltd (ATL) is the largest CV tyre manufacturer in India with 25% market share each in the T&B (Truck and bus) bias segment and in the T&B radial segment. In the Passenger Car Radial (PCR) segment, it is the 3rd player with 16% market share. In order to enhance its business scale, ATL is undergoing capacity expansion at its Chennai (doubling capacity to 12,000 TBR) and Hungary plant. ATL has also acquired Germany-based tyre distributor, reifencom GmbH to ramp up its retail network in Europe. It has recently raised `1,500 Cr (at `238 per share) through QIP to help finance its capex plans. We believe domestic players like Apollo Tyres will continue to benefit from increasing demand and less competition as Chinese manufacturers are now concentrating on the more profitable US market. Anti-dumping duty (10-12% levy) on Chinese TBR imports will provide relief to domestic tyre makers. The company is well poised for growth by consolidating its leadership position in-key markets through new products (launch of the two-wheelers tyre range) and increasing retail presence. Also, consistent correction in rubber prices will lead to margin expansion. Capacity expansion by ~40%, new order wins from European OEMs and lower competition from China will drive volume growth leading to revenue CAGR of 11.5% (FY17-19E). The stock trades at 10.4xFY19E EPS (post QIP), which is reasonable as compared to auto ancillary industry’s average of 10-14xP/E. We recommend Buy (13xFY19E EPS). Financial Summary `Cr.
Revenue
EBITDA margin
14,137 16,329
13.5 14.8
FY18E FY19E
EPS (`)
EPS Growth (%)
P/E (x)
ROE
ROCE
10.6 28.7
13.4 10.4
10.9% 12.4%
13.1% 14.9%
17.9 23.0
Source: Company, IIFL Research, Numbers are adjusted for QIP issue
Diwali 2016 stock pick’s performance Sr. No 1
Company
Recommended Price 344
518.15
Highest Level reached since recommended 600.9
% Return at CMP 51
39
39.2
50.75
1
143
118.35
150.5
(17)
CMP
3
RBL Bank Ltd. PTC India Financial Services Heidelberg Cement India
4
DHFL
325
544.7
618
68
5
Arvind
404
381.75
426.85
(6)
6
KEC International
127
308.45
337.6
143
7
Granules India
125
126.1
157.25
1
8
Aurobindo Pharma
820
729.1
831.25
(11)
9
Tata Chemicals
566
681
692
20
10
Navneet Education
109
165.5
193.5
52
2
Average Return * P&L calculation has been done from October 26, 2016
30
Mutual Funds to invest in this Diwali
Premia Research
The AUM of the mutual fund industry has crossed `20 lakh crore in August 2017. In the last 10 years, the AUM of the mutual fund industry has increased more than 6 times because of the record breaking inflows. During April 2017 - August 2017, the mutual fund industry has received `23,750 crore via SIPs. Besides, AMFI data showed that mutual fund industry has added ~8.5 lakh SIP accounts every month during FY18. The aforementioned data indicates that there is a significant shift in saving and investing habits of Indian investors. To create wealth for our investors, on this auspicious occasion of Diwali, we recommend the following mutual funds.
