Eight stocks you must have on your radar: Emkay

Emkay's research report

Shree CementsReco: HOLDCMP: Rs 10333Target Price: Rs 10276Power segment drags operational performance

Shree Cement’s Q3 EBITDA at Rs3.4bn (down 23.8% yoy) was 5.8% lower than our estimate of Rs3.6bn. Cement EBITDA at Rs796/t was 5% lower than our estimates of Rs838/t. EBITDA from Power segment was at Rs121mn, decline of 6.9% yoy

Grey Cement sales volume growth of mere 3.6% came as a disappointment. Operating cost/tn remained flat yoy (0.3% up), but declined 2.5% qoq

FY15E/FY16E/FY17E EBITDA estimates downwards by 2.4%/7.8%/4.5% to factor in lower cement prices in the North and Central regions

Expansion plans on track and ahead of peers, but sharp decline in cement prices in the primary markets and low demand may put pressure on earnings in the near-term. Remains a preferred pick, but valuations at 15.7x/12x FY16E/FY17E appears expensive. Await better entry points and revise TP to Rs10,276 (earlier: Rs10,830)

Ambuja CementsReco: HOLDCMP: Rs 238Target Price: Rs 246Rich valuations, lack of near-term catalysts

Q1CY14 EBITDA at Rs4.7 bn (decline of 18.4% yoy) was above our estimates of Rs4.5bn, mainly on account of lower than expected opex. Volume stood at 5.43mt (vs est. 5.8mt). APAT was at Rs3.2 bn against our estimate of Rs2.7 bn

Volume de-grew by 10.4% yoy to 5.43mt and on sequential basis, volume was flat (0.5% growth qoq). Realization was up marginally by 2.5% yoy to Rs4,465/tn (vs est. Rs4,442/tn) 

Operating cost decreased 5.3% yoy led by lower Energy & freight costs. EBITDA/tn at Rs868 decreased 9% yoy

Volume growth for the company has remained muted at 0.6% between CY11-CY14 due to lack of new capacities. Upside in the stock would be restricted due to lack of new capacities and rich valuations. Maintain Hold rating with a PT of Rs246 (earlier: Rs254)

Godrej Consumer ProductsReco: BUYCMP: Rs 1081Target Price: Rs 1155Exudes better growth outlook in FY16; Maintain BUY

Consolidated performance muted - Revenues at Rs 20.9bn, up 8.3% yoy, EBITDA margin up 80bps yoy to 18.5% and APAT at Rs 2.7bn, up 14% yoy

Domestic volumes steady at 8% with healthy growth in soaps (15%). Strong constant currency growth of 14% in international operations offset by one-off de-stocking in Indonesia & adverse currency translation

Strong gross margin expansion of 330bps yoy to 55.5% and gains of cost initiatives (Project Pie) partially offset by higher A&P spend  

Company expects better growth outlook in FY16 led by new products, penetration and market share gains. Low inputs, mix improvement and cost initiatives will drive margin profile. We retain buy with price target of Rs1,155/share

Housing Development Finance Corporation (HDFC)Reco: HOLDCMP: Rs 1201Target Price: Rs 1309Steady quarter

HDFC delivered higher than estimated earnings of Rs18.6bn (+8% yoy), driven by higher non-core income. Core PBT (excluding trading gains and dividend, constitutes 15% of 4QFY15 PBT) growth moderated to 5% yoy v/s reported PBT growth of 13% yoy

Loan growth remained healthy at 16% yoy led by a 16.8% yoy growth in individual loans. Corporate loan growth remained subdued at 12% yoy. Spreads for FY15 remained stable at 2.3% and asset quality remains robust with GNPL% at 0.7%

On creation of deferred tax liability, 25% of the DTL, to the tune of Rs5.6bn, was created on the opening special reserves and adjusted against the reserves and surplus during the year. As per NHB guidelines, Rs5.6bn and Rs11.2bn of DTL has to be created in FY16 and FY17 respectively. Interest on zero coupon bonds for FY15 stood at Rs4.1bn

Consolidated earnings for FY15 grew by 10% yoy to Rs87.6bn and contribution of subsidiaries to consolidated earnings was stable at 32%

We expect earnings CAGR of 16%+ over FY16/17 and core RoEs to be 24%+, supported by healthy business growth, stable spreads and robust asset quality. However, in our view, current valuations are fair. Hence, we continue to maintain Hold. Risks: Downside - Slowdown in the mortgage market, leading to lower-than estimated loan growth; more-than-expected NPA, leading to higher credit costs. Upside - The potential listing of its insurance subsidiary, which could unlock further value for shareholders

