High-conviction stock ideas for Feb 2012: PINC Research

PINC Research has come out with its High-conviction stock ideas for Feb 2012. Stocks - Ashok Leyland, Ashoka Buildcon, Bajaj Auto, HSIL, Infosys, Jagran Prakashan, Jyothy Laboratories, Mahindra & Mahindra, MRPL, Nestle India, NIIT Tech, Phoenix Mills, Power Grid Corporation, Tecpro Systems.

ASHOK LEYLAND: ACCUMULATE, TP-Rs30 (7% upside)

FY12 has been a lackluster year for the company as it has underperformed the industry. In YTDFY12, as against the industry growth of 9.89%, Ashok Leyland volumes have been flat resulting in 240bps erosion in marketshare. We expect the company to claw back marketshare in Q4FY12 as demand sentiment in key markets of Southern India improves. We expect a volume growth of 7.4% in FY13 to 104k units with additional 21k units for LCV 'Dost' dispatches. Our earnings estimates for FY12 and FY13 are Rs2.1 and Rs2.4, respectively. Our FY13 earnings estimate is 10.3% lower than the consensus estimate of Rs 2.6.We have a 'Accumulate' recommendation on the stock with a target price of Rs30, which discounts FY13E earnings by 12.5x.

ASHOKA BUILDCON: BUY, TP-Rs280 (44% upside)

Our FY12 and FY13 earnings estimates are Rs 20.1 and Rs24.7, 7.2% and 11.8% lower than consensus estimates, respectively. We expect top-line growth of 16.5% and 31.7% to Rs15.2bn and Rs19.9bn in FY12E and FY13E vs. consensus forecasts of 28.9% and 25.3% to Rs16.8bn and Rs21bn, respectively. We value BOT (on a DCF basis) at FY12E and FY13E equity multiple of 1.7x and 1.1x, respectively. Our SOTP-based target price is Rs 280, where BOT is valued at Rs 196 and EPC at Rs84 (8x FY13E earnings). The stock offers an upside potential of 43% at our SOTP-based target price of Rs280 vs. consensus target of Rs273.

BAJAJ AUTO: BUY, TP-Rs1,850 (7% upside)

The high-margin brands Pulsar and Discover, account for 70% of the Bajaj Auto's motorcycle sales thus validating its brand-centric strategy. The company showcased the brand new Pulsar 200NS which will be launched by Apr'12. Another executive segment motorcycle is expected to be launched by mid-2012. The company also launched the KTM Duke 200 at an attractive price of Rs117k in Jan'12. We expect the company to post a volume growth of 11.9% in FY13 and maintain 20% plus EBITDA margins. Our FY12 and FY13 earnings estimates are Rs109.2 and Rs123.1, respectively. We have a 'BUY' recommendation on the stock with a target price of Rs1,850 discounting FY13E earnings at 15x. Our FY13 earnings estimate is 3.1% higher than the consensus estimate of Rs119.4.

HSIL: BUY, TP-Rs230 (50% upside)

HSIL operates in 2 business segments, sanitary ware and container glass. Strong recall of the flagship brand Hindware enhances HSIL's leadership with 40% share in organised sanitary ware market and advantageous location of container glass plants helped achieve a 70% market share in south India. Our earnings estimates (EPS) for FY12 and FY13 are Rs16.4 and Rs22.5, respectively. Our FY12 earnings estimate is 12% higher than the consensus estimate of Rs16.2. We have a 'BUY' recommendation on the stock with a target price of Rs270, which discounts FY12e earnings by 13.5x.

INFOSYS: ACCUMULATE, TP-Rs2,975 (6% upside)

We recommend staying with the leader during uncertain times. Infosys has a full-services portfolio with exposure to well-diversified verticals. The new management appears more aggressive on aspects such as inorganic growth and is looking for acquisitions in healthcare vertical and for increasing presence in Europe which seems to be opening up to outsourcing. Our revenue estimates for FY12 and FY13 lag the consensus by 0.7% and 1.6% respectively. For FY12, our EBITDA margin and EPS estimates are marginally higher than consensus by 98bps and 1.2% respectively. For FY13, while EBITDA margin estimate is marginally higher than consensus by 49bps, EPS estimate lag the consensus by 1.7%.

JAGRAN PRAKASHAN (JPL): BUY, TP-Rs145 (34% upside)

We like JPL for its leadership in the UP market (the largest print market in terms of readership and print ad value). We believe the company is well poised to benefit from steady growth in the print media sector, underpinned by: 1) its well-entrenched position in growing regions such as Bihar and Jharkhand; 2) phased and planned expansion into new media businesses; and 3) a wide portfolio (including Mid-day, I-next and Cityplus). JPL's well-balanced business model (more than 30% revenue from circulation and other media businesses), its growth strategy to further increase penetration in terms of circulation in its current market, and monetisation of its readership insulates it from slowdown in advertisements due to the current macroeconomic scenario. Our FY13 revenue and EPS estimate of Rs8 is 3% and 6% below consensus estimates, respectively. We have a 'BUY' recommendation on the stock with a target price of Rs145 (18xFY13E EPS).

JYOTHY LABORATORIES: BUY, TP-Rs212 (6% upside)

Jyothy Labs' (Jyothy) standalone business is getting on track and its strong performance during Q3FY12 was very encouraging. We expect the momentum to continue going forward as except Maxo, the dynamics of the standalone business are still at the same level. Ujala Supreme reported 10% volume growth during Q3FY12 and we believe the recent price hike would help in showing good sales growth going forward. National launch of Exo has already started showing strong numbers and reported 30% growth in 9MFY12. We are bullish on turnaround performance of Henkel India (Henkel) and its profitable performance since acquisition has been encouraging. Jyothy is among the few companies in the FMCG space which has immense potential for long-term profitability growth. Our estimates for FY13 are among the highest on the street, led by expectation of better performance of the core business and sustainability of Henkel's profitable performance. We assign 16x to FY13E earnings and add Rs12/share NPV on tax saving of Rs1.2bn @12% discount rate to derive the TP of Rs212.

