Target Price - INR410
Nearly 50% of Dabur’s domestic sales comes from rural India – the highest proportion among FMCG companies – making it an ideal play on rural revival. For 2QFY18 rural sales grew by 11%, faster than its growth in urban sales at 10%. Worries on both the wholesale channel due to GST implementation and rural sales are receding faster than expected.
Target Price - INR1440
Larsen & Toubro (LT) is exposed to several levers across business/geographic segments and has emerged as the E&C partner of choice in India, which provides a robust foundation to capitalize on the next leg of investment cycle. Under its new five-year strategic plan to FY21, LT aims to: (a)grow sales at 12-15% CAGR to reach INR2t by 2021, (b)expand margins to 11.2%, up 120bp over FY16, driven by higher profitability in key manufacturing verticals (power, process, forgings and Katupalli yard) and hydrocarbons,(c)unlock value via asset sales to drive ROE to 18% from 12% in FY16 and (d) reduce working capital to 18% of sales from 24% currently.
Oberoi Realty Target Price - INR580
Oberoi Realty Ltd. is a Mumbai-focused premium real estate developer, with presence in the residential, commercial and hospitality segments. It enjoys EBITDA margins of >50%. Its residential portfolio comprises 19msf of developable area, providing strong growth and cash flow visibility over the next 10-12 years. The recent foray into affordable housing completes its bouquet of offerings and should help it enjoy tax incentives. It plans to multiply its annuity portfolio from 1.6msf to 4.2msf by launching two new malls and an office complex on its existing land bank, which is fully paid for. The expansion will result in leasing income increasing by 4x over the next five years.
Nilkamal is a market leader with 32% share in the moulded furniture segment and sells 1.4mn plastic chairs per annum (one of the largest in India). The plastics division (89% of revenue) has grown consistently at 8.3% CAGR over FY12-17. The retail division, @home has turnaround from negative EBIT to INR32mn EBIT profit in FY17. Over FY12-17, Nilkamal's revenue and PAT grew at 7%/17% as EBITDA margin expanded by 110bps. We expect margins to further improve. The company has free cash flows with very low leverage (D/E of 0.14x FY17). Return ratios (RoE) improved from 10% in FY15 to 18% in FY17.
Target Price - 458
Motherson Sumi has four divisions Wiring harness (15%), Polymers (52%), Mirrors (28%) and others Components (5%), operates 230 plants in 37 countries and has enviable track record of strong performance with unwavering focus on capital allocation. Mothersons has evolved as a partner of choice for all most all OEMs in the world, reflecting in increasing share of business and market leadership in all the key businesses that it operates in. It is in sweet spot to benefit from evolving disruptive global automotive trends, which would drive its next wave of growth. The latest acquisition of PKC strengthened its presence in commercial vehicle wiring harness segment. Company has strong organic growth opportunities in international as well as domestic market driven by increase in content per vehicle, strong order book and entry in new markets/segment. Consolidated Revenues/EBITDA/PAT to grow 22%/30%/33.5% CAGR FY17-20E. We expect RoCE to improve to 21.2% in FY20. Premium valuations are justified considering sharp improvement in post-tax RoCE (~21.2% in FY20 v/s average ~13.4% in last 5 years) and possibility of stronger than expected earnings growth. Value the stock at 25x FY20E consolidated EPS with TP INR458.
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