Scheme Name
1Y (%)
3Y (%)
5Y (%)
14.9
14.0
18.3
12.1
9.3
11.3
NIFTY 50
14.7
8.4
12.0
Average Category Return
12.8
11.8
15.3
ICICI Pru Balanced Fund(G) CRISIL Balanced Fund - Aggressive Index
*1 year returns are absolute; 3 years and 5 years returns are CAGR *Returns as on Oct 06, 2017
Scheme Name
1Y (%)
3Y (%)
5Y (%)
Aditya Birla SL Top 100 Fund(G)
17.0
14.0
18.5
NIFTY 50
14.7
8.4
12.0
Average Category Return
15.7
12.8
15.6
*1 year returns are absolute; 3 years and 5 years returns are CAGR *Returns as on Oct 06, 2017
Scheme Name
1Y (%)
3Y (%)
5Y (%)
Axis Focused 25 Fund(G)
22.0
17.9
17.7
NIFTY 50
14.7
8.4
12.0
Average Category Return
15.7
12.8
15.6
*1 year returns are absolute; 3 years and 5 years returns are CAGR *Returns as on Oct 06, 2017
ICICI Pru Balanced Fund It is an equity-oriented balanced fund which does tactical allocation between debt and equity based on the market outlook to ensure optimal risk reward. As of August 2017, the fund has invested ~70% of AUM in equity to give steady growth over long term while ~27% is allocated to debt investments to cap the downside risk. In this fund, ~57% of the AUM is invested in large-cap stocks while ~13% is invested in mid-cap and small-cap stocks. So, investors who want to follow balanced approach i.e. 70% equity and ~30% debt can invest in the scheme to create wealth in long term.
Aditya Birla SL Top 100 Fund It is an equity fund which primarily invests in top 100 stocks by market capitalization. The fund follows growth cum value investment style. As of August 2017, the fund has invested ~80% of its AUM in large-cap stocks and ~8% is invested in mid-cap stocks. Aggressive investors who want to invest in large-cap stocks can invest in the fund to create wealth in long term.
Axis Focused 25 Fund It is an equity fund that invests in high conviction stocks, maximum 25 stocks, from top 200 stocks by market capitalization. The fund’s strategy is to invest in quality companies with credible management, sustainable profit growth and cash flow, and have clean balance sheet. As of August 2017, the fund has invested ~60% of its AUM in large-cap stocks and ~27% in mid-cap stocks to generate higher returns. Aggressive investors who want to take exposure in high conviction large-cap and mid-cap stocks can invest in the fund to create wealth in long term.
Mutual Funds to invest in this Diwali
Premia Research Scheme Name
1Y (%)
3Y (%)
5Y (%)
Tata Equity P/E Fund
28.1
21.0
22.9
BSE Sensex
13.4
6.6
11.2
Average Category Return
15.7
12.8
15.6
*1 year returns are absolute; 3 years and 5 years returns are CAGR *Returns as on Oct 06, 2017
Scheme Name HDFC Mid-Cap Opportunities Fund(G) Nifty Free Float Midcap 100 Average Category Return
1Y (%)
3Y (%)
5Y (%)
16.0
19.8
25.1
16.0
18.2
18.6
17.8
18.7
23.8
*1 year returns are absolute; 3 years and 5 years returns are CAGR *Returns as on Oct 06, 2017
Scheme Name
6M (%)
1Y (%)
2Y (%)
IIFL India Growth Fund – Reg(G)
10.0
12.9
17.1
NIFTY 50
7.7
14.7
10.6
Average Category Return
9.0
15.6
13.7
*6 months and 1 year returns are absolute; 2 years returns are CAGR *Returns as on Oct 06, 2017
Tata Equity P/E Fund It is a value conscious equity fund which aims to invest 70-100% of its AUM in stocks whose 12 months rolling PE ratio is lower than 12 month rolling PE ratio of BSE Sensex. The remaining AUM is allocated in other equity and debt instruments. The fund has invested ~58% of its AUM in large-cap stocks and ~28% in mid-cap stocks to generate higher returns. Aggressive but value conscious investors can invest in the fund to create wealth in long term.
HDFC Mid-Cap Opportunities Fund It is a mid-cap equity fund which has allocated 60% to mid-cap stocks and ~28% to large-cap stocks to generate high returns for investors. It has a well-diversified portfolio with no more than ~10% exposure to any particular sector. It has also managed its concentration risk, top 10 stocks account for only ~25% of the AUM. Aggressive investors who want to take exposure to mid-cap stocks can invest in the fund to create wealth in long term.
