Emkay Global reveals 8 stocks for investment

NTPC : Though PAF structurally coming down, but do not see it lower than 88% (expect 4Q PAF to be significantly higher at around 94%). Core ROE still remain at ~25%. We also highlight that none of the SEBs have delayed payments to NTPC beyond 60days and delays up to 60days is a positive for NTPC (earns late payment surcharge). Maintain Buy on reasonable valuations at 1.8x (prices in negatives - fuel, SEB delays etc) with revised price target of Rs199/Share. Further, scenario of interest rates coming down is a positive for the stock as regulated utilities are quasi bonds.

Orient Paper & Industries : Led by better than expected performance for cement division, we upgrade our earnings estimate for FY12 by 8.3% ( EPS of Rs10.1) and 1.6% for FY13 (EPS of Rs11.5). However the new pricing mechanism adopted by Coal India (UHV based to GCV based) will result in higher energy prices for paper division in FY13 (as CPP for this division sources coal from Coal India) and therefore caps the upgrade in FY13 earnings to 1.6%. The impact of coal prices is not substantial for the cement division in FY13 as it sources coal from Singareni mines where the estimated hike in coal prices could be around 6% as compared to 28% in the case for Coal India’s prices. 

The Board had approved de-merger of cement business into a new wholly owned sub- Orient Cement Ltd (OCL) through a scheme of arrangement wef 1st April, 2012, which is subject to approval of the court. The Demerger Creates pure play cement company that triggers the much awaited value unlocking process, apart from providing separate platform for each businesses to explore various options to augment their growth plans. We expect the re-rating of OPIL’s cement business as the de-merger will ensure that the cement cash flows will be dedicatedly used for funding the growth of the business rather than supporting the losses of the paper division. Stock trades at undemanding valuation of 4.5x FY13 PER & EV/EBIDTA of 2.7X. We maintain our BUY rating on the stock with target price of Rs82.

TVS Motor : At CMP of Rs 52, the stock trades at 9.7x/8.7x PER and 6.1x/5.1x EV/EBIDTA of our FY12/13 estimates. However, we continue to have concerns pertaining to the sustained investments in its subsidiaries. TVS further invested Rs 259mn in Indonesia subsidiary and Rs 115mn in TVS Motor Services, Chennai in Q3FY12. YTDFY12 investments in various subsidiaries stood at Rs 1.15 bn. Hence, we maintain our target multiple at 10x PER and 5.7x EV/EBITDA on our standalone FY13 est. due to balance sheet concerns. Post the stock price correction we upgrade our rating to ACCUMULATE on the stock and lower our TP to Rs 61.

Ipca Laboratories : We expect Ipca to report 22% growth in revenues in FY12E and 18% growth in FY13E. EBIDTA margins are expected to increase from 19.8% in FY11 to 22.5% in FY12E and 21.5% in FY13E. Earnings will grow by 28% CAGR over FY11-13E. Based on strong growth in export formulations, we revise our estimates upwards for FY12 and FY13. Reiterate Buy with a revised target price of Rs420 (14xFY13E earnings of Rs30). At CMP, IPCA trades at 11x FY12E and 10x FY13E EPS.

Punjab National Bank : Three issues have clearly dragged PNB’s financial and stock performance over past few quarters – (1) exposure to sensitive sectors like CRE and power (2) high slippage rates and consequent credit costs and (3) risks to margins due to it being the highest amongst PSU banks. Clearly the NIM performance during the quarter and the ability to push up recoveries and upgradations rates put the later two concerns to the rest. We also draw significant comfort from management policy of doing aggressive loan loss provisions at >70% on incremental net slippages. We have revised our numbers for FY12E/13E by 8%/1% to largely take into account higher provisions on account of restructured advances and MTM losses. Valuations at 1.4x FY12E/1.1x FY13E ABV appear reasonable given superior return ratios, stable NIM. Retain ACCUMULATE rating on the stock with price target of Rs1220. The revision in the TP is driven by lowering of ABV on account of KFA slippages and lower earnings.

ICICI Bank : The clean-up act has started bearing fruits over the past couple of quarters in form of lower NPA accretion, balance sheet growth and in-turn capital conservation. The bank has reported material improvement in its asset quality (including retail GNPA) while holding on to its provisioning requirement. Loan growth too has held up well at 18-19% levels and largely in form of secured assets. We remain upbeat on the bank given its healthy 1.4% RoA and improving RoE. We expect core-RoE to inch to 15% levels by end-FY13. A sudden spike in restructured portfolio would be compensated by higher provisioning. We expect bank to report 18% / 19% CAGR in net profit / customer assets over FY11-13E. Maintain ACCUMULATE with price target of Rs1200.

Havells India : Havells beats Emkay and Consensus expectation on all counts. Expanding distribution coupled with new product introduction in few segments has led to strong growth in domestic business. Although Sylvania posted revenue decline in Europe & Latin America, it continues to deliver strong profit growth led by richer product mix, improvement in price realizations and cost rationalization. The management seems confident of achieving 15-20% domestic revenue growth in FY12-FY13, while it expects Sylvania to continue its improvement in operational performance. We maintain ‘BUY” rating with price target of Rs 520, thereby implying a target multiple of 8.6x FY13E EV/EBIDTA. Currently, Havells is trading at 8x FY13E EV/EBIDTA.

United Bank of India : While the bank has performance well at the operating level with sharp improvement in margins and strong advance growth, we do not find comfort with the banks provisioning policy. With Net NPL/ Networth ratio still high at 25%, the bank should have gone for higher provisioning. Capital continues to be a constraint for bank, as Tier I adjusted for NPL, would stand at sub 7%. We have upgraded our numbers for FY12E/FY13E by 24%/3.5% to take into account lower than expected provisions and better than expected recoveries in this quarter. At CMP stock trades at 0.8x FY12 ABV and 0.7x FY13 ABV. Upgrade to ACCUMULATE with price target of Rs80.

Bodies Corporate holding more than 50% in Indian cos

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