BEST BUYS FOR DIWALI
By Research Bureau
The festival of lights is here and like every year, we all fervently hope and pray that Goddess Lakshmi continues to bless one and all. This is also the time when we all loosen our purse strings and go shopping in full throttle. And like every year, we present a list of stocks which you should buy to ensure that your next Diwali will be even more ‘dhamakedar!’.
All these stocks are for the long term and remember, it is always patience which pays and here, these stocks could not just pay but also give you a fantastic bonus!
Happy Diwali and happy investing!
BATA INDIA
It is a 52.01% subsidiary of Bata Shoe Organisation (BSO) Group, India’s largest retailer and leading footwear manufacturer, retailing footwear and related accessories, through its 1,250-plus retail outlets, spread across 500 cities in the country. The company follows the calendar year ending and for its third quarter ended 30th Sept 2012, the performance disappointed due to slack demand. The company, like all others, is hoping that the festive demand will kick up a demand it will be able to get over the current lull. At the same time, it is planning on aggressive expansions wherein it has targeted opening of 100 stores per year for two years. This quarter it opened 33 new stores. It has earmarked a capex of Rs.100 crore for the year, of which it has already spent substantially on expansion of the retail stores, renovation, relocation and some on manufacturing. A debt free company, as at end of 30th Sept’12, promoters hold 52.01% stake, institutions hold 31.79%.
For CY13, the company is expected to post revenue of close Rs. 2,000 crore and earn net profits of about Rs. 170 crore, resulting in an EPS of approximately Rs. 26. This discounts the current price by 35 times. Being the largest footwear retailer in India, with backward integration and debt-free status, the company is presently ruling at a PE multiple of about 33 times based on its expected current year (CY12) earnings, which is an attractive value for retail play. One must buy it when the stock dips, at lower levels with target price of 1,200 for the next 12 months.
DISH TV
It is a part of the Essel Group, is Asia’s largest DTH (direct-to-home) multi-channel subscription television service provider, based on gross subscriber base of 13.9 million (1.39 crore), as on 30th September, 2012. During Q2FY13, company reported revenue of Rs. 534 crore, key drivers being higher subscriber base and increase in average revenue per user (ARPU) to Rs. 159 per month, as against Rs. 156 per month, in the immediately preceding quarter. It added 4.8 lakh new subscribers during the quarter and has been free cash flow positive for 3rd consecutive quarter in Q2FY13. Subscriber acquisition cost, which had remained largely flat through preceding Q4 and Q3 at Rs.2127, rose to Rs.2232 in current Q1 and has gone up to Rs.2,273 in Q2. Average revenue per user (Arpu) strengthened from Rs156 in Q1FY13 to Rs.159 in current Q2, on the back of aggressive price hikes.
Phase I of mandatory digitization has been completed in the four metros – Delhi, Mumbai, Kolkatta and Chennai. The ministry has now started reviewing the preparedness for phase-II cities, which would cover 38 cities across 15 states and the deadline for which is March 31. The Govt is expected to begin work on an integrated plan for smooth and flawless transition in phase-II cities. Phase III comprising of other urban areas, have a deadline of 30th September 2014 and by 31st December 2014 entire country is expected to be digitized. Hence, this is an important driver for the growth of the DTH industry and especially Dish TV which is a market leader is well positioned to capture the incremental growth, without significant marginal expenditure. Given its product mix, leadership position, strong fundamentals and its current market price, share is a good buy for the medium term, with target price of 90 for the next 6 months.
SINTEX INDUSTRIES
It is a market leader in plastics and niche textile-related products in India, making innovative building plastic products, custom mouldings and textiles. In the textiles segment, it possesses specialization in men’s structured shirting in the very premium fashion category. There was an FCCB overhang on the stock, due to which, it had fallen way below its book value. But the same FCCB will now become its best trigger for a surge as its fundamentals remain intact.
