AR- Top 7 - Diwali Picks

For Private Circulation Only Anand Rathi Research

Diwali Picks 10 November 2012

DIWALI

PICK

S

Top 7 - Diwali Picks



CMP: 427 Reco: Buy

Company Introduction: Swaraj Engines Ltd is in the business of

supplying engines to the swaraj division of Mahindra & Mahindra Ltd and

supply of hi-tech engine components in India. Swaraj Engines (SWE),

manufactures engines for 20 HP to 50 HP tractors and its growth has

been directly proportional to India’s agriculture story.

Investment Arguments

Its manufacturing plant is located at Mohali (Punjab) where it

plans to raise capacity to 75,000 engines (existing 60000) by

Dec’12, for Rs. 58 crore. Management has indicated its intent to

increase production to 100,000 engines at its present location

when the need arises.

SWE manufactures engines in the 20-50 HP range; of its sales,

10% are engines of lower than 30 HP, 45% of 30-40 HP and 45%

of 40-50 HP. We expect its aggressive capex plans to aid growth,

catering to further demand for Swaraj tractors.

Expected Value: 527 Sector: Auto

SWE’s growth has been directly proportional to India’s agriculture

story. We expect tractors to do well in the long term, led by more

scope for productivity, low penetration, need for mechanization,

higher MSPs and policies (NREGA).

The Company expects to cater to 90% requirement (now ~80%)

of Swaraj brand tractors through its ongoing expansion. After

this, we expect it to cater not only to the Swaraj brand but to

supply engines for other Mahindra brands as well since it is one

of the lowest-cost engines.

Valuation

With additional capacity expected to be on-stream by Dec’12, and on

expectations of a tractor-cycle recovery in FY14, Swaraj stands to

benefit. It operates at a near negative working-capital cycle, is debt

free, and would see good earnings growth in the next 2-3 years. Our

price target of the stock is Rs. 527 based on 8.5x FY15e EPS of 62 (in line

with the last five-year median).

Price 427 52 W H / L 476 / 349

Market Cap (Cr.) 530 Dividend Yield % 3.05

Free Float (No. of shares -Cr.) 0.56 P/BV 2.83

Promoter's Holding % 50.61 ROE% 31.2

Key StatisticsSWARAJ

ENGIN

E

All Figures are in Rs. Crore Except per share data

Year Net Sales EBIDTA PAT EPS

EBIDTA

Margin

(%)

EV/

EBIDTAPE

FY 12 448.58 69.4 52.85 42.53 15.47 5.93 9.99

FY 13e 508.64 80.32 57.58 46.63 15.79 5.12 9.11

FY 14e 581.7 93.3 66.66 53.1 16.04 4.41 8.00

FY 15e 670.5 107.28 77.11 62.08 16.00 3.83 6.85



CMP: 1160 Reco: Buy

Company Introduction: Bayer CropScience is a leader in the areas of

crop protection, pest control, seeds and plant biotechnology. The ‘Agri

Care’ business which primarily includes manufacture, sale and

distribution of insecticides, fungicides, weedicides and various other

agrochemical products. Bayer Crop. is subsidiary of Bayer (Germany).


Bayer CropScience is the largest player of pesticides in India with

over 25% market share (organized). Bayer is the biggest

beneficiary of increasing consumption of pesticides in India,

which is we expect to grow at an 8-10% CAGR from the current

consumption of a mere 0.6gms/Ha.

Robust R&D backed by parent Bayer AG means the company is

very well equipped to launch 3-4 new products every year. Strong

R&D also helps the company to roll out new products to target

pests that have developed resistance against older molecules.

Expected Value: 1402 Sector: Agri.

On the unlocking of value of the Thane plant (Around 1100 Crore)

– the company has received the earnest amount of Rs. 260crs on

March 2011 and an advance payment of Rs. 260crs on Dec 2011

for the exclusive arrangement. The remaining procedure should

be completed at a future date and the receipt of the

consideration will be received on or before 30th Nov 2012.

High levels of cash coupled with strong balance sheet enables the

company to chalk out big expansion (organic or inorganic).

Valuation

With new product is expected to be launched in FY 14-FY 15, we believe

company is building strong platform for sustainable growth in future.

