October 28, 2015 / 11:53 IST
Religare's Top Research Picks Top Research Picks
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Divis Laboratories (DIVI IN, BUY): First among equals – initiate with BUY
Asian Paints (APNT IN, BUY): Q2 reels under sluggish demand; Buy on dips
Bharti Infratel (BHIN IN, BUY): EBITDA miss led by lower energy margins
KPIT Technologies (KPIT IN, HOLD): Stellar Q2 with rev/EPS beat; consistency key – HOLD
Other Research
Bajaj Auto (BJAUT IN, BUY): Q2 in line; all eyes on the Avenger facelift
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Symphony (SYML IN, HOLD): Volume growth recovers but priced in
Godrej Consumer (GCPL IN, HOLD): Revenue miss but margin surprise; maintain HOLD
Divis LaboratoriesFirst among equals - initiate with BUYWe initiate coverage on DIVI with BUY and a Mar’17 TP of Rs 1,305. Global pharma outsourcing is treading a gradual recovery path and we believe DIVI will be the biggest beneficiary amongst Indian CRAMS players by dint of its strong IPR adherence and established relations with 20 of the top 25 global pharma majors. Its recent Rs 5bn capex plan imparts strong growth visibility and should support a 23% earnings CAGR over FY15-FY18. Valuations at 18x FY18E EPS are at a discount to historical averages and offer healthy upside.
Asian PaintsQ2 reels under sluggish demand; Buy on dipsAsian Paints
posted a weak Q2 with 4%/16.7%/14.9% YoY growth in consolidated net sales/EBITDA/adj. PAT, even as domestic volume growth came in line at ~8-9%. EBITDA margins too disappointed (15.3% vs. RCMLe 16%) on an adverse product mix. While topline growth should recover to ~10% in H2 off a low base and festive sales, we pare our FY16-FY18 EPS to build in lower revenue growth this quarter. We restate BUY with a Sep’16 TP of Rs 935 (Rs 950 earlier) and recommend buying the stock on dips (Rs 800-825). EBITDA miss led by lower energy margins
Bharti Infratel reported soft Q2 revenues up merely 3.7% YoY to Rs 30.4bn on a 5% YoY increase in tenancies. Consolidated EBITDA margins came in slightly below expectations at 43.1%, flat QoQ, dragged down by lower energy margins. Management commentary indicates that a pick-up in data growth would lead to acceleration in tenancy addition. While valuations are expensive, we continue to like BHIN for its strong market position, improving return profile and healthy balance sheet. Maintain BUY. KPIT Technologies Stellar Q2 with rev/EPS beat; consistency key - HOLD
KPIT reported a strong Q2 with solid US$ revenue growth (+5.3% QoQ) and a massive EBITDA margin beat (13.9% vs. 9.5% estimated, +440bps QoQ) despite wage hikes. Management has guided for a soft Q3 with a rebound in Q4, and stable margins. Post the Q2 outperformance, we upgrade FY17/FY18 earnings estimates by 23%/20% and raise our Sep’16 TP to Rs 150 (from Rs 125), set at 9x fwd P/E. However, we would like to see a more consistent performance before turning constructive on the stock. Maintain HOLD.
Q2 in line; all eyes on the Avenger facelift
BJAUT’s Q2FY16 domestic realisations rose 4% YoY/10% QoQ due to a better product mix. Soft commodity prices pushed EBITDA margins up 120bps YoY to 21.6% (RCMLe 21.2%) and aided adjusted PAT growth of 4% to Rs 9.3bn (RCMLe: Rs 8.8bn). Management expects the upcoming launch of Avenger variants to translate into market share gains for BJAUT and is looking to exit FY16 with 21% domestic share, up from 18% in H1FY16. Export volumes are stable and should continue to lend margin support. Maintain BUY.
Volume growth recovers but priced in
SYML reported a good set of numbers with Q1FY16 net sales/EBITDA/adj. PAT growing by 24.5%/42.7%/33% YoY, as volume growth recovered to 18.7% YoY from a decline of 20.9% in Q4FY15. Adjusted for a change in reporting method, topline growth beat our estimates at 25.6%. Higher gross margins and lower staff costs led to sharp EBITDA margin gains of 380bps YoY/1,165bps QoQ to 29.7%. We remain positive on SYML but valuations appear full at 36.1x/27.1x FY17E/FY18E earnings. Maintain HOLD.
Revenue miss but margin surprise; maintain HOLD
GCPL reported Q2FY16 net sales growth of 9.5% YoY, 2% below estimates as domestic volume growth tapered down to 9% due to sluggish demand. EBITDA/adj. PAT grew 23%/24% YoY with EBITDA margins coming in above estimates at 18% (RCMLe 17.2%) aided by lower RM costs. GCPL’s India/ International businesses reported sales growth of 8.6%/10.6% YoY. We maintain our earnings CAGR estimate of 18% over FY15-FY18 but find valuations expensive at 38.4x/33.1x FY16E/FY17E EPS. HOLD.For all recommendations, click here 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. 
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