Caution: Please note that your copy/access to our website ... · Samrat Pharmachem recommended at Rs.143.20 in TT on 12 March 2018, zoomed to ... A pullback rise can resume on a close

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T I M E S

A TIME COMMUNICATIONS PUBLICATION

VOL XXVII No.21 Monday, 26 Mar – 1 Apr 2018 Pgs.18 Rs.20

Short-covering in the offing By Sanjay R. Bhatia

The Nifty breached its 200-day SMA on Tuesday, which is its long-term moving average, as the selling pressure persisted during the week. Weak global and domestic cues like the looming trade war between USA and other countries has added to the woes. The US Federal’s decision to hike interest rate by 25 bps was expected but the likelihood of four interest rate hikes during this year did not go down well with the global markets. On the domestic front, although the NDA government has not faced the No Confidence Motion, lack of business in both Houses over the last 17 days has hurt the market sentiment.

The breadth of the market remained weak amidst low volumes, which indicates broad-based selling pressure. The FIIs remained net buyers in the cash as well as the derivatives segment. The DIIs, too, also remained net buyers during the week. Crude oil prices moved higher with Brent moving above the $69 mark with Saudi plans for OPEC and Russian led production curbs introduced in 2017 to be extended upto 2019 in order to tighten the market.

Technically, the prevailing negative technical conditions continued to weigh on the market sentiment. The MACD, Stochastic, KST and RSI are all placed below their respective averages on the daily and weekly charts. Further, the Nifty remains placed below its 50-day SMA, 100-day SMA and 200-day SMA. These negative technical conditions could lead to further selling pressure especially at higher levels.

The prevailing positive technical conditions, however, still hold good. The Stochastic is placed in the oversold zone on the daily and weekly charts. Further, the RSI is also placed in the oversold zone on the daily chart. The Nifty’s 50-day SMA is placed above its 100-day and 200-day SMA, its 100-day SMA is placed above its 200-day SMA indicating a ‘golden cross’ breakout. These positive technical conditions could lead to short-covering and selective buying support at lower levels.

The -DI is placed above the +DI line and is also placed above the 39 level, which indicates that the sellers are once again gaining strength. The ADX line is placed above 27, which indicates that the sellers have an upper hand. The market sentiment remains weak and the Nifty trading below its 200-day SMA is a big negative for the markets. With no positive triggers in sight and the alliance within the NDA looking shaky ahead of the Lok Sabha polls next year, the markets are likely to remain under pressure.

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It is important for the Nifty to move above the 10000 mark followed by moving above its 200-day SMA. If it fails to do so, further selling pressure is likely to be witnessed and the Nifty could slip further. The only good news is that the markets are placed in the oversold zone ahead of the F&O expiry, which could lead to intermediate bouts of short-covering and selective buying support.

In the meanwhile, the markets would take cues from the news flow from Parliament session, banking NPAs, global markets, earnings, Dollar-Rupee exchange rate and crude oil prices.

Technically, the Sensex faces resistance at the 33055, 33700, 34000, 34342, 34700 and 35221 levels and seeks support at the 32991, 32565 and 31833 levels. The resistance levels for the Nifty are placed at 10000, 10044, 10074, 10172, 10270, 10325 and 10423 while its support levels are placed at 9788, 9735, 9678 and 9520.

Fresh lows likely Bears may not give up the advantage they have gathered since the Sensex hit the record high on 29 January 2018. Barring only a few sessions since then, the market has consistently fallen nearly 10% on the benchmarks and much, much more at the individual scrip level. The re-introduction of Long-Term Capital Gain Tax (LTCG) came in handy as a strong trigger to puncture the wheels of the bull cart. The logjam in Parliament and the political storm arising out of the NDA's defeat in the by polls gave a fresh impetus to the bears leading to a tight bear hug after a ~35% rally between January 2017 and January 2018.

The reasons for the correction are not far-fetched. LTCG remains the key culprit to fire the first shot although the impact of such a tax will not be so hard because of the grandfathering of the gains till the rates of the day when the Sensex and the Nifty were near their all-time highs. The likelihood of three US Federal rate hikes in 2018 also weighed heavily on the global sentiment. The unearthing of the banking scam and the vanishing act by the culprits made cost a long shadow on the functioning of the government. Donald Trump's protectionist policies weighed heavily on the bottom-line of metal stocks. The defeat of NDA in the recent by polls lead to arm flexing by NDA allies seeking their pound of flesh triggered the ‘sell on rally’ as the new matrix of marketmen.

The market may seek fresh lows as a lot of venom will flow between the government and the opposition both in and out of Parliament. The logjam in Parliament and how casually the Finance bill, which is the country's budget, was passed leaves a lot to be desired.

The correction will be deep and warranting extra caution on the broader front especially in mid-cap and small-cap stocks. The large-caps and benchmark stocks will keep on finding their feet at every fall making the slide bearable and less punitive. The green shoots visible now shall grow further despite the headwinds on the sentiment and with time (in the next twelve months), the market matrix may turn into ‘buy on every decline’. By then, the light at the end of the tunnel will be visible.

The 2019 general elections may throw up the same plain, painful facts on the political plank. While the opposition leaves no stone unturned in harnessing their resources in forming a common front, the voters are apprehensive in passing the reins into their hands. The last khichdi coalition's bitter taste still haunt the masses. The quantum of scams in the coalition days of the UPA is no secret. The BJP with its allies may do the last minute tilt in their favor because of this. BSP, SP, RJD, TDP, etc. may win their battles at the state

BAZAR.COM

Broker Scrip Name Price Target (Rs.)

Prabhudas Lilladher State Bank of India 341

Motilal Oswal Securities Shilpa Medicare 749

Hindustan Unilever 1515

Kotak Securities Dilip Buildcon 1217

KR Choksey Aarti Industries 1455

ICICI Direct Gujarat State Petronet 200

Khambatta Securities Fourth Dimension Solutions 294

lD Equisearch Supreme Industries 1416

Reliance Securities Federal Bank 150

CESC Research Rane Holdings 3183


level but the selection criterion is quite different at the Centre. BJP v/s ALL may turn out to be a battle favoring the former.

So let the ‘sell on rally’ rule the roost for now. Await the change of guard to buy on every decline by the end of 2018. Here are some broker recommendations for medium-to-long-term investments.

Correction likely to continue with volatility

Last week, the Sensex opened at 32650.89, attained a high at 32720.03 and moved down to a low of 32483.84 before it finally closed the week at 32596.54 and thereby showed a loss of 579 points on a week-to-week basis.

