11 stocks you should keep an eye on: Emkay

Emkay's research report

Jagran Prakashan

Reco: BUYCMP: Rs 136Target Price: Rs 165

Ad growth expected to pick up

Consolidated revenue at Rs 4.7bn (+3.6% yoy), EBITDA at Rs 1325mn (+20.6% yoy), with EBITDA margin at 28.2% (+395bps yoy) and RPAT at Rs 667mn (-1.4% yoy)

Consolidated advt. revenue at Rs3.4bn grew 5.6% yoy (lower than our estimate of 9%). Circulation revenue stood at Rs1.0bn (+8.2% yoy), driven bgy improved realization/copy

New publications like Nai Dunia, Mid-Day and others reported EBITDA stood at Rs72mn vs Rs18.5mn in Q3FY14. Mid-Day reported strong operating performance

Given the muted advt. growth in 9MFY15, we lower growth assumption to 7% vs 9% for FY15, while for FY16/17E we maintain 12%. Benign newsprint prices and strict cost control has resulted in EBITDA upgrade of 4%/6% for FY16/17. Maintain BUY with target price of Rs165

Divis Laboratories

Reco: REDUCECMP: Rs 1742Target Price: Rs 1727

Disappointing results, near term triggers lacking

Results below expectations with lower EBITDA margin (300bps below expectations) a key negative surprise. The cyclone on East coast in Q3 would only be partially responsible for the negative margin surprise

Margins may not immediately revert over current levels, creates downside risk to our below consensus estimates. We do not expect current business mix to change materially in coming quarters which should also keep margins capped.

Overall valuations do not support recent run up in stock price. Retain our Reduce stock rating with target price of Rs1727/share. We would look for better entry opportunities in coming months. Key risks to our stock call is faster scale up of recently commissioned plant

PVR

Reco: BUYCMP: Rs 674Target Price: Rs 855

Strong operating performance

Strong operating performance: Consolidated revenue at Rs4.2bn (+24.6% yoy), EBITDA at Rs831mn (+68.6% yoy), with EBITDA margin at 20% (+516bps yoy) and RPAT at Rs315mn (+123% yoy)

Robust growth in net ticket sales (+17% yoy) was driven on the back of 12% growth in footfalls and 5% improvement in ATP. Strong growth of 28% and 35% yoy in advertisement and food & beverage revenue aided EBITDA growth  

Healthy content pipeline coupled with new screen additions, improvement in realization (ATP and SPH) and continued robust advt. growth to drive revenue going forward. Maintain BUY with target price of Rs 855

UPL

Reco: BUYCMP: Rs 394Target Price: Rs 508

Results in-line, maintain Buy

Consolidated revenues at Rs 30.5bn were up 15%yoy, in-line with our estimates driven by 25%yoy growth in India business, 14% growth in LATAM and 22%yoy growth in RoW

Consolidated EBITDA at Rs 5.7bn was up 23.6%yoy, in-line with our estimates. EBITDA margin at 18.9% registered an expansion of ~130bps yoy

EO for the quarter stood at Rs 624mn which includes Rs 184mn on account of restructuring cost for the LATAM region and Rs 440mn included in interest expense on account of forex element

Consolidated APAT at Rs 3.1bn was up 28.8%yoy in-line with our estimates

We continue to maintain our Buy rating on the stock with a target price of Rs 508 on the back of stable performance, new product launches and attractive valuations

Exide Industries

Reco: HOLDCMP: Rs 195Target Price: Rs 190

Disappointing quarter; Maintain HOLD

Exide’s Q3FY15 operating performance was 17%/12% below our/consensus estimates despite an in-line revenue

EBITDA margin for the quarter stood at 11.6% (+60 bps YoY, -20 bps QoQ) vs our est of 13.9%. The miss on margins was primarily on account of the expected benefits of lower lead prices not accruing in the quarter, due to existing higher cost inventory

Strong 20% growth in revenue was driven by a double digit growth in the replacement and industrial segments

We have marginally realigned our estimates but raise our target price to Rs 190, as we roll-forward to FY17 estimates – we value the battery business at 15xFY17E EPS and Rs 19/share value for the insurance business. Retain HOLD on limited upside potential

Shoppers Stop

Reco: ACCUMULATECMP: Rs 462Target Price: Rs 585

E-commerce deflates growth

SHOP SSG of 0.8% is at a ten quarter low, with E-commerce taking away share as footfall declined by 0.6% and LTL volume fell by 1.1%. Shift in Puja YoY from Q3FY14 to Q2FY15 aggravated the negative impact of e-commerce

SHOP strategizes to mitigate the e-retail risk through 3-pronged strategy; 1) launch of private labels on e-retail in Q4’15, 2) investment of Rs 250mn towards IT & infrastructure set-up for e-retail 3) providing omni-channel approach to meet customer needs

