INC Research has come out with its report on power pics for December 2011. The research firm has shared its view on Ashok Leyland, Ashoka Buildcon, Bajaj Auto, CESC, HCL Tech, HSIL, Infosys, IRB Infrastructure, Jagran Prakashan, Jyothy Laboratories, Mahindra & Mahindra, Nestle India, NIIT Tech, Phoenix Mills, Power Grid Corporation and Tecpro Systems.
Ashok Leyland dispatches in Q3FY11 has been lower due to the pre-buying and pipeline stocking related to change in emission norms. We expect Ashok Leyland volumes to grow 15.6% in H2FY12 partly aided by the low base of Q3FY11. 2) Management expects to increase contribution from Pantnagar facility from 13k units in H1FY12 to 20k units in H2FY12. We expect FY12 margins at 10.8% driven by higher contribution from the Pantnagar facility which is eligible for fiscal benefits. 3) Benefits of Pantnagar operations are already visible in AL's profitability during H1FY12 wherein despite inflationary pressures and low volumes, it has managed to have operating margins at ~10%. 4) Ashok Leyland's JV with Nissan for LCVs launched its first product 'Dost' recently. The company targets a sale of 10k units in H2FY12. Our earnings estimates for FY11 and FY12 are Rs2.5 and Rs3.1 respectively. Our FY12 earnings estimate is 9% higher than the consensus estimate of Rs2.3. We have a 'BUY' recommendation on the stock with a target price of Rs38, which discounts FY13E earnings by 12.5x.
We believe, Ashoka Buildcon (ABL), a well experienced BOT road player with 18 operational project and 6 projects of ~2500kms under construction, is likely to become a prominent player in road infra over the next 3 years. However, due to unhealthy industry and market dynamics the stock is available at a sharp discount of P/BV 0.9x, which we believe does not reflect a long term average valuation for the company. Our FY12 and FY13 earnings estimates are Rs18.5 and Rs25.5, 14.2% and 16.3% lower than consensus estimates respectively. We expect top-line growth of 29.3% and 30.1% to Rs16.8bn and Rs21.9bn in FY12E and FY13E vs. consensus forecasts of 28.2% and 32.5% to Rs16.7bn and Rs22.1bn, respectively. We value BOT (on a DCF basis) at FY12E and FY13E equity multiples of 1.6x and 1.1x, respectively. Our SOTP-based target price is Rs321, where BOT is valued at Rs198 and EPC at Rs122 (8x FY12E earnings). The stock offers an upside potential of 73.4% at our SOTP-based target price of Rs321 vs. consensus target of Rs323.
The high-margin brands Pulsar and Discover, now account for 70% of the Bajaj Auto's motorcycle sales thus validating its brand-centric strategy. The company is scheduled to launch a complete upgrade of the Pulsar family and KTM branded motorcycles in Q4FY12. In addition, continued demand for three-wheelers and robust exports would help Bajaj Auto achieve volume growth of 16.2% in FY12E and 11.9% in FY13E. Export profitability is all set to get a boost due to the price hikes taken and the rupee depreciation. Our FY12 and FY13 earnings estimates are Rs107.5 and Rs123.3, respectively. We have a 'BUY' recommendation on the stock with a target price of Rs1,850 discounting FY13E earnings at 15x. Our FY12 earnings estimate is 1.2% higher than the consensus estimate of Rs106.2.
CESC is one of the most efficient power utilities operating at more than 85% PLF. It plans to nearly double its installed capacity to 2.4GW by FY15 by adding 600MW each at Chandrapur and Haldia - power from these projects will be sold largely on long term basis. Unlike its private sector peers, CESC currently has no merchant exposure and operates all existing units under a regulatory framework - thus aiding steady cash flow. All power generated from these units is sold to its distribution arm, thus reducing risk of backingdown and default. We believe a robust base business would generate sufficient cash to fund capex of the consolidated entity and Spencer's losses. At the current market price, the generating business is available at 0.5x FY13 book, thus making CESC the most attractive generator in our coverage universe. Our FY12 & FY13 PAT estimates are in line with consensus. We value various projects - both existing and future - on FCFE basis to arrive at a target price of Rs346 (terminal growth rate 3% and cost of equity 15%).