Daily Chart

The trend is down. Therefore, resistance will be witnessed at higher range in the gap of 32720 to 33006.

Support is at 32565-32483. Lower top on the daily chart is at 33103. A pullback rise can resume on a close above 33103.

Closing is now below 200 day averages which are at 32864-32742.

A rise and close above 33354 can restore the uptrend on 200 day averages.

Weekly Chart

Weekly resistance will be at 32811-33139-33468.

Lower range for the week can be 32268-31397.

On a sustained fall below 32483 can lead the slide to 31081.

Retracement levels are placed at 31081-29407-27886.

In the year 2010-2011, correction from 21075 to 15135 lasted for 58 weeks and the peak registered was in February 2018. The 58 weeks from February 2018 would mean 1 year and six weeks. Therefore, expect the correction till February 2019.

The next correction in the twelve months of March 2015 to March 2016 was from 30024 to 22494 which relates to a 1-year correction.

Thus the correction has generally been around for 1-year.

Since the Sensex has violated 200-day averages and as long as the Sensex remains below 200 day averages with volatility, the possibility of correction to retracement remains and in terms of time it can last for 1 year. As long as the Sensex is below 200 day averages, the possibility of deeper time wise correction remains.

BSE Mid-Cap Index

Weekly chart:

Expect support of 15513-15129 to be tested.

Resistance will be at 15844-15966.

A rise and close above 15966 can mark a reversal for a near-term pullback rise.

BSE Small-Cap Index

Resistance will be at 17034-17418-18419.

Strategy for the week

The trend is down on daily and weekly chart based on DRV and WRV. Based on 200 day averages, the trend has just turned down which suggests that correction is likely to test towards 31080 with volatility. A deeper correction for retracement is likely in terms of time and price as long as the Sensex is below 200 day average. Pullback may happen with volatility and still remain below 200-day average. A time wise correction is likely.

TRADING ON TECHNICALS

Sensex Daily Trend DRV Weekly Trend WRV Monthly Trend MRV

Last Close 32596 Down 32596 Down 33324 Up 31169


WEEKLY UP TREND STOCKS Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy with whatever low

registered below Center Point or Level 2 as the stop loss. After buying if the price moves to Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value then the trend will change from Up Trend to Down Trend. Check on

Friday after 3.pm to confirm weekly reversal of the Up Trend. Note: R1-(Resistance), R2- (Resistance), R3- Resistance, S1- Support & S2- Support

Scrip

Last Close

S1 S2 - R1- R2- Relative Strength

Weekly Reversal

Value

Up Trend Date

Weak below

Demand point

Demand point

Supply point

Supply point

JUBILANT FOODWORKS 2278.05 2094 2147 2225.1 2356.2 2565.4 64.3 2112.3 23-02-18

TITAN COMPANY 895 861 871 885 909 947 62.3 849.8 23-02-18

V-MART RETAIL 1909.85 1819 1830.6 1898.3 1977.6 2124.6 61 1836.5 16-02-18

GODREJ CONSUMER PRODUCTS 1091 1042 1056.7 1076.3 1110.7 1164.7 60.7 1075 23-03-18

CYIENT 660 630 635.7 654.3 678.7 721.7 59 636.7 23-02-18

*Note: Up and Down Trend are based of set of moving averages as reference point to define a trend. Close below

averages is defined as down trend. Close above averages is defined as up trend. Volatility (Up/Down) within Down

Trend can happen/ Volatility (Up/Down) within Up Trend can happen. Relative Strength (RS) is statistical

indicator. Weekly Reversal is the value of the average.

*Note: Up and Down Trend are based of set of moving averages as reference point to define a trend. Close below

averages is defined as down trend. Close above averages is defined as up trend. Volatility (Up/Down) within Down

Trend can happen/ Volatility (Up/Down) within Up Trend can happen.

EXIT LIST

Note: R1- (Resistance), R2- (Resistance), R3- Resistance, S1- Support & SA- Strong Above

Scrip Last Close R1 R2 R3 SA S1 Monthly RS

INDRAPRASTHA GAS 282.75 294.60 298.73 302.85 316.20 259.7 34.67

DCM SHRIRAM 415.45 456.43 480.02 503.62 580 256.5 35.36

TVS MOTOR COMPANY 609 625.82 637.50 649.18 687 526.8 35.6

EDELWEISS FINANCIAL SERVICES 231.95 246.97 253.27 259.58 280 193.5 35.79

BUY LIST

Note: R1-(Resistance), R2- (Resistance), R3- Resistance, S1- Support & WB- Weak Below

Scrip Last Close S3 S2 S1 WB R1 Monthly RS

CYIENT 660 651.61 645 638.39 617 707.6 62.46

WEEKLY DOWN TREND STOCKS Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell with whatever high

registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to Level 2 or below then look to cover short

positions as the opportunity arises. If the close is above Weekly Reversal Value then the trend will change from Down Trend to Up Trend.

Check on Friday after 3.pm to confirm weekly reversal of the Down Trend. Note: R1-(Resistance), R2- (Resistance), R3- Resistance, S1- Support & S2- Support

Scrip

Last Close

S1 S2 - R1- R2- Relative Strength

Weekly Reversal

Value

Down Trend Date

Demand

point Demand

point Supply point

Supply point

Strong above

UNION BANK OF INDIA 86.85 66 81.4 91.5 96.9 101.5 21.09 96 17-11-17

UCO BANK 21.65 17.5 20.5 22.2 23.4 24 21.83 23.64 02-02-18

BANK OF INDIA 97.45 84.4 93.9 99.9 103.4 105.8 24.76 103.01 02-02-18

ORIENTAL BANK OF COMMERCE 89.45 70.3 84.4 93.5 98.5 102.6 24.82 94.99 02-02-18

ALLAHABAD BANK 46.70 38.4 44.5 48.3 50.5 52.2 25.86 48.71 29-12-17


PUNTER PICKS

Note: Positional trade and exit at stop loss or target whichever is earlier. Not an intra-day trade. A delivery based trade for a possible time frame

of 1-7 trading days. Exit at first target or above. Note: SA-Strong Above, DP-Demand Point, SP- Supply Point, SA- Strong Above, RS- Strength

Scrip BSE Code Last Close Demand Point Trigger Weak

below Supply point Supply point

RS-

Strength

- - - - - - - - -

Simbhaoli Sugars is unable to repay Rs.158 crore borrowed from a co-operative bank. Even otherwise, sugar stocks are softening down. Stay away.