Bayer Corp (Parent) is focusing on cost rationalization globally which will

be reflected in Indian subsidiary too. We strongly believe stock price is

much undervalued vis a vis growth potential. Our FY 14 target value of

the stock is 1402 based on 9.5 EV/EBIDTA (median of last 7 years).

Price 1160 52 W H / L 1190 / 653




Key Statistics

BAYER

CROPSCIENC

E


A

A


EBIDTA

Margin

(%)

EV/

EBIDTAPE

FY 12 2272.30 298.00 139.00 35.19 13.11 14.06 32.96

FY 13e 2514.72 383.54 247.04 62.54 15.25 10.93 18.55

FY 14e 2816.50 487.28 299.34 75.78 17.30 8.60 15.31

FY 15e 3210.80 537.78 344.46 87.21 16.75 7.79 13.30



CMP: 196 Reco: Buy

Company Introduction: Bajaj Corp. is part of Shishir Bajaj Group of

companies. The Company's brands include Bajaj Kailash Parbat Thanda

Tel, Bajaj Almond Drops Hair Oil, Bajaj Brahmi Amla Hair Oil, Bajaj Amla

Shikakai Hair Oil and Bajaj Jasmine Hair Oil. The Company has five

production facilities.


Rs. 70bn Indian hair oils market emerged as one of the fastest

growing segments in the Indian FMCG industry and amongst it,

Light Hair Oils (LHO) lead the pack. We expect hair oil market to

touch Rs100bn by FY15, indicating a 13% CAGR over the next

three years. The LHO category has managed to grow at a CAGR of

28.3% over the past four years versus 21.3% growth in the total

hair oils market. Bajaj Corp Ltd. (BCL), maker of ‘Bajaj Almond

Drops’ emerged as the dominant player in the growing LHO

category and enjoys market leadership with a share of 54%.

Expected Value: 247 Sector -FMCG

BCL’s net cash balance stood at Rs3.4bn in FY12 which placed BCL

strongly to leverage on inorganic growth opportunities.

Over the period, BCL has developed strong distribution networks

which spread across India. The company enjoys deep distribution

networks in both, the urban and rural India. Currently, BCL‘s

products reach to over 2.16mn retail outlets across India. As on

Sep, 2012, BCL has 6036 direct distributors and 11,258

wholesalers, both at the rural and urban markets.

Valuation

Most of the FMCG companies are quoting around 20-25x for FY 15 PE

multiple. However Bajaj Cor. is attractively valued in-spite of its attractive

growth. We valued the stock at 18x for FY15 earning 20% discount to

sector median P/E. We value the stock at Rs. 247, at a target PE of 18x

FY15e earnings.

Price 196 52 W H / L 204 /95




Key Statistics

BAJA

J

COR

P



EBIDTA

Margin

(%)

EV/

EBIDTAPE

FY 12 473.31 115.40 120.10 7.99 24.38 21.94 25.03

FY 13e 568.40 139.80 143.30 9.53 24.60 18.11 20.98

FY 14e 679.00 170.40 174.40 11.60 25.10 14.86 17.24

FY 15e 811.10 203.60 206.20 13.72 25.10 12.43 14.58



CMP: 210 Reco: Buy

Company Introduction: GMDC was established by the Government of

Gujarat, in the year 1963, for developing important and major mineral

resources of the State. Its product range includes energy minerals like

Lignite, Bauxite, Fluorspar, Granite and Marble.


The nearest coal mine is almost 700 Kms away from Gujarat

Border makes it bit difficult for companies to transport coal from

mines. Transportation cost is again major chunk in total cost of

coal which is on upward move (Container corp. recently hike the

freight cost by 20-25%). Imported coal is again costly because of

rupees depreciation and difficult to accommodate in domestic

boilers. Overall cost benefits analysis forced companies to buy

the coal from GMDC.

Expected Value: 264 Sector: Power & Mining

GMDC is continuously decreasing its dependency on lignite and

putting effort to de-risk the business by entering into Bauxite,

power; both thermal & Wind alongwith Manganese, Coal,

Cement, Lead, Zinc, Copper production.

Total Demand for Lignite in India is expected to grow at a CAGR

10% from 55.8 mn tonnes in 2011-12 to 87.8 mn tonnes in 2015-

17. Power sector is major driver of growth.

Company has thermal power plant of 250 MW which is running

below its optimal capacity, GMDC has outsourced Korean

company to enhance the PLF. We expect thermal power will start

contribution in EBIDTA from FY 14 onwards.