Its total debt outstanding is about Rs 2,954 crore of which Rs 1,682 crore debt is maturing for repayment in next one year and Rs 1,272 crore is the long-term debt which is repayable after one year. Out of this Rs 1,682 crore, short-term debt of about Rs 1,250 crore, represents FCCB, becoming due for payment in March 2013. The company will be able to retire this FCCB given the fact that its cash and cash equivalents as at 30th Sept 2012 stood at Rs.739 crore and adding the annual cash generation of about Rs. 475 crore (assuming same as FY12 levels), company will be able to meet its debt repayment obligation comfortably. After FCCB re-payment, debt levels will fall to about Rs.1,700 crore, which will reduce the debt-equity ratio to modest levels of about 0.6:1. Share at 65, is recommended for a buy with target price of Rs.90 in the coming 12 months.
AMBUJA CEMENT
Initially called Gujarat Ambuja Cements, global cement major Holcim acquired management control of ACL in 2006 and it holds 50.67% stake as at end of 30th Sept 2012. The third largest cement maker in the country, it has a cement capacity of 27.4 million tonnes per annum (MTPA) and this is around 8% of total industry capacity and yet, it enjoys a reputation of being one of the most efficient cement manufacturers in the world. It is the first Indian cement manufacturer to build a captive port with three terminals along the country’s western coastline to facilitate timely, cost effective shipments of bulk cement to its customers and it has its own fleet of ships.
Cement is on the sharp bounce back and as the dispatch figures over the past few months have been showing, demand is slowly but surely picking up. But more than volumes, today cement companies have much better realisations and for Ambuja, YoY it was up 20% for the third quarter ended 30th Sept 2012. For CYQ312, Ambuja’s cement sale volumes remained largely flat though this can be attributed to the extended monsoon but net sales rose 20% at Rs.2168 crore. Operating efficiencies helped the company post an absolute EBITDA rise of 72% and net profit rose by a smart 77% at Rs.304 crore. The fourth quarter is usually good and the company seems all set to end CY12 with a higher net sales as 9MCY12 at Rs.7370 crore is sure to surpass that of 12MCY11 of Rs.8534 crore. Net profit was at Rs.1085 crore which is sure to be much higher than that of Rs.1229 crore for CY11. There is fear of a glut in the sector due to over capacity build up but this fear currently seems unfounded as there have been delays in project implementations and once industry activity builds up, demand is expected to accelerate further. Looks like the worst is over for the sector and good times are set to roll.
TATA GLOBAL BEVERAGES
The company, formerly known as Tata Tea Limited is the world's second-largest manufacturer and distributor of tea and a major producer of coffee. It markets tea under the major brands Tata Tea, Tetley, Good Earth Teas and JEMÄŒA. Tata Tea is the biggest-selling tea brand in India, Tetley is the biggest-selling tea brand in the UK and Canada and the second biggest-selling in the USA. JEMÄŒA is the biggest-selling tea brand in the Czech Republic. The presence of these tea brands is so strong that despite the increase in tea procurement prices, it will be able to pass on the costs to the consumer, without exerting much pressure on the margins. On 30 January 2012, Tata Global Beverages and Starbucks announced the creation of a 50-50 joint venture called Tata Starbucks. The company recently launched three Starbucks café in Mumbai, India, generating a lot of excitement and it plans to open 100 stores soon.
The company generates almost 70% of its revenue from abroad and looking ahead, the turnaround in its coffee business, Eight O’ Clock bodes well for the company in the coming quarters. In the domestic business, the company is more of a well-rounded beverage company and Starbucks will be a great boost for its income. It remains a leader in the tea market in India and in coffee, its subsidiary, Tata Coffee is doing extremely well. The Nourishco JV with Pepsi is essentially about water – Tata Water Plus, Tata Gluco Plus. Its premium, high margin branded water, Himalaya will now get a push as it is being sold through the Starbucks network. This truly global beverage company is a must in one’s portfolio with a long term view.
