Emkay bullish on 8 largecaps for long term investment

Emkay Global Financial Services has come out with its report on conviction ideas.
 
Cadila Healthcare: We expect Cadila to report 22% revenue growth in FY13 and 16% growth in FY14. We expect EBIDTA margins to move from 20.4% in FY12 to 21% in FY13 and FY14. Earnings will grow by 22% CAGR over FY12-14E. Maintain Buy with a target price of Rs1000 (20xFY14E EPS). At current price, the stock trades at 21x FY13E EPS of Rs40 and 17x FY14E EPS of 50. 
 
Colgate Palmolive: Generic brand and strong distribution network have aided Colgate expand market share. In toothpaste, Colgate has twice the share (54%) than its nearest rival. Also, toothbrush category Colgate has witnessed market share gain of ~200bps(market share: 39%) indicating strong revival against strong rival P&G. Construct of Colgate is synonymous to Glaxosmithkline Consumer (which trades at 30x 1-year fwd earning) due to 1) majority of revenue comes from single category; 2) pricing power; 3) market leadership. We have price target of Rs1400/Share (30x FY14E earnings). 
 
Dr. Reddy: Company had launched Toprol in US market on 11th September 2012 which has a market of USD 650 million. It is estimated the company will garner 8% market share in first year of launch or USD 50 million in revenue We expect Dr. Reddy to report revenue CAGR of 21% over FY12-14E. Base earnings will grow by 22% CAGR over FY12-14E. Recommend Buy rating on the stock with a TP of Rs2240. At CMP, the stock is trading at 18x FY14E EPS of Rs. 112. 
 
Grasim Industries: Although VSF profitability in near term likely to remain under pressure led by subdued pricing, management guided bottoming out of VSF price over medium term, led by cost pressures restricting ability of Chinese player to further cut price. Further higher contribution of standalone earnings is expected to drive down current holdco discount of ~45% to more reasonable levels. Grasim to chart a steep growth trajectory with an impressive consol EBIDTA CAGR of 17.4% over FY12-15E. Further, dramatic shift in the growth profile of VSF biz will provide significant volume traction (volumes CAGR of 12.6%) driving FY12-15E stnd EBIDTA CAGR of 15.2%.

HCL Technologies: We raise our FY13/14E EPS by ~8/4% each to Rs 47.3/49 respectively driven largely by higher margin assumptions to 20.1/18.9% (V/s 18.8/18.5% earlier). While sector wide slowdown continues to drive revenue growth trajectory down for HCLT as well, we see HCLT on a stronger footing driven by strong order book and scope to improve margins through improved client mining with recent quarters lending enough confidence to the thesis. ACCUMULATE, TP Rs 650. 
 
Hindustan Zinc: We value the stock at 5xFY14 EV/ EBITDA. This translates to a target price of Rs 146/ share. At CMP of Rs 138, the stock trades at 8.7xFYEPS and 4.5xFY14 EV. EBITDA. Moreover fast ramp-up of the SK mines, strong silver volumes, the ongoing exploration projects and residual stake sale by the Govt. should be very positive for the stock going forward. 
 
ICICI Bank: ICICI Bank has already seen seasoning of the NPA book with amount of NPAs in SS and D1 category reducing by 2% of its loans. Credit cost to remain at 60bps due to controlled slippages and incremental NPAs only in SS and D1 category requiring low provisions. We expect the bank to witness 19% CAGR in NII / customer assets each over FY12-14E. Improvement in margins with easing credit cost pressures would aid RoA performance. Any material spike in restructured loan portfolio remains key risk in near term. Maintain positive bias. 
 
Tata Motors: New launch pipeline for JLR remains healthy with new Range Rover in Q3FY13 followed by new Range Rover sports in H1FY14. New RR volumes are expected to exceed its previous peak of ~32k per annum. Jaguar is also expected to see slew of new launches like F-Type (capacity of 10,000 -15,000 units), AWD versions of XF/XJ (~50% of the market) and Sportsbrake. Expect earnings performance at 10% CAGR in FY12-FY14E period aided by strong volumes in JLR and FCF generation. Emkay’s earnings forecast are Rs 39/share and Rs 45/share for FY13E and FY14E respectively. Strong quarterly earnings (due to improvement in product mix) to be the key stock trigger.

Public holding more than 90% in Indian cos

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