Ashoka Buildcon has again emerged as the lowest bidder for some road projects. A good time to accumulate.

NBCC (India) is now entering the road building process. A big positive for this mini-Navratna company.

Hindustan Construction Company seems to be in trouble. The Lavasa Corporation unit is nearly bankrupt. It may be prudent to stay away from this counter until the dust settles.

Lupin has received USFDA approval for its Desoximetasone Topical Spray - a generic drug for the treatment of plaque psoriasis. A long-term positive for the company.

Shilpa Medicare is on the rise as USFDA has issued an Establishment Inspection Report for its formulations manufacturing facility. Investors willing to take a small risk may enter.

Uttam Galva Steels has offered to settle its Rs.5654 crore debt at flat 51%. If it is acceptable to the creditors, the insolvency proceedings may halt and this may lead to a rise in its share price.

Sun Pharmaceutical Industries has received USFDA approval for a moderate to severe plaque psoriasis treatment drug - ILUMYA. A very big positive.

Max Financial Services plans to borrow up to Rs.5000 crore in one or more tranches to enhance its lending capabilities.

The Board of TRF has approved the proposal of sale/divestment of its entire stake in its step-down subsidiary - York Transport Equipment (Asia) Pte, Singapore. This should be a positive for this small-cap company with a small equity of just Rs.11 crore.

Borosil Glass Works may consider 100% acquisition of two existing closely held unlisted domestic public limited companies. It seems like positive news.

JBF Industries is continuously falling. The company was in the dumps for many years. After restarting its operations and getting relisted, it seems to be in a financial mess again. Stay away.

Suven Life Sciences has secured product patents in Norway, South Korea and Singapore. Its Q3 profits also recorded around 42% growth. A value buy.

Cipla has stated that the observations

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received from USFDA are not serious in nature and does not warrant a sell. Stay invested.

P C Jewellers is underperforming on rumours that its promoters have parked their funds with Vakrangee. But this news should not deter its share price. Investors with a risk appetite may enter.

Force Motors will soon make engines for Rolls Royce’s power generation engines at its Pune plant, which will boost its revenues by Rs.1000 crore. The confidence of the German automobile giant proves that Force Motors is a must buy.

IRB Infrastructure Developers has once again been chosen as a preferred builder for a Rs.3400 crore project. A good buy.

Ultratech Cement may soon take over Binani Cement as the lenders to the latter also favour this move. Another feather in its cap. Buy.

Reliance Communications has received a nod from its bondholders to allow it to sell certain assets in order to bring down debts. This move should give a moral support to its rock bottom share price. Hold for some time.

China’s restriction on graphite and news of a buyback makes HEG a value investment for the medium-term. Buy.

Tribhovandas Bhimji Zaveri is not embroiled in any financial scams. It is, therefore, natural that investors shift their focus to this company. A good time to buy this underpriced share.

Fortis Healthcare seems to be in deep trouble as three more Board members have resigned. Stay away.

Infosys has made a follow-up investment of Rs.15 lakh in Waterline Data Science - a data discovery and data governance software company. Hold for the long-term.

An Ahmedabad-based analyst recommends Gujarat Themis Biosyn, Lambodhara Textiles and Premier Polyfilm.

The latest grey market premium for the IPO of Bandhan Bank has shot up to Rs.24-27 from Rs.16-18 last week.

Apollo Pipes Ltd (BSE Code: 531761) (CMP: Rs.514.50) (FV: Rs.10)

By Amit Kumar Gupta

Incorporated in 1985, New Delhi based Apollo Pipes Ltd (APL), formerly Amulya Leasing & Finance Ltd, is engaged in the manufacture and sale of a range of pipes. It operates through two segments - Investment and PVC Pipes and Fittings. It offers CPVC (chlorinated polyvinyl chloride) and uPVC (unplasticized polyvinyl chloride) pipes, HDPE (high density polyethylene) products, steel pipes and hollow sections.

With 1.6% market share, APL is among the top 10 players in the PVC piping segment in India. With ~95% of its revenues from the northern market (viz. Uttar Pradesh, Rajasthan, Haryana and Madhya Pradesh), APL is mostly a regional player in the industry. However, it has now embarked on a five-pronged strategy to achieve pan India presence. Focus on expanding its operations through new capacity, leveraging on the distribution network of APL Apollo Tubes, improving brand visibility, increasing share of fittings in the overall mix and providing a diversified product portfolio will help the company garner market share in the expanding pipes market.

Rising competitive intensity can be one of the key headwinds for APL to gain market share. Its business mix is largely skewed towards agriculture pipes, which is a highly competitive market and APL will need to be competitive in terms of pricing to capture the market share. Also, with ~44% new capacity addition in the next couple of years by large players, competitive pressure will continue to rise. However, we believe that APL's raw material sourcing advantage (import driven: ~3-5% cheaper) coupled with logistics cost savings should give the company additional headroom to remain competitive and gain market share.

APL plans to expand its capacity 2.7x over FY17-20E to 145,000 MT with new plants in the western and southern markets. We believe that APL will continue to achieve strong growth from its key northern market (~95% of revenue in FY17) and the new markets will be the incremental growth drivers of the company. However, the

BEST BET

Financials:

Particulars FY16 FY17 FY18E FY19E FY20E

OPM (%) 11.5 13.3 11.1 10.8 11.3

NPM (%) 2.4 3.3 6.2 7.5 7.1

PER (x) 27 17.2 34.1 24 19.5

P/BV (x) 11.2 8.4 12 3.7 2.3

EV/Sales (x) 3 2.5 1.7 1.2 0.7

EV/EBITDA (x) 26 19.1 15.4 10.7 6.3

RoCE (%) 23.5 31.4 24.9 22.5 24.4

RoE (%) 18.9 24 35.7 22.2 14.6


rising competitive intensity and import dependent raw material sourcing (inventory risks) will keep the margins volatile.

APL is putting in the building blocks to create a strong pan India pipes franchise. Its focus is to replicate the robust execution displayed by some of its peers. Strong management background with proven track record in its group company (APL Apollo Tubes) makes us believe that APL can deliver on its long-term strategic road map.

The promoters of APL have sold ~33% stake to raise ~Rs.224 crore to fund its expansion strategy. The management will issue warrants to increase its stake in the next 12-18 months, which will lead to ~26-28% equity dilution. We expect 49% net profit CAGR and 32% EPS CAGR over FY18-20E.

