Everonn Education Ltd; CMP – Rs340, Target Rs470, Upside – 39%
- A large student base, low literacy levels, inadequate public education infrastructure, high drop-out rates, low GER and rising per capita income makes India one of the largest markets for educational services.
- Everonn well-placed to benefit from this opportunity through presence in various segments viz ICT for Government schools, virtual classrooms for private schools and colleges, vocational training, online learning, engineering test prep and educational material supply and infrastructure consulting.
- Consolidated revenues to witness a robust 65% CAGR over FY09-12E while earnings to grow by strong 63%; margin to decline marginally over the period.
- Everonn attained operating cash flow breakeven in FY10 and is set to generate significant positive cash flows from FY11.
- With cheap valuations at 5.4x FY12 P/E, we expect a material valuation re-rating of the stock in medium term.
Shiv Vani Oil and Gas; CMP – Rs421, Target Rs580, Upside – 38%
- Shiv-Vani is the largest onshore oil service player in India with 40 onshore rigs and ten seismic crews. With more than US$3bn worth of exploration commitments for NELP rounds yet to be met, Shiv-Vani, is well poised to garner robust revenue growth.
- Shiv-Vani’s integrated service portfolio for on-shore drilling stands it in a better position compared to competition to secure contracts.
- The company also provides end-to–end solutions for CBM drilling. With India being a gas starved nation, substantial capex is planned for exploration and development of CBM fields in India. This entails well for Shiv-Vani’s revenue growth.
- Current order book stands at about US$800mn, which is about 4x FY09 revenues, yielding strong revenue visibility over the next few years.
- The stock trades at 9x annualized 9m FY10 EPS, which is attractive considering robust future growth expectations in revenue and profitability.
Usha Martin; CMP – Rs80, Target Rs110, Upside – 38%
- Usha Martin Ltd (UML) is in its last phase of expansion, wherein it plans to raise its steel making capacity by 2.5x and at the same time increasing its backward as well as forward integration. We expect company’s topline to jump 36.2% CAGR over the period FY10-12 led by 2x jump in sales volume and steady steel realisations.
- Operating profit for the company is expected to expand on account of a rise in metallic production and increase in consumption of captive raw materials viz coal and iron ore. We expect operating profit to jump by 100% over the next two years to Rs9.5bn from 4.9bn due to a 100bps expansion in OPM and a jump in sales volume.
- The volume growth coupled with a rise in raw material integration will lead to earnings CAGR of 40.8% over the period FY09-12. At the CMP of Rs80, the stock trades at a P/E of 5.1x and an EV/EBIDTA of 3.4x FY12E, which is at a huge discount to the larger players. We feel that at current valuations the stock appears attractive and recommend BUY with a target price of Rs110.
KPIT Cummins Infosystems Ltd; CMP – Rs92, Target Rs120, Upside – 30%
- Reflecting a significant improvement in revenue visibility over the past two quarters, KPIT guided for an industry-leading 25% revenue growth for FY11.
- In the longer term, management targets organic revenues of US$400mn by FY13 implying a robust CAGR of 37% over FY10-13.
- Reduction in forex loss to offset margin decline in FY11; OPM to marginally expand in FY12 aided by operational levers.
- Significant correction in stock price over the past 1 month has made valuation further attractive at 6.5x FY12 P/E.
Welspun Corp; CMP – Rs223, Target Rs290, Upside – 30%
- Order book for the company at the end of FY10 stood at Rs66bn in value terms and 0.74mn tons in volume terms. Order flows are expected to pick up as the company has bid for projects worth 0.5mn tons of pipes. The company expects to increase its volume to 1mn tons in FY11 from 0.8mn tons in FY10.
- Welspun over the last two years has been able to maintain its EBIDTA/ton margin of Rs10,000 on pipe sales. We believe that it will continue to register higher than guided margin on pipe sales over the next two years. Also, with a revival in the pipe and shipping industry expected over the next two years plate sales will continue to rise. We expect operating profit to increase to Rs14.3bn in FY12 from Rs13.1bn in FY10.
- With the rise in crude oil prices and a gradual revival in order inflows, we believe Welspun Gujarat is the best bet in the pipe sector to exploit this opportunity. This coupled with strong order book and improving visibility in its plate business, we maintain our BUY rating with a target price of Rs290.
