ACC, Bajaj Auto, Bharti Airtel top picks: Emkay

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ACC, Bajaj Auto, Bharti Airtel top picks: Emkay

Emkay Global Financial Services has come out with its report on ACC, Bajaj Auto, Berger Paints, Bharti Airtel, Coromandel International.

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Emkay Global Financial Services has come out with its report on ACC , Bajaj Auto , Berger Paints , Bharti Airtel , Coromandel International .

ACC: Cement demand growth likely to bounce back in FY13 after a prolonged 12-15 months of subdued growth. Growth to be led by 1) Continued improvement in rural housing fuelled by higher MSPs and better monsoons. 2) Pre-election (General elections in FY14, multiple state election in FY12/13) infra spending. Though cement realizations could come under pressure in short term ACC's solid volume growth (12%+ytd) would help company protect its profitability. Cost closer to peaking out by Q3FY12 as slower global growth likely to stabilize runaway coal/petcoke prices. Solid balance sheet - Rs23 bn (1/3rd of balance sheet size) worth of Cash & cash equivalents. Impressive return ratios - RoCE of 21% (1.5X CoC) & RoIC of ~35% even in relatively subdued cement cycle clearly reflects company's superior capital efficiency. Valuation at PER of 15.6X & EV/ton of USD118 on CY12E though not cheap are still at discount to Ambuja Cement.

Bajaj Auto: We have valued the stock at a target PER of 17x our FY13 estimates. Lowered our rating to ACCUMULATE from BUY on valuations. Here on there is limited scope of valuation rerating. Stock performance will be driven by earnings. Key trigger for the stock would be strong monthly volumes and quarterly earning surprises.

Berger Paints: At CMP, the stock is trading at 15.8x FY13E EPS of Rs 6.2 respectively. Historically the stock has traded at 40% discount to Asian Paints. We expect this gap to narrow due to. It gaining considerable size and scale with healthy revenue and earnings CAGR of 19% and 20%, respectively, over FY11-13E. Increasing shift towards premium products enhancing operating margins. Increasing presence across India with rising penetration in the south through its franchisee stores.

Bharti Airtel: At CMP of Rs378, stock trades at EV/EBIDTA of 7.5x and 5.8x and PE of 21.9x and 14.3x for FY12E and FY13E respectively. Bharti remains our preferred pick in the sector, we recommend ACCUMULATE with target price Rs464. We maintain our cautious view on the sector till the regulatory uncertainties gets cleared out.

Coromandel International: We expect the company to report 24% CAGR (FY11-13E) in revenues and 33% in PAT. With improved profitability in fertiliser segment and rising share of high margin business, EBITDA margins are expected to improve by 150 bps to 12.3% in FY13E. We expect CIL to generate free cash of Rs 4-5 bn every year. We expect the company to report an EPS of Rs 26.4 and Rs 32.3 in FY12E and FY13E, respectively. FOSKAR listing and inorganic growth plans are future positive triggers for the stock.

Dish TV : At CMP of Rs77, the stock trades at 17.1x and 12.2 EV/EBIDTA. Premium to global peers justified given Dish TV's growth trajectory. We maintain ACCUMULATE rating on the stock with DCF based target price of Rs 96. Higher than expected churn rate and slower improvement in ARPU would be the key risk to our call.

Glenmark Pharma : We expect earnings to grow at 22% CAGR over FY11-13E. Value the company at 18x FY12 base business earnings + adjusted NPV of Rs45 to arrive at a target price of Rs401. At CMP, the stock is trading at 13.4x/ 13.5x, FY12E/ FY13E EPS of Rs24.0/ Rs23.8 respectively.

Godrej Consumer : Valuations at 16.2x FY13E EPS of Rs 24.7/share look reasonable. GCPL is the only stock in the consumers' space which is providing c12% absolute upside potential from current levels. Moreover, on a relative basis also, GCPL has under performed its peers in the recent times. Attractive valuations, coupled with robust growth drivers place GCPL in a preferred position and hence, we maintain our ACCUMULATE rating with a target price of Rs 474/share.

GSFC : At the end of FY11, GSFC held cash of Rs 6.1bn in its books implying cash/share of Rs 77 which is likely to increase to Rs 15bn (cash/share of Rs 186) in FY13E. GSFC also held liquid investments to the tune of Rs 4.2bn (Rs 53/share) in its books at end of FY11. With 45% of cmp in cash and equivalents and FY13 EV/EBITDA of 1.9x, P/E of 5.6x, we believe that the stock offers attractive investment opportunity.

Gujarat Gas : Our EPS estimate of Rs.23.2 and Rs.26.5 for CY11E and CY12E respectively, imply an earnings CAGR of 15% over CY10-12E. GGCL is one of our top picks given its monopoly in cities like Surat, Bharuch, Valsad, and Ankleshwar, expected volume growth plus zero debt and robust business model with no commodity risk. We believe that concerns on volume growth and pricing pressure have eased and any dip should be used as an opportunity to accumulate the stock. At CMP of Rs.430, stock trades at 16.2x, one year forward P/E and 3.6x P/BV. We recommend BUY on GGCL with a target price of Rs.481 based on SOTP valuation.

Hindustan Zinc : Being the largest integrated zinc producer in the world with strong cash flows, low cost of production, operations geographically well positioned and increasing contribution from the silver business it deserves a premium in valuation multiple over peers. At the CMP of Rs 119, the stock is trading at 8.8x FY12 EPS and 7.5x FY13E EPS. Global zinc and lead producers are currently trading at 4.4x CY12 EV/ EBITDA, while pure silver producers are trading at 13x CY12 EV/ EBITDA on an average basis. We continue to value the stock at 6.5x FY13E EV/ EBITDA. Maintain Buy with a target price of Rs 173.

ICICI Bank : Valuations at 1.8x/1.6x FY12E/FY13E standalone ABV does not look unreasonable with improving operating matrix. Maintain ACCUMULATE rating with TP of Rs1200.

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