Technical Outlook: This stock looks very good on the daily chart for medium-term investment. It has formed a downward channel pattern on the weekly chart and has tested the neckline with strong support of its 200 DMA level on the weekly chart. The stock trades above all important moving averages like the 200 DMA level on the weekly chart.

Start accumulating at this level of Rs.514.50 and on dips to Rs.485 for medium-to-long-term investment and a possible price target of Rs.600+ in the next 12 months.

By Amit Kumar Gupta

IntraSoft Technologies Ltd (BSE Code: 533181) (CMP: Rs.662.60) (FV: Rs.10) (TGT: Rs.800+)

Incorporated in 1996, Kolkata-based IntraSoft Technologies Ltd (ITL), through its subsidiaries, is engaged in the development and delivery of e-commerce and e-cards services through the Internet platform. It owns and operates (i) 123stores.com, an e-commerce retail website that sells furniture, patio, lawn and garden, musical instruments and gadgets, home improvement and art crafts, kitchen, dining and appliances, toys, games, sports and outdoor products; (ii) 123Greetings.com, which offers ~42,000 e-cards across various languages covering 3,000 seasonal and everyday categories; (iii) as well as 123Greetings Studio, a platform for artists that enables customers to upload and monetize their own e-cards.

ITL has a sound business and caters to products procured from vendors in USA. The logistics are fulfilled by UPS and FedEx, which have very high ratings on fulfillment. This in turn has helped ITL climb into the platinum club of the top 25 sellers of Amazon (USA) and its sustained rating of 97% helps it maintain its premium listing in market places. ITL has further leveraged this rating and has not only expanded its listed vendor base (4.1x to 1,900+) but also reached a humongous level of product SKUs on offer (8.7x to 6.25 lakh units)

STOCK WATCH

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Given below is their maiden score and we are sure this team will improve as we go along.

Sr. No.

Date Scrip Name Recom. Rate (Rs.)

Highest since (Rs.)

% Gain

1 October 2017 Stock A 74.5 147.8 98.39

Stock B 77.7 93 19.69

Stock C 37.05 44.1 19.03

Stock D 90.95 100 9.95

Stock E 41.7 55.25 32.49

2 January 2018 Stock F 74.8 86 14.97

Stock G 42 44.8 6.67

Stock H 60.85 63.9 5.01

Stock I 90.45 125.9 39.19

Stock J 57.30 59.70 4.19

17th Edition of ‘Panchratna’ will be released on 1st April 2018

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ITL operates under two business models – (i) Drop-shipped (~60% of revenue); and (ii) Warehousing model (~40% of revenue).

Drop-shipped model: In this model, ITL does not maintain any inventory. After receiving order, it directly ships the products from the vendor to the customer.

Warehousing model: Under this model, ITL maintains inventory of fast moving stocks in various warehouses of Amazon in USA. In this model, the inventory risk lies with the company.

We expect orders to grow at 33% CAGR over FY17-20 to 67.4 lakh units p.a. from 28.6 lakh units orders in FY16. The overall revenues are expected to grow at 33.7% CAGR to Rs.2241.9 crore by FY20 with EBITDA growing to Rs.44.8 crore (36.7% CAGR) over the same period. Margins are expected to sustain in the range of 1.8-2%.

Further, ITL has also negotiated with vendors to expand its credit period to 10 days. By virtue of being a platinum reseller, its receivable days are only 4 days for a large part of its product portfolio. This is expected to sharply improve its cash flows and cash conversion cycle and lower the working capital requirement. As a result, ROE and ROCE are also expected to improve by 900 bps (to 20.1%) and 623 bps (to 21.6%) respectively by FY20.

Technical Outlook: This stock looks very good on the daily chart for medium-term investment. It has formed a saucer pattern on the weekly chart and has tested the neckline with stock strong support of its

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Scrip Name Recomm. Rate Rs.) Highest since (Rs.) % Gain

Larsen & Toubro 1219.30 1469.60 21

Mahindra & Mahindra 1388.95 1571.15 13

Torrent Power 272.45 306.95 13

Jamna Auto Industries 66.80 91.35 37

Godawari Power & Ispat 187.60 623 232

Mastek 392.45 532 36

18th edition of ‘Beat the Street 6’ published on 11/09/17

Scrip Name Recomm. Rate (Rs.) Highest since (Rs.) % Gain

Dilip Buildcon 593.90 1059 78

DCM Shriram 431.05 628.05 46

Ashok Leyland 115.05 142 23

Bharat Forge 1161.60 1290 11

Tata Sponge Iron (ABP) 893.80 1239 39

H T Media 102.30 118.50 16

17th edition of ‘Beat the Street 6’ published on 12/06/17 Scrip Name Recomm. Rate (Rs.) Highest since (Rs.) % Gain

Purvankara 66.70 182 173

Cholamandalam Inv. & Fin. Co. 1043.40 1475.95 41

Reliance Industries 1335.50 1665 25

Manappuram Finance 94.80 126.40 33

Voltamp Transformers 1292.95 1340.05 4

Karnataka Bank (ABP) 173.55 SL -

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200 EMA on the daily chart. The stock trades above its important 200 DMA level on the daily chart.


******

Neuland Laboratories Ltd (BSE Code: 524558) (CMP Rs.696.55) (FV Rs.10) (TGT: Rs.850+)

Incorporated in 1984, Hyderabad-based Neuland Laboratories Ltd (NLL), a subsidiary of Neuland Health Sciences Pvt Ltd, manufactures and sells active pharmaceutical ingredients (APIs) in India, Europe, USA, etc. Its APIs are used in various therapeutic categories including ophthalmic, schizophrenia, vasodilator, fluoroquinolones, iron-chelator, chronic obstructive pulmonary diseases, cardiovascular, central nervous system, anti-infectives, antidepressant, antiasthmatics, anti-fungal, anti-ulcerants and antispasmodics. It also provides custom manufacturing solutions to develop and manufacture pharmaceutical ingredients and intermediates as well as peptide synthesis services.

NLL is establishing itself in the CRAMS (contract research and manufacturing services) space with the help of a competent Business Development team in USA and Japan. Currently, it has 42 molecules in its portfolio while 5 are in the commercial stage. With the scale up expected in Austedo and Bilastine sales and a few more potential launches in GI, CNS and renal categories, we see FY19-20E as breakout years for custom manufacturing solutions (CMS). Additionally, CMS revenues are much stickier than the generic API business. We expect CMS business to grow at 16% CAGR over FY18-20E.

