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Bata India (BATIND)

Buying Range (| 1900-2020 )

* Bata India is a major player in the Indian footwear market with a presence across men’s, women’s and kid’s footwear segment with price points ranging from the mass market to the premium category. It has a pan-India presence with the largest network of retail stores in the footwear industry with 1500+ stores

* The company has scaled up its digital initiatives with e-commerce channel contributing ~15% in FY21. Focus on omni-channel retailing resulted in 60% of marketplace orders being fulfilled by Bata stores and 100% for its own website. It has rolled out a full suite of Omni-channel solutions, allowing home delivery across 1200+ stores in 1300 cities

* Bata has devised new strategies that would aid in providing thrust to revenue growth. It is tweaking the product portfolio in favour of casual footwear that is experiencing higher demand. It is providing more visibility at stores for younger brands like Hush Puppies, Power and North Star

* Bata’s focus on cost reduction, omni channel, change in product mix (higher proportion of casual footwear) and calibrated expansion of retail network through asset light franchisee route is expected to be structurally positive. We believe such strategic initiatives are expected to provide thrust to its operational performance on a sustained basis. We expect revenue, earnings growth of 9%, 17%, respectively, in FY20-24E with 480 bps improvement in RoCE to 33.0% in FY24E

TCNS Clothing (TCNCLO)

Buying Range (| 720-760 )

* TCNS Clothing is poised to capture high trajectory growth opportunities in the Indian ethnic wear segment through its three popular home-grown brands. Given its multi-distribution channel approach and robust supply chain, TCNS has emerged as the market leader in women’s ethnic space

* The company has embarked on several initiatives to fuel revenue recovery from FY22 onwards. It is expected to accelerate expansion plans and is targeting 60 new EBO stores in FY22E. Higher focus is on expanding network in tier III, IV cities mainly through franchisee led model. It is also focusing on increasing its LFS touchpoints through addition of 200-250 touchpoints. Over the last three years, TCNS had taken a strategic decision to exit certain long credit cycle customers through rationalisation of MBO outlets (1522 in FY18 to 1011 in FY21)

* TCNS is setting up a new integrated warehouse to enhance supply chain and scale up its B2C delivery efficiency (to be set up by December 2021). Furthermore, it has implemented phase 1 of automated inventory management system and expects to rationalise working capital days by ~15-20 days

* Considering the company’s strong brand franchise and healthy balance sheet (cash reserves worth | 140 crore), we bake in earnings CAGR of 30% in FY20-24E and, given the capital efficient business model, expect TCNS to report healthy RoIC of ~ 30% in FY24E.

Bank of Baroda (BANBAR)

Buying Range (| 90-100)

* Bank of Baroda (BoB) is among leading PSU banks with a global loan book of ~| 7.1 lakh crore and has better operating metrics among PSBs

* The bank has a pan-India presence with 8192 branches, 11637 ATMs and 24056 business correspondents

* BoB has a meaningful presence in international operations with its JVs and subsidiaries. Total ~12.4% of total business comes from overseas

* We believe credit growth will pick up with unlocking and speedy economic recovery. Transfer of NPAs to bad bank would lower broad NPA numbers and aid recovery. Q2FY22 could see recovery from DHFL that can boost earnings while recent outlook upgrade by Moody’s on the Indian banking system would impact positively on BoB as well

* Margins are expected to remain stable despite reduced lending rates due to benign funding costs, lesser reversals due to moderation in stress formation from here on. A shift to the new tax regime should also aid profitability

* Thus, levers for improvement in operational performance are present for the bank and also has comfortable capitalisation, CAR of 15.4%. Also, we opine that synergies from the merger are yet to fructify fully, which would also help the bank to improve its overall performance.

Gateway Distriparks (GATDIS)

Buying Range (| 255-275)

* Incorporated in 1994, Gateway Distriparks (GDL) is a leading integrated intermodal logistics facilitator in India. GDL operates in varied segments of logistics industry viz. container freight stations (CFS), container train operations (CTO) and cold chain logistics. Rail segment comprises ~70% of consolidated revenues, with the rest being contributed by CFS

* DFC is expected to normalise its operation (Rewari – Palanpur and up to Pipavav port) in Q3FY22 while Mundra port will take three to four quarters to normalise. This should benefit CTOs like GDL in terms of higher volume growth. DFC may enhance operational metrics of CTOs with enhanced visibility on delivery time due to time tabled freight trains, higher share of double stacked trains enabling better operational efficiencies, among other triggers, leading to higher road to rail shift.