Essel PropackReco: BUYCMP: Rs 128Target Price: Rs 147Expect margin traction to continue; Retain Buy

Miss on topline; profitability intact – Revenue at Rs 6.1bn, +5.2% yoy, EBIDTA margins improved 220bps yoy to 17.5% and APAT at Rs 416mn, up 52% yoy

Lower volume off-take in oral care in AMESA and EAP along with Euro depreciation (19%) impacted topline growth. However, non-oral care share rise continues to 41.2%, up 210bps, drive by EAP region

Margin uptick was driven by strong margins reported in Americas, Europe & AMESA.  Expect scale benefits, mix improvement and cost efficiencies to drive 18.2% margins by FY17E. Expect higher margin delta from Americas & Europe

Company tones down revenue guidance to 12%, but maintains PAT growth and return ratio at +20% and expect payout to rise to 20-25%. Retain BUY with price target of Rs 147

Bharti AirtelReco: HOLDCMP: Rs 387Target Price: Rs 380Concerns persist in Africa

Revenue at Rs230.4bn (-0.8% qoq), EBITDA at Rs81bn (+4.2% qoq) with EBITDA margin at 35.2% (+169bps qoq). PAT at Rs12.6bn was down 13% qoq. Profitability hit  was due to forex loss of Rs10.8bn vs Rs5.5bn in Q3FY15

India - RPM at Rs0.474 (-2.6% qoq) was below our estimate. Voice RPM declined 4% qoq, adjusting for lower IUC charge VRPM declined 2.1% qoq. Data revenue growth moderated to 10% qoq

Africa remain a drag with weak operating performance; EBITDA declined 14% qoq and net loss of Rs11.4bn vs Rs8.4bn in Q3FY15. Despite weak operating performance, capex remained elevated in FY15 at Rs65.4bn vs Rs38.4n in FY14 

India operating performance to continue on stable footing but Africa remains a drag. Maintain Hold with target price of Rs380

Idea CellularReco: HOLDCMP: Rs 182Target Price: Rs 178Strong execution but weak realizations

Revenue at Rs84.2bn (+5% qoq) and EBITDA at Rs30.6bn (+11.3% qoq) with EBITDA margin of 36.4% (+205bps qoq), beat of 4% was driven by lower than expected administrative and network expenses. Robust PAT growth of 22.8% qoq to Rs9.4bn was driven by healthy operating performance and lower depreciation

Traffic on network grew 8.4% qoq (better than estimate). Voice RPM continued to decline to Rs0.339 (-7.3% yoy and -4.8% qoq). Adjusting for cut in IUC charge, voice RPM declined 4% qoq. Blended RPM declined 3% qoq

Accelerated decline in voice RPM and increase in capex guidance came as a negative surprise. R-Jio’s launch will disrupt pricing of the fast growing data revenue stream for the telecom sector. Given our cautious view on the sector, retain HOLD with PT of Rs178

TVS Motor CompanyReco: REDUCECMP: Rs 237Target Price: Rs 220Lackluster performance

TVS Motors’ adj. EBITDA margin for Q4 stood at 6.6% including benefits of excise free plant (+40 bps QoQ) and Tamil Nadu input tax benefit (+70 bps QoQ) – below estimates

The reported raw material cost for the quarter was understated by Rs 420 mn on account of provision reversal for TN input tax credit while other expenses included provision for Rs 540 mn on booked technical fees from a past transaction not materializing

During the year, investment in subsidiaries stood at Rs 12.5 bn and the EBITDA loss in the Indonesian subsidiary stood at $7 mn. For FY16 (a) mgmt has guided for further investments in subsidiaries of ~Rs 1.5 bn  (b) losses in Indonesia is likely to continue

Management’s 10% EBITDA margin target in 3 years is dependent on market share gains and success of recently launched product lines – looks difficult to us as competition across segments is intense and recent launches are showing signs of fatigue

We cut our FY16/FY17 estimates by 4%/14% as we build in a more conservative margin trajectory and as we provide for higher capex and investments. The stock is trading expensive at 21x/16x FY16E/FY17E EPS, more than discounting further market share gains in FY16E and our optimistic margin trajectory. Maintain REDUCE.

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