MAHINDRA & MAHINDRA: BUY, TP-Rs885 (23% upside)

New launches and strong performance from its existing products has helped M&M retain its dominance in the utility vehicle (UV) and pick-up segments in addition to maintaining healthy margins despite surge in raw material costs increases. We expect an 18% growth in the automotive segment volumes in FY13. The farm equipment segment too is expected to grow 8.2% in FY13, given shortage of labour, rising rural income and increasing non-farm usage of tractors. Our FY12 and FY13 earnings forecast are Rs45.4 and Rs52.2, respectively. Our FY13 earning estimate is 5.7% higher than the consensus estimate of Rs50.1. We value M&M at Rs885 using SOTP methodology, discounting the core earnings of standalone business at 13x FY13E.

MRPL: BUY, TP-Rs88 (21% upside)

Capacity addition of ~30% to 15.4mmpta along with enhancement in complexity index from ~6 to ~9 should boost the future profitability. Progress has been expedited keeping in mind the target of commissioning before Mar'12 so as to get the full benefit of tax exemption. Capacity expansion along with polypropylene and SPM project should improve the GRM substantially. We expect that full impact of ongoing capex should materialise in FY14 with partial benefit coming in FY13. As a result, our FY13 earnings estimate is ~3% lower while FY14 estimate is ~15% higher than consensus.

NESTLE INDIA: SELL, TP-Rs3,685 (16% downside)

Rising competition in almost all the categories along with sharp price hike on all the key brands resulted into slower volume growth of 9% (lowest in the past 5 years) during 9MCY11 and the similar volume pressure was also witnessed in the Q4CY11 performance in which sales grew at slower pace of 17% (lowest in the last 7 quarters). Nestle is in the capacity expansion mode which would force the company to focus more on the volume growth. Higher marketing efforts would be required for retaining leadership position which would exert pressure on profitability. Our estimates and target price are lower than the consensus, led by the expectation of pressure on EBITDA margin and argument of narrowing down of the Nestle's valuation premium. We assign P/E of 30x on the next 12-months earnings to derive a TP of Rs3,685.

NIIT TECH: BUY, TP-Rs290 (19% upside)

Sustained performance and aggressive deal wins reflected in strong order book would drive re-rating of the stock. NIIT Tech has large exposure to high-growth niche verticals such as travel and transportation. Moreover, it has a differentiated strategy with development of IPs in emerging technologies (such as cloud computing) & verticals (such as insurance & healthcare). Our top-line estimate for FY12 is in-line with consensus while lag the consensus for FY13 by 3.5%. Our EBITDA margin estimates for FY12 are marginally lower than consensus by 21bps while higher than consensus for FY13 by 137bps. Our EPS estimates for FY12 & FY13 are higher than consensus by 0.4% and 1.8% respectively.

PHOENIX MILLS: BUY, TP-Rs265 (24% upside)

PHNX's key project, High Street Phoenix (HSP), is now fully operational and is likely to generate rental income of ~Rs2-2.2bn in FY12E. In Q3FY12, three out of four market cities were operational and expect to deliver higher occupancy going forward. This will help strengthen the company's rental model. At present, PHNX's rental revenue (FY11- Rs1.8bn) comes from HSP and the launch of Pune, Chennai and Bengaluru Market Cities is likely to add ~Rs550mn of rental revenue to the topline in FY12E. Our EPS estimates for FY12 and FY13 are Rs11.6 and Rs11.8 respectively. Our FY12 earnings estimate is 21% higher than consensus estimate of Rs8.4. We have a 'BUY' recommendation on the stock with a target price of Rs265 after assigning 15% discount to FY12E gross NAV.

POWER GRID: BUY, TP-Rs125 (14% upside)

PGCIL remains confident of achieving not only its XIth Plan capex and capitalisation target but also achieving a large part of its XIIth Plan target too. Till January 2012, the company achieved 84% and 86% of its XIth Plan capex and capitalisation target respectively. PGCIL already has investment approvals for ~Rs700bn worth of projects and has placed orders for Rs560bn - all of which will commission in the XIIth Plan. PGCIL targets to achieve a yearly capex and ordering run rate of Rs200bn and Rs180bn respectively. This should translate into 17% CAGR in regulated equity over FY11-15E. We believe the stock offers safe and steady returns as compared to its private sector peers as it is insulated from risks like rising fuel cost, backing down and SEB defaults (as payments are secured through a tripartite agreement). Our FY12 & FY13 PAT estimates are in line with consensus. We value PGCIL on FCFE basis to arrive at a target price of Rs125 (terminal growth rate 3% and 13% Ke).

TECPRO SYSTEMS: BUY, TP-Rs375 (95% upside)

Most of the power BoP orders pertaining to the XIIth Five-Year Plan (including orders for coal and ash handling) are yet to be awarded. Tecpro appears to be best placed among peers to bag these orders, given its past experience. If interest rates stabilise in the near term, we expect incremental order inflows to come from the cement, steel, minerals and mining sectors. A healthy (1.6x FY12E revenue) and safe (all orders have achieved financial closure) order book minimises the risk of any delay or cancellations. We expect EPS of Rs31.4 and Rs37.6 in FY12 and FY13, respectively, almost in-line with consensus forecasts. We expect 9% growth in order inflow in FY12, whereas some analysts forecast de-growth of ~30-35%. However, the management has guided for ~30% growth in order inflow in FY12. We maintain our BUY recommendation on the stock with a target price of Rs375 (10x FY13E).

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

Read More