CESC; CMP – Rs370, Target Rs475, Upside – 28%
- CESC enjoys a near monopoly status in Kolkata where it caters to over 2mn customers. In order to address the growing demand of power in its license area and benefit from the huge demand supply gap in the country, CESC plans to expand its capacity ~4x over the next five years.
- It recently commissioned its 250MW Budge Budge III unit, thus enhancing its capacity by 25% to 1,225MW. It is progressing well on the 2x300MW Chandrapur project which is expected to commission by 2014. The project has already achieved key milestones: 1) land acquisition, 2) financial closure, 3) fuel linkage and 4) equipment ordering.
- CESC has successfully managed to reduce monthly losses of its retail venture - Spencer’s Retail - to Rs130mn from Rs200mn earlier. It is also witnessing an improvement in average realizations/sq ft/month. Its realizations improved to Rs854 in March 2010 from Rs660 last year. In order to improve its realizations and margins, Spencer’s plans to focus on setting up of more hyper formats and selling high margin products like apparels. We believe these efforts will enable the company to break even at PAT level in 2013.
- Trading at 0.9x FY11E book, we believe CESC is the cheapest utility stock available. Even after factoring in the huge capex lined up by the company and Spencer’s losses, we arrive at a SoTP based target price of Rs475/share for CESC, representing 20% upside from the CMP. Recommend BUY.
Sunil Hitech; CMP – Rs224, Target Rs280, Upside – 25%
- Sunil Hitech will benefit from the huge spending in the power generation space. It is one of the leading players in the fabrication, erection and commissioning of thermal power plants and steel plants.
- It plans to focus on the Balance of Plant space, which is currently one of the bottlenecks for adding fresh capacity. In addition it also plans to undertake EPC contracts from other industries.
- With over 80GW expected to commission by the end of the XIIth plan, we believe the company is well positioned to capitalize on this opportunity.
- It has a very strong order book of Rs20.6bn, which covers it for the next 2.5 years at least.
Yes Bank, CMP – Rs275, Target Rs340, Upside – 24%
- In FY10, Yes Bank was the fastest growing bank in the industry with a loan and deposits growth of 79% yoy and 68% yoy respectively. We expect the bank to continue to grow at substantially above the system in FY11 and FY12 also.
- The bank is also likely to benefit from benign wholesale funding rates in the short-term enabling to post a better NIM performance than most banks in the industry
- The recent fund raising of Rs10.4bn via QIP has significantly improved CAR to 20.6% and Tier-I ratio at 12.5% making the bank adequately capitalized for robust growth in the future.
- Despite the exceptional growth in loan book over the past three quarters, Yes Bank has been able to contain asset quality at negligible levels. Gross NPLs and Net NPLs are at 0.3% and 0.1% respectively as a % of total advances.
- At 2.1x FY12E P/BV, valuations are attractive in the light of bank’s superior fundamentals.
Crompton Greaves; CMP – Rs238, Target Rs295, Upside – 24%
- We believe Crompton Greaves is best placed in the T&D segment to capitalize on the huge opportunity and it will continue to generate robust cash flow and hence remain a net cash company going forward too.
- During Q4 FY10, it acquired PTS, a UK based high voltage electrical engineering company, for £30mn and three businesses of Nelco Ltd to fill gaps in its value chain. We believe this further improves the competitiveness of the company.
- We believe these acquisitions coupled with robust margins will allow the company to witness 23% earnings growth over FY09-12E.
- The stock has corrected 10% over the last one month. We believe this fall in the stock price is unwarranted and concerns over its Europe exposure is exaggerated as the share of its international subsidiaries is decreasing.
United Spirits; CMP – Rs1,164, Target Rs1,421, Upside – 22%
- United Spirits to outpace IMFL industry growth; expect volume rise of 14-16% yoy pa
- Lower molasses cost on account of bumper sugar harvest in 2010-11 to drive OPM expansion of ~200bps over FY10-12
- W&M to transform from a bulk Scotch seller to branded spirits marketer; to improve EBIDTA over the longer term as margin is higher in the latter business
- Expect EPS CAGR of ~46% over the next two years driven by healthy volume growth and margin expansion; Recommend BUY for a TP of Rs1,421
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