State Bank of India: Key beneficiary of any pick up
in GDP growth and reduction in lending rates.
Stress on asset quality at near-peak levels. Pick up
in loan to deposit ratio in Q4FY13 and re-pricing of
residual bulk deposits would support NIM. Strong
liability franchise marked by high CASA would
support NIMs in the long term. Valuations are still
lower than five-year average.
UltraTech Cement: Company enjoys strong brand
equity with geographical diversification. Expect 8-
9% dispatch growth over next two years. Plans to
expand capacity by 9.2mtpa by 2014 and explore
both organic and inorganic growth opportunities.
It would be a key beneficiary of an expected pickup
in cement volumes in the next 2-3 years.
Larsen & Toubro: Well-diversified infrastructure
portfolio. Revenue growth expectation of 15-20%
backed by strong order book (~1,53,000 crore) and
healthy order inflows as guided at ~80,500-
84,000 crore in FY13E. Valuation provides
downside support. Rate cuts, pick up in capex,
traction in Middle East along with unlocking in L&T
IDPL (likely in CY13) will lead to outperformance.
United Spirits: Diageo’s acquisition of a controlling
stake would help re-rate. Diageo will pay ~5,720
crore for a 27.4% stake. Part of this will be used
towards servicing its debt leading to improvement
in debt equity and return ratios. Upgraded
earnings estimates for the company by 50% each
for FY14/FY15 post the deal factoring improvement
in leverage and margins.
Cairn: Cairn remains the cleanest play on any
upswing in crude prices. Triggers include higher
realisations, ramp-up in production to 185kbpd
by end-FY13, further to 200kbpd by FY14. Also
the recent in-principle approval for exploration
in the Rajasthan block poses a significant step in
that direction.
ICICI Bank:Core RoA has improved decisively to
1.5% plus. Strong capitalisation of Tier I at 12.8%
will enable it to deliver dilution-free growth
at least till FY16. Led by increase in leverage, core
RoE to improve to 16.5% (average of 11% over
FY08-12). Uptick in economy will lead to rerating.
It trades at near 5-year average valuation.
LIC Housing Finance: It continues to deliver well
on growth and asset quality. Well positioned to
leverage strong growth opportunities (expect 25%
loan CAGR over FY12-15E). Spreads have bottomed
and should improve, led by higher spreads on
new business, lower interest rates and increase in
developer loan portfolio. Earnings will grow at a
25%+ CAGR during FY13-15E.
Tata Motors: JLR’s volume momentum would
remain strong driven by significant upgrades of its
flagship Range Rover and Sport models coupled
with other product actions and China sales.
Improvement in economy would drive recovery in
M&HCV business in FY14 and FY15. It is expected to
be zero net debt (excl NBFC) in 2 years.
NMDC: Volume growth of 13% CAGR over FY12-15 led
by easing bottlenecks, CEC permission for forward
sales in Karnataka, and increase in capacity to 47
mtpa by FY14. Investments in pelletisation will lead
to acceleration in demand and higher prices for
iron ore fines. Strong demand, coupled with lower
supply, has improved fundamentals.
Tech Mahindra: Organic growth prospects at the
combined entity (ex-BT) remain healthy in the
near-to-medium, despite nearly half the
revenues from the challenged telecom vertical
after the merger. Its revenue from the second
largest customer continues to grow. There is
room to increase the wallet share further. Rampups
in deals won will facilitate growth.
Bank of Baroda: At 1 time forward book value, it is
the only credible large-cap public sector bank that
merits a buy. Strengths include its prudent and
disciplined approach to underwriting, its ability to
generate consistent high return ratios on the back
of higher-than-system-average growth and
superior efficiency ratios.
Sadbhav Engineering: At 1.5 times its FY14 book
value, it trades at a premium to other developers.
The premium on the stock is justified given its
prudent business strategy and consistent financial
performance. Expect rising cash flows (nearly
doubling every year over next three years) and
recovery in earnings FY14 onwards to further
widen premium.
Ashok Leyland: Expectation of an improvement in
economy and hence corporate spending bodes
well for India’s second largest commercial vehicles
maker. Given its cyclical properties, this would
mean a pick-up in MHCV segment volumes from
2HFY13. With its high operating leverage and
attractive valuations, it remains the best play.
Torrent Power: On price to book, Torrent trades at
33% discount to its peers. Given Torrent's superior
free cash flow yield (FY13 FCFF yield 11%), higher
FY13 RoE (13.3% vs 11.8% for peers) and improving
visibility on the project pipeline, it deserves to
trade at a premium versus peers and provides
attractive entry point for investors currently.
Sobha Developers: Sobha is the only leveraged
listed developer, with operating cash flows
comfortably in excess of debt servicing related
interest outflow. It has a strong brand built
around quality and speed of execution. Its
incremental cash flows from a possibly improved
macro environment will flow towards building
the launch pipeline and timely execution of
ongoing projects.
ICICI Bank: Focus on CASA, NIM and asset quality
likely to continue. Management focuses on
stable growth with improving profitability.
Earnings to grow 22.4% CAGR during FY13-14E and
expect bank to focus on liability franchise (CASA
mix) and profitability (RoE is likely to improve
further with increase in leverage in the next 2-3
years).
Engineers India: According to Ministry of
Petroleum and Natural Gas, domestic crude oil
refining sector is likely to add significant capacity
in twelfth Plan. Company will benefit from this as
it enjoys good relationship with PSU majors like
HPCL, BPCL and IOC. In order to widen its offerings,
company has entered into various favourable
joint ventures with domestic as well as
international players.
Marico: Leader in branded coconut oil and
premium refined oils. It has made significant
headway in high-growth categories (deodorants,
body lotions and breakfast cereals). On improving
gross margins, expect 22% CAGR in earnings
through FY12-FY15E. Longer term, it has built a
platform to deliver strong revenue growth.
Arshiya: FTWZ (Free Trade & Warehousing Zones) is
a unique business model. The company is also
ramping up its container rail business, which will
effectively complement its FTWZ business. The
business model is completely integrated and a
one-stop-shop to cater to the point-to-point
logistics requirement of the customers.
Petronet LNG: It is investing ~3,000 crore on Dahej
RLNG capacity expansion by 50% to 15 mmtpa.
Second jetty will lead to higher utilisation by 20-
25%. Setting up another LNG terminal (5 mn MTPA
investment of ~4,000 crore) at Kochi, to come
online Q4FY13E. With strong demand, the volumes
are expected to improve.
Source: Brokerages; Motilal Oswal Securities, Religare Capital, Ambit Capital and Kotak Securities
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