HCL Tech has capability to win new projects due to its strengths in IMS and package implementation (through AXON) particularly when project restructuring deals are growing faster. HCL Tech is focused on developing capabilities in Enterprise Mobility, Cloud Computing and Analytics to complement its existing offerings and is looking for acquisitions for the same. It has potential to improve margins on the back of an improving employee pyramid and scale efficiencies. Our revenue. EBITDA margin and EPS estimates for FY12 are higher than consensus by 2.1%, 78 bps and 9.3% respectively. For FY13; our revenue, EBITDA margin and EPS estimates marginally lag the consensus by 1.3%, 39bps and 1% respectively.
HSIL operates in 2 business segments, sanitary ware and container glass. Strong recall of the flagship sanitaryware brands, Hindware Art and Hindware Italian Collection, enhance HSIL's market leadership with 40% share in organised sanitaryware market and advantageous location of container glass plants have helped achieve a 70% market share in south India. Our earnings estimates (EPS) for FY12 and FY13 are Rs20.1 and Rs27.4, respectively. Our FY12 earnings estimate is 11% higher than consensus estimate of Rs18.1. We have a 'BUY' recommendation on the stock with a target price of Rs270, which discounts FY12e earnings by 13.5x.
We recommend staying with the leader during uncertain times. Infosys has a full-services portfolio with exposure to well-diversified verticals. The new management appears more aggressive on aspects such as inorganic growth and is looking for acquisitions in healthcare vertical and for increasing presence in Europe. Our revenue estimate is marginally higher than consensus at 0.5% for FY12 and is in line with consensus for FY13. EBITDA margin estimates are higher by 110bps for FY12 and 28 bps for FY13. While our EPS estimate is 2% higher than consensus EPS for FY12, it is in line with consensus for FY13.
Despite the infra segment languishing due to fundamental issues, we believe road BoT segment would fare well and we prefer IRB due to its unique ability to manage and win competitive projects. We strongly believe in IRB's ability to grow and sustain its strong business model. 1) Lower IRR owing to further increase in interest rates; 2) Strain on the balance sheet from infusion of Rs12.8bn in equity in Ahm-Vado project; 3) Lower traffic growth; and 4) adverse impact on IRB's tolling charges from any change in the government policy.
JAGRAN PRAKASHAN (JPL)
We like JPL for its leadership in the UP market (the largest print market in terms of readership and print ad value). We believe the company is well poised to benefit from steady growth in the print media sector, underpinned by: 1) its well-entrenched position in growing regions such as Bihar and Jharkhand; 2) phased and planned expansion into new media businesses; and 3) a wide portfolio (including Mid-day, I-next and Cityplus). JPL's well-balanced business model (more than 30% revenue from circulation and other media businesses), its growth strategy to further increase penetration in terms of circulation in its current market, and monetisation of its readership insulates it from slowdown in advertisements due to the current macroeconomic scenario. Our FY13 revenue estimate is 5% below consensus. However, our FY13 EPS estimate of Rs8 is in-line with estimates. We have a 'BUY' recommendation on the stock with a target price of Rs148 (18xFY13E EPS).
In our opinion, Jyothy Laboratories (Jyothy) 23% correction in the stock price in the past 6 months has factored all the near term worry. Jyothy's standalone business should recover in H2FY12 onwards and we believe except Maxo the dynamics of the standalone business are still at the same level. We are bullish on turnaround performance of Henkel India (Henkel) and its profitable performance since acquisition has been encouraging. Jyothy is among the few companies in the FMCG space which has immense potential for long-term profitability growth. Our estimates for FY13 are among the highest on the street, led by expectation of better performance of the core business and sustainability of Henkel's profitable performance. We assign 16x to FY13E earnings and add Rs12/share NPV on tax saving of Rs1.2bn @12% discount rate to derive the TP of Rs212.
MAHINDRA & MAHINDRA
An extensive product range has helped M&M maintain its dominance in the utility vehicle (UV) and pick-up segments and maintain healthy margins despite raw material cost increases. During FY12, we expect doubledigit growth of 13.2% in the automotive segment. A normal monsoon this fiscal and expectation of higher crop yields bode well for the tractor segment; we expect 11% growth in the tractor segment. Our FY12 and FY13 earnings forecast are Rs45.7 and Rs52.9 respectively. Our FY12 earning estimate is 1.2% higher than the consensus estimate of Rs45.2. We value M&M at Rs877 using SOTP methodology, discounting the standalone business at 13x FY13E earnings.