NLL has made great strides in API CRAMS over the past few years and has managed to win clients from key regulated markets like USA, Europe and Japan. While generic API manufacturing remains its core business, the generic salmeterol launch in USA will be the key near-term trigger for the stock. Its investment thesis is largely based on the scale-up it can achieve in the CMS segment (API CRAMS) especially given the lucrative product opportunities (Austedo, Bilastine and a peptide product) and a competent business development team.

With a washout FY18 nearly over, NLL is likely to report a strong recovery in FY19. This will be largely driven by returning volumes in the niche API and CMS business segments, with all eyes on the launch of gAdvair (salmeterol) in USA, where NLL is a key supplier. 60% of the jump in FY20E earnings is likely to be contributed by the incremental ramp up in salmeterol, Austedo, Bilastine and a peptide product.

NLL strongly emphasizes on the technical complexity and focuses on its areas of strength such as chiral chemistry, hydrogenation, inhalation products, etc. It has developed 25 molecules in this segment so far. The salmeterol API remains the key growth driver in the near-term. With several molecules likely to see generic entries in the US market and NLL likely to be the major API supplier for some of them, we expect niche API sales to ramp up to Rs.190 crore in FY20E from Rs.120 crore in FY18E.

Technical Outlook: The stock looks very good on the daily chart for medium-term investment. It has formed a downward channel pattern on the daily chart and trades near the lower end of the channel. A close above Rs.775 will lead to a new high. The stock trades below all important DMA levels on the daily chart.


Astron Paper & Board Mill Ltd (BSE Code: 540824) (CMP: Rs.108.70) (FV: Rs.10)

By Rahul Sharma

Incorporated in 2010, Astron Paper & Board Mill Ltd (Astron) manufactures Kraft Paper. Its promoters are Kirit Patel, Ramakant Patel, Karshanbhai Patel and Asian Granito (India) Ltd. The promoters have experience of around two decades in the paper packaging industry.

Astron commenced commercial production in December 2012 and uses waste paper as raw material instead of wood thus promoting the ecofriendly world. It offers a comprehensive range of kraft paper, which mainly caters to the packaging industry. It has developed a loyal clientele network of various packaging companies and MNCs.

STOCK ANALYSIS


Astron currently operates its paper machine (PM1) with an installed capacity of 96,000 TPA and is in the process of installing PM2 with a capacity of 33,000 TPA in the same premises. It has also acquired a kraft paper unit at Bhuj with an installed capacity of 24,000 TPA.

Astron raised Rs.698 mn in 2017 through its IPO to set up a new manufacturing facility with lower GSM kraft paper and to fund its working capital requirements. Its manufacturing facility is located at Halvad, which is ~200 kms away from the Mundra Port. Its new plant is at Bhuj is ~60 kms away from the Mundra Port. It has also installed an in-house captive power plant of 3 MW to support its electricity requirements. Its major products are High RCT paper and the GSM range (140 GSM-350 GSM with 22-35 BF). Now, Astron plans to expand its product range by installing PM2 for 80–180 GSM. Thus, its product range will widen to 80-350 GSM.

Industry Outlook: Considering the shortage of wood as raw material, the pulp and paper industry has witnessed a rise in the use of waste paper. This shift is mainly brought about in tandem with the objective of environmental compliance. The Indian paper industry with ~13 MMT of capacity accounts for ~3% of the global paper production. According to the Indian Paper Mills Association, the domestic consumption of paper in India during FY15 was 13.9 MMT, up 6% YoY. The per capita consumption of paper in India stands at ~11 kg, which is relatively low compared to other developed and developing countries. Although India’s per capita consumption of paper is quite low compared to other countries, the demand is set to rise from 13 MMT currently to ~20 MMT by 2020.

Financial Highlights: During Q3FY18, Astron reported an income of Rs.65 crore (up 51% YoY) with PAT of Rs.6.01 crore (up 2222% YoY). RoNW as at FY17 was 21.9%. Its Debt/Equity ratio has come down to 1.9x in FY17 from 3.1x in FY14.

Conclusion: At the CMP of Rs.108.70, the stock trades at a P/E of 23.84x on its TTM EPS of Rs.4.56. The stock looks quite attractive for investment when compared to the S&P BSE Mid-Cap P/E of 36.86x and Nifty Mid-Cap 150 P/E of 51.71x.

The demand for corrugated boxes (kraft paper is the raw material) for packaging is increasing steadily and Astron plans to start the manufacture of these boxes. It also plans to explore the export markets and expand in the domestic market. It faces the risk of growth at a slow pace. However, backed by the improving fundamentals, we recommend this stock for a price target of Rs.300 in the long-term.

Lemon Tree Hotels IPO opens on 26th March Delhi-based hotel chain Lemon Tree Hotels Ltd (LTHL) plans to raise up to Rs.1040 crore through its IPO in the price band of Rs.54-56 for its Rs.10 paid-up equity share. The IPO is an offer for sale (OFS) of up to 185,479,400 equity shares by the selling shareholders and hence, no proceeds of the issue will go to the company. The issue closes on Wednesday, 28 March 2018.

LTHL operates in the mid-priced hotel sector consisting of the upper-midscale, midscale and economy hotel segments. It operated 4,697 rooms in 45 hotels across 28 cities in India as at 31 January 2018. For FY17, it posted a consolidated net loss of Rs.71.7 mn v/s a loss of Rs.297.99 mn in FY16. On a standalone basis, it posted PAT of Rs.53.52 mn v/s a loss of Rs.163.36 mn in FY16.

******

S.S. Infrastructure IPO opens on 28th March S.S. Infrastructure Development Consultants Ltd (S.S. Infra) plans to raise over Rs.17 crore through its IPO in the price band of Rs.37-40 for its Rs.10 paid-up equity share. The IPO proceeds will be utilized to renovate existing offices and open a new branch office; purchasing software and hardware; repayment of secured and unsecured loans; working capital requirements; and general corporate purposes. The issue closes on Thursday, 5 April 2018.

S.S. Infra is engaged in the business of Engineering and Architectural Consultancy. It provides Architectural Planning, Comprehensive Civil/Structural Designs, Project Management Consultancy, Repairs and Rehabilitation and Quality Management Systems. It has executed large projects for Cyient, Granules India and other government organizations. For FY17, its net profit grew 11% YoY to Rs.380.27 lakh.