RANBAXY
A subsidiary of Japanese Daiichi Sankyo Company, which holds 63.64% stake, thanks to the forex gain of Rs.393 crore showed a healthy turnaround with a net profit at Rs.754 crore for third quarter ended 30th Sept 2012. On the operations front, despite the forex gain, the company did well and bodes well for the future. During this Q3, the company made 31 dosage form filings and received 43 approvals. For active pharma ingredients (API), it made 12 drug master file (DMF) submissions. It has also received approval to set up a greenfield manufacturing facility in Malaysia. On completion, this facility will triple the existing manufacturing capacity in the focus market for Ranbaxy. Its copy-cat version of Lipitor, for which it had exclusive marketing rights with Watson Pharma ended in May 2012 and the company now learnt to survive post that thus there now there is no fear of overhang as such. . In August, it launched generic Actos, a diabetes drug by Takeda and shares marketing exclusivity with Mylan Inc in USA. This should help boost its earnings in the coming months.
Three of its manufacturing units - Paonta Sahib and Batamandi in HP and Dewas in MP were banned from selling 30 generic drugs by the US FDA due to violation of approved manufacturing norms. It negotiated with the US and got approval to start imports from India. But even now it is not allowed to produce for USA from these units till it meets the FDA norms. The company has Ranbaxy hired two US-based consultants to advise it on remedial work to be done at these units and the first report is expected by Dec’12. It will take two more years to implement the corrective measures and only then it will get the final approvals. And once this comes through, it will once again catapult the company to the stratosphere. It is always prudent to have such contrarian stocks in the portfolio to cash in big time when it strikes rich.
HINDUSTAN ZINC
It is a 64.92% subsidiary of Vedanta Group's Sterlite Industries and is India's largest and world's second largest integrated producer of zinc and lead, with a global market share of 6% in zinc. Being one of the lowest cost producers in the world, the company has 4 mines in Rajasthan, 4 smelting operations (3 in Rajasthan, 1 in Andhra Pradesh) and captive power plant. Its product portfolio includes refined zinc metal, refined lead metal, silver, cadmium and sulphuric acid. Besides being debt-free, company has over Rs.19,136 crore of cash and cash equivalents which is a big positive for the stock, given the market's discomfort with debt-ridden companies.
HIFY13 saw higher lead and silver volumes though lower when it came to zinc. But they both balanced out each other and looking ahead, forFY13, management has guided silver production to be at 350 tonnes. Capex plan for FY13 is expected to be at Rs.1600 crore of which Rs.650 crore is to be spent on underground mining for H2. It expects overall mined metal production for the entire year to be higher than the previous year. Its expansion at its underground mines at Rampura Agucha and Kayar which can give zinc, lead and silver, are expected to on stream by FY14 and that will become a big earning booster. The company till end of HIFY13 had posted a net profit at Rs.3121 crore as against Rs.5526 crore in FY12. It is expected to end FY13 with a net profit at Rs.6000 crore and expected EPS of around Rs.14, discounting the current price by less than 10 times. Clearly a steal, given the sheer size of the company at the current rate.
RADICO KHAITAN
It is one of the oldest and the largest breweries in the country. They have ventured into their own brands from 1999 and since then have made a very strong brand presence with 8PM Whisky, Magic Moments Vodka, Contessa Rum, Magic Moments Remix Vodka, Old Admiral Brandy and Morpheus. The company has done well for H1FY13 with a net profit of Rs.43 crore and with two more quarters to go, it is sure to surpass the FY12 net profit of Rs.64 crore.
EPS for first half of current fiscal stands at Rs.3.25 and EPS for the full year is expected at Rs.7 and this discounts the current price by around 19 times and given the size of the company and its brand equity, surely the valuation is much lower than what many other, smaller companies are quoted at. Even on a conservative side, if we assume FY14 EPS at Rs.15, it is available at a much lower PE than what other high valued stocks are today quoted, sans fundamentals as strong as Radico. The downside risk is very limited in the stock, debt of less than Rs.400 crore, the stock can rise to Rs.160-175 levels over the next couple of months. Get high on this stock; you will not even have a hangover!