* GDL has been actively reducing its gross debt position, which reached a high of ~ | 740 crore in FY19 (due to buyback of Blackstone’s entire stake in the rail segment for | 850 crore) to ~| 480 crore in FY21 (expected to significantly lower in FY23E). A strong balance sheet combined with strategically located infrastructure will help GDL to capitalise on future growth opportunities and improve its return ratios

* The management expects to reach | 10000/TeU margins in the medium term and at the same time reach 1 lakh TeU/quarterly rail volume run-rate. This would translate into strong FCF generation (>9% yield in FY23E)

Mahindra Lifespace (MAHLIF)

Buying Range (| 255-280 )

* Mahindra Lifespace Developers (MLD) is the real estate and infrastructure development business of the Mahindra Group. It has 27.4 million square feet (msf) of completed, ongoing and forthcoming residential projects across seven cities and over 5,000 acres of ongoing and forthcoming projects under development at its integrated developments / industrial clusters across four locations

* The company has outlined five years plans wherein it aims to achieve a sales value of | 2500 crore by FY25. For the same, it is targeting four land transactions every year totalling ~| 2,000 crore worth of sales potential. MLD has concluded three deals in last one year totalling saleable area of ~2.4 msf with sales value potential of ~| 1500 crore, clearly signalling the conversion of intent into action

* Going ahead, triggers such as PLI schemes, the softening of interest rates and credit availability, the lower tax rates for new manufacturing facilities, coupled with the global realignment of manufacturing, supply chains will drive IC & IC business. We highlight that the company has targeted an annual leasing run rate of ~| 500 crore from IC & IC business by 2025

* We like MLD given its strong parentage, the management’s focus on expanding its overall scale of operation and a comfortable balance sheet. The new land purchases could enable it to scale up its residential business. The change in management and execution has started to show initial signs of transformation, which drives our conviction

Action Construction Equioment T (ACTCON)

Buying Range (| 215-240)

* Action Construction Equipment (ACE) is an Indian construction equipment and material handling company. ACE has eight manufacturing and one R&D site in Faridabad, Haryana

* The company commands strong market share in excess of 60% in the crane market and drives 70% of the business. This segment will continue to grow in 15% range in the medium term given pick up in infrastructure and industrial cycle.

* Strong growth in expected to be in the material handling and construction equipment business in excess of 25-30% over the next three to four years, which is still a low hanging fruit for the company

* Despite a tough time during Covid second wave, the company has performed better on the back of some increased demand in construction equipment segment and exports. The company is confident of achieving 20% revenue growth in FY22 YoY

* ACE has recently raised | 135.52 crore, which will mainly be used for debt repayment and inorganic growth of the company

* The company is confident of achieving 15% CAGR for earth moving machinery and 25% CAGR for remaining segments in the next three to four years with total revenue reaching around | 2100 crore by FY24

* We estimate total revenue to be ~| 1750 crore in FY23E with absolute EBITDA ~| 221 crore and margins in the range of 11-13%

Vardhman Special Steel (VARSPE)

Buying Range (| 255-275)

* Vardhman Special Steel (VSSL) is among India’s leading steel bar producers for automotive applications. It has specialised product offerings, which include steel bars & rods & bright bars of various categories of special & alloy steel

* In August 2019, VSSL had entered into a strategic alliance with Aichi Steel Corporation (ASC) Japan, the main material producer for Toyota Group wherein ASC had participated in equity and had entered into a Technical Assistance Agreement

* In June 2021, VSSL was granted environmental clearance (EC) for expansion of capacity at its existing plant in Ludhiana, to up to 280000 tonnes per annum (TPA) of rolled production. With this approval, the path for enhancement of capacity was cleared. To begin with, the current rolling capacity of 200000 TPA would be increased to 250000 TPA

* VSSL is focusing on improving capital efficiency and is targeting an EBITDA/capital employed of 25% by FY25

* VSSL plans to increase share of export to ~20-25% in FY25 from 1% in FY21

* Over FY21-23E, we expect VSSL’s topline to grow at a CAGR of 25%, while EBITDA and PAT are expected to register a CAGR of 35% and 64%, respectively.

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