Financials: (Rs. in crore)

Particulars Q3FY18 Q2FY18 Q3FY17 FY17 FY16

Total Income 65 60.69 43.02 183.2 157.5

EBITDA 7.52 7.90 4.60 3.63 2.75

PAT 6.27 6.01 0.27 1.78 1.28

PRESS RELEASE


By Subramanian Mahadevan

Dish TV India Ltd: World’s second largest DTH player (BSE Code: 532839) (CMP: Rs.69.90) (FV: Re.1)

Mumbai-based Dish TV India Ltd (DITV) is a DTH (direct-to-home) arm of the Essel group, which has interests in media programming, broadcasting and distribution, speciality packaging and entertainment. DITV enjoys a leadership position with a net subscriber base of over 12.5 mn, implying a 30% share in the Indian DTH market. It is India's first DTH entertainment service that has digitized Indian entertainment to bring home the best in television viewing through the latest in digital technology. It supports various futuristic features like Electronic Programme Guide, Parental Lock Capacity up to 400 channels, Games, Interactive TV, Movie on Demand, etc. It brought exclusive National and International channels for the first time in India.

DITV is a beneficiary of the mandatory digitization as it will benefit from increased content cost and tax parity v/s cable (hitherto unorganized). Apart from the flagship brand, DITV also has a sub-brand ‘Zing’ targeted at phase III/IV language markets. The management is set to harvest the benefits of its investments made in the last few years from hereon.

The recent merger of DITV and Videocon D2H is a huge positive trigger and the deal will enable scale-led revenue, cost and capex synergies. DITV and Videocon D2H reported separate revenue and EBITDA numbers, which at a pro-forma level added up to Rs.6086.2 crore and Rs.1990.9 crore for FY17 respectively. The merger paves the way for the creation of the largest listed media company in India with a subscriber base of DITV (16.1 mn) and Videocon D2H (13.4 mn) and a market cap of ~Rs.7150 crore. The merged entity is now the world's second largest DTH operator with 29.5 mn subscribers. The merged entity will offer both the brands to new subscribers in the market post completion of this merger.

The stock has corrected recently and one may accumulate it immediately for 20-40% returns with minimum downside within a year. The stock trades at inexpensive valuations and it is a good time to accumulate.

Will markets regain momentum? By Devendra A Singh

The Sensex settled at 32596.54 while the Nifty settled at 9998.05 last week.

On India’s macro-economic data, the seasonally adjusted Nikkei India Services Business Activity Index fell from 51.7 in January to 47.8 in February 2018, its lowest since August 2017. The Nikkei India Composite PMI Output Index fell from 52.5 in January 2018 to 49.7 in February 2018.

On the inflation front, the consumer price index (CPI) based inflation eased to a four-month low of 4.44% in February 2018 from 5.07% last month.

On the monsoon front, India’s monsoon rains are expected to be slightly below normal this year while parts of Australia’s eastern grain belt could be drier as an El Nino weather pattern may develop in the second half of 2018, a private US-based weather forecaster said.

“La Nina is weakening and we are moving towards neutral weather, which is forecast to be followed by El Nino in the second half of the year as the most likely scenario”, the agency said.

Last year, India’s annual monsoon season was below average with some crops in central and northern states receiving less rain than needed. The monsoon rains in India, which occur from June to September, were 95% of the long-term average last year compared to the Indian Meteorological Department’s (IMD’s) forecast of 98%.

Assocham Secretary General, DS Rawat, said that the 7.2% growth in GDP for Q3 also highlights the improvements in investment, manufacturing and construction thereby creating hope for a good pace of economic growth in FY19.

“However, the gross value addition (GVA), which is net of taxes, is not as good as GDP underscoring the fact that much more needs to be done in terms of sustainable growth”, Rawat added.

The growth for the second quarter (July-September) has been revised upwards to 6.5% from 6.3% estimated earlier by the CSO.

STOCK BUZZ

MARKET REVIEW


The International Monetary Fund (IMF) remains bullish on India’s growth potential and has retained its GDP forecast for the country at 6.7% in 2017 and 7.4% in 2018. In its World Economic Outlook Update, it estimated that the Indian economy would grow by 7.8% in FY19, which makes the country the world’s fastest-growing economy in FY18 and FY19, the top ranking it briefly lost in FY17 to China.

The projection is in line with official estimates from the Central Statistics Office (CSO), which pegged GDP growth at 6.5% this fiscal.

The Washington DC-based agency had in October 2017 lowered India’s growth forecast reflecting lingering disruptions associated with the currency exchange initiative introduced in November 2016 as well as transition costs related to the launch of the national goods and services tax. In April the IMF had pegged India’s GDP growth at 7.2% for fiscal 2017 and at 7.7% in fiscal 2018. In contrast, China’s growth is expected to slow down from 6.8% in FY17 to 6.6% in FY18 and further to 6.4% in FY19.

The IMF is however more bullish about the global economy and has scaled up its forecast for world output to 3.9% each in FY18 and FY19, which is 0.2 percentage points higher than its estimate in October.

“The US tax policy changes are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the corporate income tax cuts”, IMF added.

It has significantly raised the growth forecast of USA to 2.3% in FY17, 2.7% in FY18 and 2.5% in FY19.

Key index fell on Monday, 19 March 2018, on a sell-off of stocks. The Sensex was down 252.88 points (-0.76%) to close at 32923.12.


Key index edged higher on Tuesday, 20 March 2018, on modest buying of equities. The Sensex was up 73.64 points (+0.22%) to close at 32996.76.

Key index gained on Wednesday, 21 March 2018, on positive cues. The Sensex was up 139.42 points (+0.42%) to close at 33136.18.

Key index fell on Thursday, 22 March 2018, on profit-booking by foreign funds. The Sensex was down 129.91 points (-0.39%) to close at 33006.27.

Key index slipped further on Friday, 23 March 2018. The Sensex was down 409.73 points to close at 32596.54.

Events like national and global macro-economic figures as well as the earnings season will dictate the movement of the markets and influence investor sentiment in the near future.

On India’s macro-economic data, the HSBC Manufacturing Purchasing Managers’ Index (PMI) and HSBC Services PMI for March 2018 is scheduled to be released in the first week of April 2018.

India’s corporate sector will start announcing Q4 results of FY18 from the first week of April 2018. The RBI’s monetary policy review is scheduled for release and policy decisions will be taken by the apex bank next month. Market participants will keep a close track on corporate earnings as well as RBI’s outcome.

Market is short on rise By Rohan Nalavade

As stated in the previous issue, the Nifty moved downward from 10400 in March 2018 to a new monthly low of 9951 as fresh selling was witnessed below 10100, which provides opportunities for a target of 9800-9700.

