Buy Berger Paints, Divis Lab, Cadila Health, CEBBCO: Emkay

Emkay Global Financial Services has come out with its report on various stocks. The research firm recommends buying Berger Paints, Divis Lab, Cadila Health and CEBBCO.

Berger Paints India: Core arguments remain intact for Berger Paints (1) gains from increasing scale and size of operations with new plants being operationalised (2) continuous shift in its product portfolio towards premium products (3) retaining market shares and (4) backward integration. This differentiates the earnings trajectory of Berger Paints vis-à-vis peer companies. Hence, we remain optimistic on the company’s future growth prospects and expect valuation discount between Berger Paints and Asian Paints to narrow in forthcoming years. Though, there is no meaningful upside to the stock from CMP of Rs150/Share, we are not changing our ratings (considering above core arguments). We believe that, downsides will be opportunity to accumulate the stock. We maintain our ACCUMULATE rating with a target price of Rs152/share.
 
Divis Lab: Divi’s continues to maintain strong performance in the CRAMS space vis-à-vis its peers. With its strong business model and operating leverage, the company is likely to be one of the key beneficiaries of an improved global outsourcing environment. Best in class margins and return profile (RoIC in excess of 31%), strong balance sheet (near zero debt), India centric assets coupled with positive cash flow provides incremental comfort to the investors. Divi’s continues to maintain strong performance in the CRAMS space vis-à-vis its peers in terms of best-in-class operating metrics. We expect Divi’s to report 23% growth in revenues in FY13E and 21% in FY14E. EBIDTA margins are expected to move from 37% in FY12 to 35% in FY13E and 36% in FY14E. Earnings will grow by 21% CAGR over FY12-14E. We rate the stock as Buy with a target price of Rs1250. At current price, the stock trades at 24x FY13E EPS of Rs46 and 20x FY14E EPS of Rs57. Cadila Healthcare: We expect Cadila to report 18% revenue growth in FY13 and 15% growth in FY14. We expect EBIDTA margins to move from 20.6% in FY12 to 21.3% in FY13 and 21.5% in FY14. Earnings will grow by 16% CAGR over FY12-14E. Maintain Buy with a target price of Rs940. At current price, the stock trades at 22x FY13E EPS of Rs40 and 19x FY14E EPS of 47. CEBBCO: Revise volume estimates by 32%/18% in FY13/14 led by favorable regulatory environment, shift in preference towards organized market in case of non-tippers. Upside risk arises from strong demand in replacement tipper segment which the company has entered in Q1. Net sales is revised upwards only by 6%/-0.5% due to drop in average realizations and lower revenues under railway business. Factor in 290 bps/310 bps increase in EBITDA margins led by operating leverage, removal from bill discounting scheme of Tata Motors and entry into higher margin replacement tipper segment. However, EPS revision restricted to 11.4%/5.7% to Rs 11.7/14.2 due to higher depreciation costs and tax rate assumptions. Do not factor in VAT subsidy of Rs 2.3 bn under TRIFAC policy due to delay in payment risks from government. (NPV of Rs 22 per share). CEBBCO is currently trading at 8.2x/6.8x PER and 4.9x/4.2x EV-EBITDA on our FY13/14 estimates. Our target multiple of 5x EV-EBITDA implies target of Rs 115 on FY14 estimates. Maintain BUY rating on the stock. FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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