Nestle's monopoly in Maggi noodles would be difficult to maintain for long period post the entrance of big players. Competition is rising in almost all the categories while Nestle is expanding capacities which would force the company to maintain volume market share. Higher marketing efforts would be required for retaining leadership position which would exert pressure on profitability. In the past 6 months, Nestle underperformed FMCG sector by ~8% resulting in the reduction in P/E premium over FMCG sector to ~31% from ~45%. Despite, we believe valuations are still very expensive. Our estimates and target price are lower than the consensus, led by the expectation of pressure on EBITDA margin and argument of narrowing down of the Nestle's valuation premium. We assign P/E of 30x on the next 12-months earnings to derive TP of Rs3,578.
NIIT Tech has large exposure to high-growth niche verticals such as insurance and travel. Recent acquisition of Proyecta Sistemas and JV with Morris, will give further thrust to growth through access to untapped markets and presence in newer industries. New service lines would boost non-linear growth and lead to improvement in realisations. Moreover, it has a differentiated strategy with development of IPs in emerging technologies (such as cloud computing) & verticals (such as insurance & healthcare). Our top-line estimate for FY12 is marginally higher by 1.8% than consensus and is in line with consensus for FY13. Our EBITDA margin estimates are marginally lower by 11bps and 25bps for FY12 and FY13 respectively. Our EPS estimates for FY12 & FY13 varies from consensus by 1.3% and (4.2%) respectively.
PHNX's key project, High Street Phoenix (HSP), is now fully operational and is likely to generate rental income of Rs2-2.2bn in FY12E. In Q1FY12, the Pune Market City (PHNX stake: 58.5%) was launched and Bengaluru Market City was launched in Q3FY12. This will help strengthen the company's rental model. At present, PHNX's rental revenue (FY11: Rs1,8bn) comes from HSP and the launch of Pune and Bangalore Market City is likely to add ~Rs550mn of rental revenue to the top line in FY12E. Our EPS estimates for FY12 and FY13 are Rs10.8 and Rs11.9, respectively. Our FY12 earnings estimate is 30% higher than consensus estimate of Rs8.3. We have a 'BUY' recommendation on the stock with a target price of Rs265, which discounts FY12E gross NAV by 15%.
PGCIL is moving ahead to achieve its XIth plan capex and capitalisation target of Rs550bn (76% achieved till H1FY12) and Rs320bn (82% achieved till H1FY12) respectively. It aims to significantly ramp up its capex over the XIIth Plan period, as it seeks to nearly double this to Rs1.02trn. It intends to achieve a yearly capex and ordering run rate of ~Rs200bn and ~Rs180bn respectively during the XIIth Plan. This increased capex run rate should translate into 20% CAGR in its regulated equity over FY11-15E. In addition, PGCIL is insulated from risks like rising fuel cost, backing down and SEB defaults (as payments are secured through a tripartite agreement). We believe the stock offers safe and steady returns as compared to its private sector peers. Our FY12 & FY13 PAT estimates are in line with consensus. We value PGCIL on FCFE basis to arrive at a target price of Rs120 (terminal growth rate 3% and 13% Ke).
Most of the power BoP orders pertaining to the XIIth Five-Year Plan (including orders for coal and ash handling) are yet to be awarded. Tecpro appears best placed among peers to bag these orders, given its past experience. If interest rates stabilise in the near term, we expect incremental order inflows to come from the cement, steel, minerals and mining sectors. A healthy (1.6x FY12E revenue) and safe (all orders have achieved financial closure) order book minimises the risk of any delay or cancellations. We expect EPS of Rs31 and Rs37.4 in FY12E and FY13E, respectively, almost in line with consensus forecasts. We expect 9% growth in order inflow in FY12, whereas some analysts forecast de-growth of ~30-35%. However, the management has guided for ~30% growth in order inflow in FY12. We have a BUY recommendation with a target price of Rs 375 (10x FY13E).
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