Weak global cues like the trade war between USA and other countries are affecting the Asian markets. Metal stocks have crashed the most followed by banking stocks. Hence, investors may invest up to 25% of their capacity and invest another 25% at every 5% correction on the Nifty to get the best buying price at lower levels.

The global markets, too, look bearish. ‘Short on a rise and buy at lower levels’ is the new mantra as the Nifty is likely to test 9700-9500. It has broken its 200 SMA level and its 300 SMA is placed at 9795. The daily and weekly charts show a lower high and lower low. Thus, the trend is down on all the parameters. The W.D. Gann price and time analysis theory also indicates a ‘sell’ for the short-term.

Among stocks,

Punjab National Bank is a ‘sell’ at Rs.93.60 for a target of Rs.90-88-85 (SL: Rs.96.50)

Emami is a ‘buy’ at Rs.1060 for a target of Rs.1105 (SL: Rs.1040)

SAIL is a ‘sell’ at Rs.67-68 for a target of Rs.60 (SL: Rs.69.50)

Cipla is a ‘sell’ at Rs.538 for a target of Rs.520-510 (SL: Rs.551)

Learn to trade at tops and bottoms in our upcoming W.D. Gann Price Trading session on Thursday, 29 March 2018. To know more, please contact us on 9769212176 and book your seats.

By Vihari

Nandan Denim Ltd: Buy on dips (BSE Code: 532641) (CMP: Rs.127.10) (FV: Rs.10)

Nandan Denim Ltd (NDL) posted excellent Q3FY18 results. In FY17 and 9MFY18, it enhanced its capacity from 99 MMPA to 141 MMPA thereby making it the largest denim manufacturer in India and the 4th largest in the world.

Nandan Denim Ltd (NDL), formerly Nandan Exim Ltd, was incorporated in 1994 in Ahmedabad, Gujarat. It started operations in 1999 by trading in textile fabrics. Today, it has grown to be the second largest denim maker in India after Arvind Ltd. Its plant is located in Gujarat, the textile hub of India. Its machinery equipped with the latest technology from Germany and Japan is capable of producing a wide range of denim fabrics.

MARKET OUTLOOK

EXPERT EYE


NDL has one of the largest denim fabric manufacturing capacities in the world. It has the capacity to produce 110 MMPA (million metres per annum) of denim, which will expand to 141 MMPA by 9MFY18. It also owns a captive power plant of 15 MW. A couple of years back, NDL had implemented capex of Rs.612 crore in denim fabric, spinning and shirting

segments.

NDL is the largest denim supplier to global brands such as Carrefour, Ralph Lauren, Polo, A/X, Tommy Hilfiger, Gini & Jony, CP Colorplus, Mufti, Killer, Spykar etc. It exports its denim fabric to 27+ countries through its strong global dealer-distribution network. Currently, it exports account for ~12% of sales.

NDL has a strong pan India network of around 35-40 distributors associated with it for close to a decade. It has a strong global network of around 15 distributors across 8 countries – Peru, Mauritius, Hong Kong, Dubai, Thailand, Bangladesh, New York and Colombia. It has strategic tie-ups with 10 firms to exclusively sell its products.

For FY17, NDL’s net profit fell 11% to Rs.56.67 crore on 6% higher sales of Rs.1220.41 crore fetching an EPS of Rs.11.87 and a dividend of 16% was paid. During Q3FY18, net profit soared 56% to Rs.13.73 crore on 54% higher sales of Rs.363.41 crore fetching an EPS of Rs.2.86. Interest expenses fell consequent to repayment of debts. It repaid

MID-CAP TWINS A Performance Review

Have a look at the grand success story of ‘Mid-Cap Twins’ launched on 1st August 2016

Sr. No.

Scrip Name Recomm. Date

Recomm. Price (Rs.)

Highest since (Rs.)

% Gain

1 Mafatlal Industries 01-08-16 332.85 374.40 12.48

2 Great Eastern Shipping Co. 01-08-16 335.35 482.40 43.85

3 India Cements 01-09-16 149.85 226 50.82

4 Tata Global Beverages 01-09-16 140.10 328.80 134.69

5 Ajmera Realty & Infra India 01-10-16 137.00 365.65 166.90

6 Transpek Industry 01-10-16 447.00 1493 234.00

7 Greaves Cotton 01-11-16 138.55 178 28.47

8 APM Industries 01-11-16 67.10 84.40 25.78

9 OCL India 01-12-16 809.45 1620 100.14

10 Prism Cement 01-12-16 93.25 158.95 70.46

11 Mahindra CIE Automotive 01-01-17 182.50 270.05 47.97

12 Swan Energy 01-01-17 154.10 235 52.50

13 Hindalco Industries 01-02-17 191.55 283.95 48.24

14 Century Textiles & Industries 01-02-17 856.50 1471.85 71.84

15 McLeod Russel India 01-03-17 171.75 248.30 44.57

16 Sonata Software 01-03-17 191.00 366 91.62

17 ACC 01-04-17 1446.15 1869 29.24

18 Walchandnagar Industries 01-04-17 142.25 272.90 91.85

19 Oriental Veneer Products 01-05-17 222.30 645 190.15

20 Tata Steel 01-05-17 448.85 792.55 76.57

21 Sun Pharmaceuticals Industries 01-06-17 501.40 608.55 21.37

22 Ujjivan Financial Services 01-06-17 307.45 423 37.58

23 Ashok Leyland 01-07-17 93.85 151.55 61.48

24 KSB Pumps 01-07-17 759.55 936 23.23

25 IRB Infrastructure Developers 01-08-17 224.95 260 15.58

26 JTL Infra 01-08-17 70 208 197.14

27 Stock ‘A’ 01-09-17 187.40 308.90 64.83

28 Stock ‘B’ 01-09-17 271.20 326.10 20.24

29 Stock ‘C’ 01-10-17 73.65 97.50 32.38

30 Stock ‘D’ 01-10-17 74.10 91.35 23.28

31 Stock ‘E’ 01-11-17 206 223.15 8.33

32 Stock ‘F’ 01-11-17 38 57.90 52.37

33 Stock ‘G’ 01-12-17 194.65 196.80 1.10

34 Stock ‘H’ 01-12-17 71.80 82.50 14.90

35 Stock ‘I’ 01-01-18 59.25 71.90 21.35

36 Stock ‘J’ 01-01-18 72.85 82.20 12.83

37 Stock ‘K’ 01-02-18 234.90 291.85 24.24

38 Stock ‘L’ 01-02-18 164.25 180 9.59

39 Stock ‘M’ 01-03-18 575.15 588 2.23

40 Stock ‘N’ 01-03-18 211.80 216.80 2.36

Thus ‘Mid-Cap Twins’ has delivered excellent results since its launch.