BALKRISHNA INDUSTRIES
A Siyaram-Poddar Group company, it is India’s leading manufacturer and exporter of Off Highway Tyres (OHT), having one of the most comprehensive and wide product portfolio of over 2,000 SKUs (stock keeping units) for Industrial, Construction, Earthmoving, Port and Agricultural applications. Since the company operates in the niche tyre making space, its moulding facility become critical and this is where the company differs from its peers such as Apollo, MRF, Ceat or JK. It exports almost 90% of its production to over 120 countries, across Europe, North and South America, Middle East, Africa, Australia and Asia. FY12 geographical mix stood at 46:25:15:14, comprising of Europe, America, Asia and rest of the World respectively. The company does not face much threat from China as Chinese quality remains a suspect and thus has a lower acceptability.
The company had a very impressive H1FY13 with a net profit at Rs.197 crore compared to Rs.269 in FY12. It is sure to end FY13 on a very high note. Apart from the regular stream of income, its income will rise substantially when its new greenfield project will go fully on stream by FY15 and this unit is expected to give an annual revenue of Rs.3000 crore when fully operational. For FY13, company is likely to report sales of 1.60-1.65 lakh MTPA, due to de-bottlenecking of existing capacity and part of the greenfield expansion going on-stream. Hence, expected topline and EPS for the current year is about Rs.3,750 crore and Rs.35 respectively. The stock can move to Rs.325 in the next few months.
MAYUR UNIQUOTES
It is one of the leading manufacturers of artificial leather/PVC Vinyl with a capacity 1.85 million linear/month and is currently operating full throttle at full capacity. The company has made a niche for itself by concentrating on providing quality leather to auto (upholstery), footwear and furnishings sectors, giving it better margins and beating intense competition from the unroganised sector. Many leading Automotive OEMs like Ford, Tata Motors, Chrysler, Maruti, M&M, Honda Motorcycles BMW, and Daimler have the company on their approved vendor list. This is the only Indian company to get a foothold in the international auto sector. It recently allotted a 1:1 bonus and the equity now stands increased at Rs.10.82 crore. An almost debt free company, it is also a supplier to leading footwear manufacturers like Bata, Liberty, Action, Paragon. Even in the replacement market it has made a good base for itself.
The company has integrated backward to make synthetic knitted fabric which is a huge raw material apart from chemicals like PU and PVC. This gives the company excellent quality of fabric, brings down its own procurement cost and more importantly, will get more market share in export as well as domestic market due to lower rejects thus increasing the margins. The capacity of the company is presently at about 19 lakh meter/month of this artificial leather which will get ramped up to about 21-22 lakh/meter post this backward vertical integration. Thus it will be able to post an EPS of around Rs.40 for FY13 which is after 1:1 bonus and its equity rising from Rs.5.41 crore to Rs.10.83 crore. The strong fundamentals suggest that the stock can scale Rs.500 by end of FY13 and even a target of Rs.800 in about 12-18 months from now does not seem far-fetched.
JK BANK
The state might be facing great turmoil but this bank seems to be doing not just fine but very fine. While the rest of the sector grappled with sustaining margins, J&K Bank, is all set to achieve a net profit target of Rs.1000 crore and business target of Rs.100000 crore by FY13. It posted a net profit of Rs 516 crore in H1FY13. Its asset quality, unlike others has improved and at end of Q2FY13, Gross NPA was at 1.59% v/s 1.6% and Net NPA was at 0.16% v/s 0.14% (QoQ). NPA Coverage Ratio at 93.30 % well above RBI stipulated norm of 70 %.
The equity of the bank is very small at Rs.48.49 crores with face value of Rs.10. As at 30-09-12, Jammu & Kashmir state hold 53.17% stake of the bank, while FIIs hold 24.56%. The bank is the first in the country being state owned bank and termed as private sector bank. In FY13, the bank hopes credit to show a growth of 25%. It hopes to increase lending to tourism, infra and lending to apple growers by five-fold over the next two years. The stock has been virtually hitting a new high everyday on the back of these very strong numbers, especially when others are still grappling to survive. It is surely a value pick for the long term.