Valuation

In PE term stock is quoting at 8.5x FY15E EPS of Rs 24.7 and 9.5x FY14E

EPS of Rs 22.1. We see the price target of Rs. 264 based on FY 15, EPS.

(Value based on 5 years median PE multiple.)

Price 210 52 W H / L 220/151



Promoter's Holding 74 ROE% 26.2

Key Statistics

G

M

D

C



EBIDTA

Margin

(%)

EV/

EBIDTAPE

FY 12 1631.12 833.80 486.70 15.30 51.12 8.05 13.73

FY 13e 1998.34 959.60 580.30 18.24 48.02 7.00 11.51

FY 14e 2300.28 1106.90 702.40 22.08 48.12 6.07 9.51

FY 15e 2350.68 1178.40 784.30 24.66 50.13 5.70 8.52



CMP: 468 Reco:Buy

Company Introduction: Karur Vysya Bank(KVB) Limited provides banking

and financial services in India. KVB was started in the year 1916 in Karur.

KVB has made profits consistently for the past 95 years of its banking

operations. It has also declared uninterrupted divided since its operation.

Investment Arguments:

KVB is planning to introduce 100 new branches and 400 ATMs

during the current fiscal across the country. It aims to reach 540

branches pan-India by March 2013, which will be in line with the

long-term goal of achieving a total business of Rs 1, 25,000 crore

by 2016.

KVB continues to register higher business growth (25%) than the

system. At 27.2%, advances grew faster than deposits (23.3%).We

expect the bank to continue to register a healthy ~26% CAGR

over FY12-15, led by SME and retail loans.

Expected Value: 574 Sector: Banking

Both in terms of ROA & ROE, KVB has been most consistent

player in last 10 years which shows quality of management. In

last 10 years we find that it is consistently generating ROA of

above 1 & ROE of over 20% (Average). KVB 10 years average ROA

is 1.64% which is higher than HDFC which is another best bank,

consistently generating higher ROA (average 1.46%) over 10 years

period.

Gross NPAs decreased 14.4% qoq, with fresh slippages of `613m

(1.0% of loans). NPA coverage remained stable at +75%. In

2QFY13, restructured book grew 9.2%qoq to `7.1bn (2.8% of

loans). We expect the 75% NPA coverage to be sustained over

FY13-15, led by likely stable asset quality and 28.2% CAGR in

pre-provisioning profits over the same period.

Valuation

At the current price of Rs. 390, the stock trades at a PABV of 1.20 xs for

FY15e and 1.42x for FY14e. Our target price of Rs. 574 is based on target

P/ABV of 1.45 for FY 15 ABV.

Price 468 52 W H / L 482 / 315

Market Cap (Cr.) 5018 Dividend Yield % 3


Promoter's Holding - ROE% 20.7

Key StatisticsKARUR

VYSYA

BANK


YearNet Int.

Income

Operating

profitPAT Adj. Bv P/BV ROE ROA

FY 12 917.10 725.70 501.70 247.60 1.91 20.70 1.50

FY 13e 1264.90 957.70 604.30 283.60 1.67 20.80 1.40

FY 14e 1576.70 1224.10 748.30 333.90 1.42 22.10 1.40

FY 15e 1960.30 1529.40 934.50 396.10 1.20 23.20 1.40



CMP: 793 Reco: Buy

Company Introduction: HDFC is engaged in providing loans for the

purchase or construction of residential houses, commercial real estate

and loans for certain other purposes in India. Its product range includes

loans for purchase and construction of a residential unit, purchase of

land, home improvement loans, home extension loans, non-residential

premises loans for professionals and loan against property, while its

flexible repayment options include Step Up Repayment Facility (SURF)

and Flexible Loan Installment Plan (FLIP).

Investment Arguments:

HDFC is the largest mortgage player in India. HDFC holds 24% in

HDFC bank. The company also has two insurance subsidiaries

where it holds 74% stake i.e. HDFC life and HDFC Ergo general

insurance company. Increase in FDI limit in Insurance sector will

help Indian promoters to unlock the value of their investment

and improve capital adequacy.

