Emkay recommends 8 midcap stocks for investment

Emkay Global Financial Services has come out with its report on conviction ideas.
 
CRISIL: Full impact of the large client addition, to be visible in next 6-9mths.. Drop in CP rates and likely improvement in credit in H2FY13, owing to seasonality to drive ratings revenue in H2FY13. Expect earnings to grow at a CAGR of 22% over CY11-13 with RoE/ RoIC of 55%/117%. The stock trades at 29x/23x CY12/13 EPS. 
 
Dish TV: Incremental subscriber addition from digitalization with stable churn rate and ARPU improvement are near term catalyst for the stock. We estimate Adj. net loss would reduce to Rs836mn in FY13E from Rs1.3bn in FY12 and finally it would turn profitable in FY14E. Maintain BUY on the stock with target price of Rs79. 
 
Exide Inds: We expect the company to report earnings CAGR of 31% in FY12-FY15 and act as a counter cyclical stock when OEMs are facing demand slowdown pressures. We recommend a BUY on Exide with a TP of Rs 190 based on 15xFY14E earnings for the core business and Rs 10/share for its stake in ING Vysya Life Insurance business. Strong quarterly results to be the key stock trigger. 
 
Federal Bank: FB has sustained 1.3%+ of ROAs despite some pressure on margins over past few quarters. Lower provisioning requirement on account of improving asset quality offset the compression in NIM’s. NIM’s compression was inline with management strategy of increased focus on low yielding high rated quality accounts. With the largest branch network among old pvt sector banks and a healthy deposit profile, moderation in GNPA number could trigger a re-rating in the stock. Expect GNPA to come down to 2.4% by FY14 from 3.6% in Q1FY13. 
 
LIC Housing Finance: LICHF’s Q2FY13 NII and PAT at Rs3.5bn and Rs2.4bn were below estimates (Rs3.8bn/R2.7bn), we are quite enthused by marked improvement in the retail loans spreads. 6bps qoq expansion in retail spreads point towards the benefit of gradual repricing of the teaser rate loan book. With resilience of retail loan portfolio and low NPA risks, the downside in the stock is limited at current valuations of 2.0x/1.7x FY13/14E ABV. The upside trigger to the stock would be faster than expected growth in the developers' loans and better overall spreads driven by the same. We believe that growth in developers’ loan book can come back easily in any quarter due to the bulk nature of the business. We see trend reversal with improving retail spreads. 
 
Madras Cements: MCL energy cost structure to improve further driven by contracted pet coke requirement & ramp up in TN CPP (45MW) over H2FY13. Further MCL’s robust volume growth & accelerated debt repayment would drive further re-rating. Valuations at FY14E 5.9X EV/EBIDTA & EV/T of USD 104, remain attractive and leaves enough upside. Maintain Accumulate. 
 
Tech Mahindra: We continue to back upsides in Tech M /Mah Satyam given upside risks to our earnings estimates. We retain ACCUMULATE on Tech M with a TP of Rs 1,050 (based on 11xFY14E pro forma earnings). Merger swap ratio of 8.5:1 implies a TP of Rs 125 for Mahindra Satyam. Valuations at ~9.5x/9x proforma FY13/14 P/E remain attractive.  
 
Wockhardt: Wockhardt has one of the largest and the most profitable US businesses with steady India business. It has one of the best in class operating and balance sheet ratios. Going forward – 31% CAGR in earnings & reduction in net debt to zero will re-rate the stock from current 14x FY13E to 18x FY14E EPS of Rs120. Initiate coverage with a BUY and TP of Rs 2,160. At CMP, the stock trades at 16x FY13E and 14x FY14E EPS.

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