Hypercity continue to show growth with SSG of 7% leading to 2nd consecutive EBITDA positive quarter. Share of fashion in overall sales mix improves further to 16.1% vs. 12.9% YoY, leading to improved operating margins by 120bps over same period

Maintain Accumulate rating with a TP of Rs585. Due to lower than expected results during the quarter, and capturing larger impact of e-commerce on earning, have reduced our FY15 / 16 / 17 earnings estimates by 10% / 6% / 3% respectively

JSW Energy

Reco: SELLCMP: Rs 124Target Price: Rs 62

Low earnings visibility; maintain sell

Q3FY15APAT at Rs3.80bn (+74.5% YoY) was marginally above our estimates mainly because of improved operational performance at Barmer

FY16/17 earnings upgraded (13%/17%) on back of 2 quarters of strong performance

Beyond FY16 we see downside risks to FY17E earnings resulting from lower PLFs and merchant prices. Given the downside risks the stock at 15x FY15E EPS looks very expensive

We maintain our Sell rating with a revised TP of Rs62 given the EPS downgrade risks and poor visibility on earnings beyond 1HFY16

Thermax

Reco: REDUCECMP: Rs 1141Target Price: Rs 769

Maintain Reduce

Thermax reported in line operating performance led by (a) 13.1% YoY increase in revenues and (b) 250bps improvement in EBITDAM

EBITM in the Energy and Environment segment improved by 60bps and 500bps to 11.5% and 7.3% respectively

Subsidiaries report losses of Rs186mn. Share in TBWES losses amounted to Rs170mn

Order inflows (consolidated) at Rs15bn - overseas orders exceed domestic orders. Order backlog at Rs62bn

Strong balance sheet but expensive valuations factors in the same. Maintain Reduce with target price of Rs 769/share

Punjab National Bank

Reco: SELLCMP: Rs 176Target Price: Rs 155

Elevated slippages, low capital adequacy; Sell

Asset quality woes persist for PNB. In 3QFY15, slippages increased to Rs55.5bn (annualized, 6.4% as compared to 4.3% in 2QFY15). Also, fresh restructuring was a high Rs25.6bn (annualized, 3% of loans)

Modest credit growth (2% yoy, 1.5% qoq), weak NIM of 3.2% (down 33bps yoy, 4bps qoq) and increase in core cost-income (258bps yoy, 58bps qoq) to 50.2%, resulted in core PPP falling 5.2% yoy (7.7% qoq)

Capital adequacy of 11.5% (tier-1 capital of 8.5%) is insufficient to meet Basel-3 norms and business growth over FY15-17e.  Given the likely weak profitability ahead (0.6% RoA over FY15-17e), the bank would require capital infusion in CY15

We have a SELL rating on the stock, as we expect the bank’s low capital adequacy and weak asset quality to keep RoEs (FY15-17e) lower than historical peaks. Also, capital infusion by the government, if below book value, would contain RoE improvement. At our Mar’17 target of Rs155, the stock would trade at PABV of 1.2x FY16e and 1x FY17e

GSK Consumer

Reco: BUYCMP: Rs 5648Target Price: Rs 6260

Margin tailwinds strong; Retain BUY

Results beat estimates – Revenues at Rs 9.8bn, up 16%, EBITDA margins expand 30bps yoy to 10.5% despite 170bps gross margin expansion. APAT at Rs 964mn, up 21% yoy

Volumes in line at 5% yoy, but healthy price growth of 11% yoy due to price increases & mix change led revenue growth. Gained 120bps yoy share in HFD

Benign inputs led to gross margin expansion, but EBITDA margin expansion was stemmed by higher Ad & promotion spends. We believe price increases, better mix & falling inputs should drive margin tailwinds, despite likely increase in ad spends

We factor 200bps margin expansion by FY17E to 18.9%. Likely pick up in urban trends should improve volume trajectory as well. We maintain positive bias on GSK given strong brand, pricing power & margin tailwinds. Retain Buy with price target of Rs 6,260

NHPC

Reco: HOLDCMP: Rs 20Target Price: Rs 25

Results below estimates; OFS to remain an overhang

APAT of Rs 2.8bn and core RoE at 0.5% was below our estimates of Rs3.4bn and 1.5% respectively. We retain our FY15/16 earnings

During the quarter (as in previous three quarters) the company charged borrowing and admin expense related to Subansiri and TLDP-IV projects to P&L. During the quarter the construction work at TLDP-VI has resumed

Overall commissioning is expected to remain muted over the next 3 years resulting in low earnings growth

We maintain our Hold rating with a PT of Rs25/sh (based on 1.0x FY15E book). We expect overall RoE to remain depressed as ~20% of the book is invested projects that are stuck and have poor visibility; OFS to remain an overhang

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