Expected Value: 947 Sector: NBFC

Over the last decade HDFC has delivered a PAT CAGR of 22%.

Impeccable asset quality, growth and profitability performance

has led to market cap CAGR of 30%.

HDFC has good distribution franchise owing to bank’s strong

branch network. We believe this will help HDFC to maintain

growth momentum going forward. As interest rates seem to have

peaked out and expected to decline from FY 14. We believe this

will boost profitability as well as ROE.

Valuation

At the current price of Rs. 793, the stock trades at a PBV of 3.4x for FY15e

and 3.9x for FY14e. Our target price of Rs. 947 is based on target P/BV of

4.10 for FY 15 BV.( last 3 years Average.)

Price 793 52 W H / L 805 / 600



Promoter's Holding - ROE% 25.3

Key Statistics

H

D

F

C

all Figures are in Rs. Crore Except per share data

YearNet Int.

Income

Pre-

Provi.ProfitPAT Bv P/BV ROE ROA

FY 12 5318.10 5745.60 4122.60 165.37 4.80 25.35 2.70

FY 13e 6620.90 7070.90 5009.80 175.10 4.53 25.23 2.80

FY 14e 7839.90 8369.60 5925.30 200.75 3.95 25.12 2.82

FY 15e 9065.30 9712.56 6852.80 230.86 3.43 24.23 2.78



CMP: 595 Reco: Buy

Company Introduction: Havells India Ltd.(HIL) is one of the largest

electrical and power distribution equipment manufacturers engaged in

selling entire gamut of household, commercial and industrial electrical

devices. Its products include industrial and domestic circuit protection

devices, cables and wires, motors, fans, power capacitors, compact

fluorescent lamps (CFLs), luminaries for domestic, commercial and

industrial applications and modular switches.


One of the key strengths of HIL is its wide product range from

Switchgear, Switches, Cables & Wires, CFL, Luminaries, Fans,

Water Heaters and Kitchen appliances. HIL is better placed as

compared to competition as it can target the entire distribution

channel with its product range, which almost covers the electrical

equipment market. It holds a market share ranging from 10-25%

and is among the top 5 players in most product categories.

Expected Value: 715 Sector: Capital Goods

HIL is emerging as retail consumer durable brand. Recently it has

entered into home appliances space like mixer, iron, grinder,

induction stove etc. However this market is crowded but India

being a consumer driven market offers ample scope to grow.

HIL also established a strong pan India distribution network,

which it is looking to enhance further. It currently has more than

5300 dealers in India, which it is looking to increase by about 500

each year in order to expand its reach. Company has very strong

relationship with dealers which can be leveraged for selling

consumer appliances.

Valuation

We strongly believe over medium term (3-4 years) company valuation

multiple will also improve. As of now co. is treated as player in capital

good segment hence commands lower multiple. We expect the stock is

ready for re-reating. We valued the company at 16x for FY 15 which

gives our target price of Rs. 715.

Price 595 52 W H / L 708 / 365

Market Cap (Cr.) 7429 Dividend Yield % 1,09


Promoter's Holding 30.43 ROE% 46.0

Key StatisticsHAVELLS

INDIA



EBIDTA

Margin

(%)

EV/

EBIDTAPE

FY 12 6518.20 802.54 369.92 29.66 15.98 10.70 20.19

FY 13e 7268.40 733.70 420.14 33.69 14.07 11.70 17.78

FY 14e 8079.10 846.82 514.71 41.28 11.48 10.14 14.51

FY 15e 9290.97 970.91 557.46 44.70 10.60 8.84 13.40



CA Vivek Gujrati

[email protected]

Tel No: +91 22 4001 3867

Disclaimer

This report has been issued by Anand Rathi Share & Stock Brokers Ltd.(ARSSBL ), which is regulated by SEBI. The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities, options, future or other derivatives related to such securities (“related investment”). ARSSBL and its affiliated may trade for their own accounts as market maker/ jobber and /or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side of public orders. ARS, its affiliates, directors, officers, and employees may have a long or short position in any securities of this issuer(s) or in related investment banking or other business from, any entity mentioned in this report. This research report is prepared for private circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial situation and the particular needs of any specific investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report.

AR- Top 7 - Diwali Picks

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