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Published on 26/10/2019 2:45:41 PM | Source: Angel Broking Pvt Ltd

Diwali Top Picks Samvat 2076 - Angel Broking

Posted in Diwali Report| #Angel Broking Pvt Ltd #Diwali Report

Diwali Top Picks

Amber Enterprises India Ltd For Target Price is 964

Blue Star Ltd For Target Price is 867

GMM Pfaudler Ltd For Target Price is 1,740

HDFC Bank Ltd For Target Price is 1,390

ICICI Bank Ltd For Target Price is 510

KEI Industries Ltd For Target Price is 612

Larsen & Tourbo Ltd For Target Price is 1,850

Maruti Suzuki Ltd For Target Price is 8,552

RBL Bank Ltd For Target Price is 410

Safari Industries Ltd For Target Price is 646

Shriram Transport Ltd For Target Price is 1,385

TTK Prestige Ltd For Target Price is 7,708

Ultratech Cement Ltd For Target Price is 4,982

 

Amber Enterprises India Ltd

* Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India. It is a onestop solutions provider for the major brands in the RAC industry and currently serves eight out of the ten top RAC brands in India.

* In line with its strategy to capture more wallet share, it has made few acquisitions in the printed circuit board (PCB) manufacturing space which would boost its manufacturing capabilities.

* We expect Amber to report consolidated revenue/PAT CAGR of 20%/32% respectively over FY2019-21E. Its growing manufacturing capabilities and scale put it in a sweet spot to capture the underpenetrated RAC market in India.

 

Blue Star Ltd

* BSL is one of the largest air-conditioning companies in India. With a mere 3% penetration level of ACs vs 25% in China, the overall outlook for the room air-conditioner (RAC) market in India is favorable.

* BSL's RAC business has been outgrowing the industry by ~10% points over the last few quarters, resulting in the company consistently increasing its market share. This has resulted in the Cooling Products Division (CPD)'s share in overall revenues increasing from~23% in FY2010 to ~43% in FY2019 (expected to improve further). With strong brand equity and higher share in split ACs, we expect the CPD to continue to drive growth.

* Aided by increasing contribution from the Unitary Products, we expect the overall top-line to post revenue CAGR of ~11% over FY2019-21E and margins to improve from 5.7% in FY2018 to 6.8% in FY2021E.

 

GMM Pfaudler Ltd

* GMM Pfaudler Limited (GMM) is the Indian market leader in glass-lined (GL) steel equipment used in corrosive chemical processes of agrochemicals, specialty chemical and pharma sector. The company is seeing strong order inflow from the user industries which is likely to provide 20%+ growth outlook for next couple of years.

* GMM has also increased focus on the non-GL business, which includes mixing equipment, filtration and drying equipment for the chemical processing industry. It is expecting to increase its share of non-GL business gradually over the medium term.

* GMM is likely to maintain the 20%+ growth trajectory over FY19-21 backed by capacity expansion and cross selling of non-GL products to its clients.

 

HDFC Bank Ltd

* HDFC Bank has planned to improve business with digital platforms and is engaging with mid market clients. Its next leg of growth road map includes (1) increasing branch opening number from 300 current to 600 annually in non urban area, (2) increase point of sale (POS) 4x to 4mn by FY2021 and double the virtual relationship manager clients in 3 years.

* The bank registered NIM of 4.4% on the back of lower cost of funds, while healthy asset quality kept the provision cost lower. Consistency in both the parameters helped the bank to report healthy return ratio. Despite strong advance growth, the bank has maintained stable asset quality (GNPA/NPA – 1.3%/0.4%).

* HDFC Bank's subsidiary, HDB Financial Services (HDBFS) continue to contribute well to the banks overall growth. Strong loan book, well-planned product line and clear customer segmentation aided this growth.

* We expect the bank's loan growth to remain 20% over next two years and earnings growth is likely to be more than 20%.

 

ICICI Bank Ltd

* ICICI Bank has taken a slew of steps to strengthen its balance sheet viz. measures like incremental lending to higher rated corporate, reducing concentration in few stressed sectors and building up the retail loan book. The share of retail loans in overall loans increased to 61.4% (Q1FY2020) from 38% in FY2012.

* ICICI Bank's slippages remained high during FY2018, and hence, GNPA went up to 8.8% vs. 5.8% in FY2016. We expect addition to stress assets to reduce and credit costs to further decline owing to incremental lending to higher rated corporate and faster resolution in accounts referred to NCLT under IBC.

* The gradual improvement in recovery of bad loans would reduce credit costs which would help to improve return ratio. At the current market price, the bank's core banking business (after adjusting the value of subsidiaries) is trading at 1.7x FY2021E ABV, which is inexpensive considering retail Mix and strong capitalization (tier I of 14.6%).

 

KEI Industries Ltd

* KEI's current order book (OB) stands at `4,414cr (segmental break-up: EPC is around `2,210cr and balance from cables, substation & EHV). Its OB grew strongly in the last 3 years due to strong order inflows from State Electricity Boards, Power grid, etc.

* KEI's focus is to increase its retail business from 30-32% of revenue in FY19 to 40-45% of revenue in the next 2-3 years on the back of strengthening distribution network (currently 926 which is expect to increase ~1,500 by FY20) and higher ad spend.

