Sintex, Inox Wind and DHFL top Diwali Picks: Motilal Oswal

Motilal Oswal's Top Diwali Picks

 

Sintex’s business model is strongly connected with macro-outlook and boost in government spending. The company will be a major beneficiary from government’s strong focus on wide range of infrastructure and social improvement plans viz. education, healthcare, sanitation, housing etc.We believe the best is yet to come for the company, but delay in broad based recovery cycle in B2G projects remains elusive. Spinning project, despite being economically incentivized, might post disappointment in the scenario of weakening cotton price. With FCCB conversion getting over, dilution risk is behind. With capex cycle getting over, we expect gradual moderation in gearing FY17 onwards. We keep our EBITDA est. intact, raise FY16 EPS by 22% (FY17 intact) due to deferment of interest and depreciation from spinning from to FY17 (will be capitalized in FY16 as guided by management). The stock trades attractively at 6x FY17E EPS and 4.8x FY17E EV/EBITDA (LT average of 6x) and 0.8x FY17E P/B (RoE 13%). We value SINT at 6x FY17E EV/EBITDA, which translates into a fair value of INR145/share. Maintain Buy with target price of Rs 145

 

 

We believe I-WND is well positioned to benefit from the WTG demand arising from the government’s ambitious target to install 60GW capacity from wind energy by 2022, and WTG demand revival led by fiscal and regulatory incentives provided by central and state government. We expect INXW to report 43% revenue CAGR over FY15-17, largely supported by strong volume growth of 32% and realization improvement of 11%. Operating profit is likely to witness 60% CAGR over FY15-17, led by margin expansion of 380bp during the period. Driven by strong earnings growth and debt repayment, we expect RoE to improve to 36% in FY17. Our target price of INR 543 (16x FY17E EPS of INR 33.5) implies 37% upside.

 

 

DEWH continues to perform well on growth and asset quality front; we expect the loan growth to remain healthy at a CAGR of 23% over FY16-18 and asset quality remains healthy with +100% provision coverage ratio. While the margins have improved further tailwinds for margins exists as wholesale funds have declined sharply and the company continues to replace bank borrowings with bonds. Management expects to bring down bank borrowings to 45% over the next 2 years. Moreover rating upgrade to AAA (by CARE Ratings) coupled with reduction in banks base rates during 3QFY16 are likely to provide further leg up to margins .Management is committed to bring down the costs structure by improving productivity, rationalizing branch network, centralizing back-end operations.  The stock is trading at 1.2x FY17E ABV, is a steep discount compared to other HFCs (all trading above 2.4x P/B), expected improvement in margins and reduction in cost can lead to narrowing of this gap. We expect AUM/PAT CAGR of 26%/24% over FY16-17, and estimate RoA/RoE at 1.3%/17.2% for FY17. Better than expected growth and cost control should provide upsides to our RoA/RoE estimates. Maintain Buy with a price target of INR 355 (1.75x FY17 Adjusted book value).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.