Post earnings stocks pick: Emkay

Godrej Consumer Products : We retain our earnings estimate of Rs 19.3/share for FY12E and Rs 23.7/share for FY13E as we expect incrementally higher A&P spend to be offset by a likely improvement in gross margins owing to lower palm oil prices and full impact of price increases. The stock is trading at 18.6x FY13E earnings, a discount of 30% to the consumers sector. We believe valuations appear reasonable considering the strong earnings CAGR of 29% over FY11- 13E. Hence, we re-iterate our ACCUMULATE rating on the stock with a target price of Rs 474/share.
 
Ashok Leyland : We have an ACCUMULATE rating on the stock. Our TP of Rs 57 implies 12x/10x PER and 6.4x/5.3x EV-EBIDTA of our FY12/FY13 estimates . We expect 2QFY11 to be the worst quarter on YoY basis for the company and things should improve thereafter in terms of margins and profitability. We factor in DPS of Rs 2/2.4 in FY12/13 which implies div. yield of 3.8%/4.7%. The stock is currently trading at 11.3x/9.1x PER and 5.8x/4.9x EV/EBIDTA on our FY12/13 estimates. Dividend yield is one of the important reasons for our positive view on the stock despite lack of clarity on near term earnings.

Bank of India : We are downgrading our FY12E/FY13E EPS estimates by 11%/7% each and ABV by 5%/7% driven by higher slippages and provisions. Significant risks could arise to our earnings estimates if the capital puts cons traints on the loan growth (our assumption 17%) and if the slippages remain high even in H2FY12. The stock is currently quoting at 1.4x FY12E/1.2x FY13E ABV. We maintain HOLD rating with a lower TP of Rs420.

Thermax : We believe Thermax has low probability of negative earning surprises and has demonstrated sustained order inflow momentum – addressing the twin principle investor concerns in the engineering and capital goods (ECG) sector. Further, Thermax is amongst the few ECG companies with +40% ROCE and +27% ROE and healthy operating cash flow generation (about Rs6.0 bn pa). It is trading attractively at 15.7X FY12E and 14.1X FY13E earnings. We retain BUY recommendation with a price target of Rs735.

NTPC : We seek more clarity on exact reason of below expected performance in the analyst meet scheduled on 1st August. We will review our numbers post that – current earnings for FY12E/13E – Rs11.1/Rs12.4/Share. We continue to prefer regulated utilities over IPPs and remain positive on NTPC. We believe positive news flow will continue in NTPC - 1) FY12 grossing up by full rate, (2) higher COD in FY12-sunset yr of 80IA & (3) in medium term - acquiring distressed plants. However, rising interest rates remains an overhang on stock. Buy the stock with a target of Rs 204.

Chambal Fertilisers : Driven by near term positive drivers for the company – 1) Demerger of shipping business, 2) high global urea prices, 3) policy announcement on urea 4) re-rating triggered de-merger and improvement in return ratios. We are upgrading our price target by 27% to Rs 110 and upgrade our recommendation from Accumulate to BUY.

Sterlite Industries : At the CMP of Rs 172, the stock is trading at 8.9x FY12E EPS and 7.3x FY13E EPS. On EV/ EBITDA basis the stock is trading at 5.1x and 3.6x on FY12E and FY13E respectively. Valuing all the metals businesses on FY13E EV/ EBITDA basis and power business on DCF method, our revised SOTP target price for the stock remains at Rs 203/ share. We maintain ACCUMULATE rating on the stock.

TRF : We have revised our consolidated earnings down by 9% each to Rs34.1 for FY12E and to Rs39.0 for FY13E to factor (1) Operating margins at 5% in auto components business (vs 5.8% factored earlier) (2) Lower revenue growth in Project division – attributed to continued decline in order backlog. However, pro-longed delay in pick-up in order inflow momentum, TRF’s inability to profitably execute its unexecuted order book or slow turnaround of auto business is impending risks to earnings. We retain our HOLD rating with revised price target of Rs390.

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