Geojit Financial Services recommends the following stocks:
Vinati Organics Ltd Rating: Reduce
Vinati Organics (VOL) enjoys global leadership in two speciality chemicals, with market share of 60 percent in IBB and 40 percent in ATBS.
Q4FY17 revenue growth was healthy at 26 percent YoY led by higher contribution for new products, while PAT growth was limited to 3 percent YoY due to higher tax outgo. We factor earnings to grow at 21 percent CAGR over FY17-FY19E. VOL is currently trading at a premium valuation of 24x (1 yr fwd P/E). Given improvement in earnings outlook with introduction of new products we value VOL a P/E 20x (18x earlier) on FY19E. Given recent steep run in stock prices we maintain Reduce rating.
ABB India Ltd Rating: Reduce
ABB India Ltd (ABB), a 75 percent subsidiary of Swiss major ABB Group, is into the business of manufacturing heavy electrical equipment including switchgears, transformers, drives and other products.
ABB India's Sales increased by 8.3 percent YoY in Q1CY17 as power grids/robotics & motion segment reported healthy growth of 13 percent/11 percent YoY. EBITDA margin was down 73bps YoY to 7.9 percent led by higher provisioning on account of expected credit loss (ECL) under Ind-AS norms. The company reported 28 percent YoY jump in Q1 order intake primarily driven by government spending in T&D, railways & renewables. The order backlog grew by 54 percent YoY & stood at Rs 12,023 crore. We expect revenue/PAT to witness a CAGR of 20 percent/38 percent over CY16-18E. Given that the private sector capex still remains elusive coupled with rich valuations of 62.3x CY17 EPS & 45.8x CY18 EPS, we have ‘REDUCE’ rating on ABB.
KEC International Ltd Rating: Accumulate
KEC International Limited (KEC) is a global infrastructure Engineering Procurement and Construction major.
Q4FY17 revenue grew by 10 percent YoY supported by pick-up in T&D and railway execution. EBITDA margin improved by 154bps YoY to 10.4 percent with operating leverage building up in railway & solar business. Order book looks healthy at Rs 12,631 crore cemented by 42 percent YoY growth in order intake in FY17. Healthy order book & improvement in margins will drive the earnings growth. We factor adjusted PAT to grow at CAGR of 23 percent over FY17-19E.
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