* KEI's export (FY19 – 16% of revenue) is expected to reach a level 20% in next two years with higher order execution from current OB and participation in various international tenders. We expect KEI to report net revenue CAGR of ~15% to ~`5,632cr and net profit CAGR of ~29% to `300cr over FY2019-21E

 

Larsen & Tourbo Ltd

* L&T is India's largest EPC company with strong presence across various verticals including Infra, Hydrocarbon and services segment. The company also has a very strong presence in the IT services and NBFC space through it's various subsidiary companies which are also growth drivers for the company.

* L&T continued to report strong order flows during Q1FY20 despite the quarter being hampered by the general elections. Company reported order flow of `387bn and retained it's guidance of a 10-12% order inflow for the year and 12-15% revenue growth guidance.

* Management had indicated a very strong pipeline for FY20 of `9lakh Cr. which includes both domestic as well international orders. The company has a strong order backlog of ~ ` 3lakh Cr. and the pipeline provides strong visibility for new order flows for the rest of the year.

* We are positive on the prospects of the Company given the Government's thrust on Infrastructure with over 100lakh cr. of investments lined up over the next 5 years. Reduction in tax rate for domestic companies to 22% from 30% will improve profitability by ~15% for the company.

 

Maruti Suzuki Ltd

* Maruti Suzuki continues to maintain ~52% market share in the passenger vehicles space. The launch of exciting new models has helped the company to ride on the premiumization wave that is happening in the country. In the last two years, company has seen improvement in the business mix with increasing share from utility vehicles.

* Company is well placed to capture any revival in industry due to overall refreshment of portfolio (Already more than 50% of portfolio launched based on BS6 compliance like Alto, Wagon, Baleno, Dzire, Swift. Recent new launches in August 2019 also has the potential to contribute significantly to the Top-line (MPV - XL6 and S-Presso).

 

RBL Bank Ltd

* RBL Bank (RBK) has grown its loan book at healthy CAGR of 53% over FY2010-19. We expect it to grow at 27% over FY2019-21E. With an adequately diversified, well capitalised balance sheet, RBK is set to grab market share from corporate lenders (mainly PSUs).

* During Q1FY20 the retail loan portfolio grew 62% yoy to `18,391cr and now constitutes 32% of the loan book (from 18% share in 4QFY2017). NIM has expanded to 4.23%, up 19bps yoy despite a challenging interest rate scenario on the back of a changing portfolio mix. However, the management disclosed stressed asset worth `1,000cr, which will increase GNPA to 2.25%. Management is confident that it would normalize by Q1FY2021.

* RBL Bank currently trading at 1.4x its FY2021E book value per share, which we believe is reasonable for a bank in a high growth phase with stable asset quality.

 

Safari Industries Ltd

* Safari Industries Ltd (Safari) is the third largest branded player in the Indian luggage industry. Post the management change in 2012, Safari has grown its revenue by 6x in the last 7 years. This has been achieved by foraying in many new categories like back pack, school bags (via acquisition of Genius and Genie) and improvement in distribution networks.

* Its margins have more than doubled from 4.1% in FY2014 to 9.1% in FY2019, driven by launch of new product categories and business. We expect it to maintain 9%+ margins from FY2018 onwards led by regular price hikes, shift towards organized player and favorable industry dynamics.

* We expect its revenue to grow by a CAGR of ~23%/23.5% in revenue/ earnings over FY2019-21E on the back of growth in its recently introduced new products.

 

Shriram Transport Ltd

* SHTF's primary focus is on financing pre-owned commercial vehicles. We expect AUM growth to improve going ahead led by (1) good monsoon which will improve rural economic activity, (2) pick-up in infra/construction, which was subdued since 2019 elections, (3) ramping up in rural distribution.

* SHTF gradually expanded its offering to existing borrower with good track record. New offering includes business loan and working capital which cover overall truck business owner requirement (payment at petrol pump/ tyre dealers, insurance premium).We expect asset quality to remain stable owing to lower LTVs since 3QFY2019 and stable collateral value as used CV prices to improve or remain stable in a BS6 regime.

* We expect SHTF to report RoA/RoE of 3.1%/18.8% in FY2021E respectively. At CMP, the stock is trading at 1.3x FY2021E ABV and 6x FY2021E EPS, which we believe is reasonable for differentiated business model with return ratios.

 

TTK Prestige Ltd

* TTK Prestige (TTK) is the leading brands in kitchen appliances with 40%+ market share in organized market. It has successfully transformed from a single product company to a multi product company offering an entire gamut of kitchen and home appliances (600+ products).

* It has also launched a economy range – 'Judge Cookware' to capture the untapped demand especially at the bottom end of the pyramid. It is expecting good growth in cleaning solutions.

* Management expects to double its revenue in the next five years backed by revival in consumption demand, inorganic expansion and traction in exports.

 

Ultratech Cement Ltd

* Ultratech Cement is India's largest cement manufacturer with ~100mn TPA of capacity spread across the country with a strong presence in Central, North, and West India.

* The company has added capacity by taking over stressed assets of over ~30mn TPA since 2017. Company would also be taking over Century textile's cement capacity of 13.4mn TPA from H2FY20 which will give it 40% plus market share in West and Central India which are amongst the best regions.

* Increased costs due to high energy prices had adversely impacted margins in 1HFY19. However strong pricing discipline due to consolidation allowed cement companies to hike prices in Q4FY19. Energy prices (coal and pet coke) have come off significantly since the beginning of 2019 which along with benign freight costs would allow cement companies to protect margins despite any marginal dip in realizations.

* We are positive on the long term prospects of the Company given ramp up from acquired capacities, pricing discipline in the industry and benign energy & freight costs. Reduction in tax rate for domestic companies to 22% from 30% will improve profitability by ~15% for the company

 

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