IIFL India Growth Fund It is an equity fund which aims to generate significant alpha by investing in 20-25 high conviction stocks rather than typical 50-70 stocks. The fund has invested ~80% of its AUM in large-cap stocks and ~13% in mid-cap stocks. Aggressive investors who want their fund managers to invest in high conviction ideas rather than numerous stocks can invest in the fund to create wealth in long term.
Equity - Model Portfolio
Premia Research
Under Aggressive, Moderate and Conservative portfolio, we have given maximum weightage to banking sector, as we believe falling cost of funds and revival of credit growth bodes well for the banking sector. Also, we believe improving CASA ratio and higher core fee income are positive for banking stocks in our model portfolio. We are also overweight on Infra/Cap-goods considering improving order books, revival in capex and increasing execution; government thrust on infrastructure spending will facilitate the above mention triggers. Closure of illegal aluminium capacities in China to curb pollution have contributed to a rise in aluminium prices. Outlook for aluminium demand as well as prices remains strong, given expected high global deficits over the next few quarters. Hence, we are positive on Hindalco in the Metals space. We are also bullish on housing finance space as we believe improving thrust by government on affordable housing under PMAY will boost respective company's loan book and will also improve the product demand for companies dealing into building material products. Moreover, infra status to housing finance sector would lower cost of funds for the housing finance space. We are bullish on HUDCO, DHFL, GIC & Century Plyboards.
Aggressive Company
Moderate Allocation (%)
Company
Conservative Allocation (%)
Company
Allocation (%)
Hindalco Ind.
6%
Tata Motors DVR
7%
Amara Raja
8%
ICICI Bank
8%
Kotak Mahindra Bank
9%
Motherson Sumi
8%
Kotak Mahindra Bank
7%
ICICI Bank
8%
HDFC Bank
7%
Federal Bank
8%
South Indian Bank
8%
Federal Bank
8%
HUDCO
8%
Federal Bank
7%
ICICI Bank
8%
GIC Housing Finance
7%
CESC
8%
Grasim Industries
8%
CESC
9%
L&T
6%
L&T
9%
L&T
9%
Century Plyboard
7%
Infosys
7%
PNC Infratech
8%
DHFL
8%
HCL Tech
8%
CG Power & Industrial Solutions
7%
REC
8%
REC
8%
Sintex Plastic
7%
M&M Finance
8%
Petronet LNG
7%
Godrej Properties
7%
ICICI Prudential Life
8%
Aurobindo Pharma
7%
Century Plyboards
9%
Hindalco Ind.
8%
M&M Finance
7%
Premia Research
Asset Allocation Conservative portfolio Gold ETF 15%
A Conservative investor aims to generate a healthy mix of capital appreciation and capital protection. His primary aim is capital protection. The 60% exposure to debt and gold ensures a capital protection while 40% allocation to equity will generate high returns in long-term.
Equity 40%
Debt 45%
Moderate portfolio Gold ETF 5%
A moderate investor seeks for a mixture of modest capital appreciation, safety and income. His key objective is to generate decent returns with limited downside risk. The 35% exposure to debt and 5% exposure to gold will ensure limited downside risk while 60% allocation to equity will enhance alpha in long periods.
Debt 35% Equity 60%
Aggressive Portfolio
An aggressive investor hunts for higher returns and is ready to face the short-term volatility. So, he should allocate 80% of his capital to equity to generate higher returns. He should also invest in debt to keep a favorable risk-reward.
Debt 20%
Equity 80%
Disclaimer Recommendation Parameters for Fundamental/Technical Reports: Buy – Absolute return of over +10% Accumulate – Absolute return between 0% to +10% Reduce – Absolute return between 0% to -10% Sell – Absolute return below -10% Please refer to http://www.indiainfoline.com/research/disclaimer for recommendation parameter, analyst disclaimer and other disclosures. Published in 2017. © India Infoline Ltd 2017, India Infoline Limited (Formerly “India Infoline Distribution Company Limited”), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, SenapatiBapatMarg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22) 25806654 E-mail:
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