Next edition of ‘Mid-Cap Twins’ will be released on 1 April 2018.

Attractively priced at Rs.2000 per month, Rs.11000 half yearly and Rs.20,000 annually, ‘Mid-cap Twins’ will be available both as print edition or online delivery.


Rs.45 crore of debt till 9MFY18 and expects to repay debts of Rs.60 crore in FY18. Further, it expects to avail of interest rate subsidy and power subsidy from the next year. During 9MFY18, net profit rose 12% to Rs.46 crore on 43% higher sales of Rs.1202 crore fetching an EPS of Rs.9.56.

With an equity capital of Rs.48 crore and reserves of Rs.372 crore, NDL’s share book value works out to Rs.88. Net debt of Rs.544 crore gives it a DER of 1.3:1, which is a bit high mainly due to the aforesaid expansion. The value of its gross block is Rs.970 crore. The promoters hold 58.4% of the equity capital, FIs hold 11.9%, PCBs hold 6.1% and DIs hold 0.1%, which leaves 23.5% stake with the investing public.

NDL aims to take advantage of the domestic growth in urbanization and continued increase in demand for denim. As per IMF, India is expected to witness a turnaround and become the fastest growing major economy with estimated GDP growth of 7.4% and 7.8% in 2018 and 2019 from 6.7% in 2017. This will boost the rate of urbanization along with per capita income. India’s per capita purchase of denim currently stands at 0.3 v/s 9 in developed nations, which indicates a significant growth opportunity in the long-term.

Globally, the denim industry is expected to grow by over 6.5% CAGR from $113 bn to $153 bn over 2015-20. Pricing behaviour wise, the growth is expected to be the highest in the Premium and Super Premium categories of denim products with smaller base numbers. The Latin American and Asian markets are expected to lead the growth in the segment.

Despite a slow-down in apparel exports and domestic market growth, the denim market in India has clocked a consistent CAGR of 15-18%. Denim is also witnessing the fastest growth rate as an apparel fabric. The current installed capacity of ~1,200 MMPA is expected to rise to 2,000 MMPA over the next 3-4 years owing to the huge demand for the fabric.

While India’s share in the overall denim manufacturing capacity is ~10%, its share in the global jeans trade works out to 2.5%. With the resource advantage of all types of cottons and man-made fibres (MMFs) fibres, the induction of state-of-the-art technology and plants and the world leadership of companies, India has the potential to grab a higher share in the global market.

Experts believe that a CAGR of 10% over the next 10 years in denim in the International textile trade offers a healthy upside for existing players and for new denim projects. The boom will be fuelled not only by higher demand from small cities and rural areas but also by acceptance of the fabric at workplaces. In terms of volumes, the current denim market is estimated at 300 million pairs of jeans, which is projected to grow to 600-650 million by 2018.

The NDL management expects the in-house production to provide cost benefits to the tune of 10% v/s the cost of yarn in the open market. Yarn constitutes ~48% of the raw materials consumed. This will also lead to better inventory management and more flexibility in the product line.

The gradual ramp-up of Denim capacities coupled with state government policies such as benefits of interest and power subsidies and lower interest out go due to repayment of debts will lead to significant growth going forward. NDL is set to post an EPS of Rs.14 in FY18, Rs.18 in FY19 and Rs.23 in FY20. At the CMP of Rs.127.10, the stock trades at a P/E of 7.06x on FY19E and 5.52x on FY20E earnings. A reasonable P/E of 10x will take its share price to Rs.180 in the medium-term and Rs.230 thereafter. The stock’s 52-week high/low is Rs.186.65/113.50.

By Nayan Patel

Pix Transmissions Ltd (BSE Code: 500333) (CMP: Rs.122.10) (FV: Rs.10)

Incorporated in 1981, Pix Transmissions Ltd (PTL) is a leading manufacturer of Belts and related mechanical Power Transmission products. It features state-of-the-art Belt manufacturing units as well as a completely automated Rubber Mixing facility in Nagpur. It offers various industrial, textile, automotive, agricultural, lawn and garden, construction, hi-power rated and special application belts for various applications. It also provides a range of pulleys, bushes, couplings and bespoke products under the Pix-PowerWare brand name; and accessories such as laser guided pulley alignment tools, digital tension meters, belt length measurement products, analog tension testers, pulley gauges, ploy-V belt wear gauges, belt cutting machines and belt profile gauges. It also offers service kits and drive design software. It has overseas subsidiary operations in Europe and the Middle-East in addition to 250+ committed Channel Partners across 100+ countries worldwide.

TECHNO FUNDA


With an equity capital of Rs.13.62 crore and reserves of Rs.151.33 crore, PTL’s share book value works out to Rs.121.07. Its P/BV stands at just 1.01x. The promoters hold 60.96% of the equity capital, which leaves 39.04% stake with the investing public.

During Q3FY18, PTL posted net profit of Rs.3.43 crore on sales of Rs.67.11 crore fetching an EPS of Rs.1.75. During 9MFY18, net profit fell marginally to Rs.11.29 crore from Rs.10.38 crore in 9MFY17 on higher sales of Rs.171.06 crore fetching an EPS of Rs.7.82.

Currently, the stock trades at a P/E of 10.65x. Its 52-week high is Rs.199. The stock has corrected almost 40% from its 52-week high. Based on its financial parameters, this stock looks quite attractive for investment at the current level. Investors can buy this stock with a stop loss of Rs.105. On the upper side, it could zoom to Rs.175-200 in the medium-to-long-term.

******

Mangalore Chemicals & Fertilizers Ltd (BSE Code: 530011) (CMP: Rs.62.05) (FV: Rs.10)

Incorporated in 1966, Bengaluru-based Mangalore Chemicals and Fertilizers Ltd (MCFL), a subsidiary of Zuari Fertilisers and Chemicals Ltd (ZFCL), manufactures, purchases and sells nitrogenous and phosphatic fertilizers and related products. It makes fertilizers such as urea, di-ammonium phosphate, muriate of potash, ammonium phosphate sulphate, granulated fertilizer mixture, single superphosphate and speciality fertilizers; and plant nutrition products such as soil conditioners, organic products, micronutrients, speciality agri products, water soluble fertilizers, crop specific soil products and wetting and spreading agents. It also provides plant protection chemicals, which comprise insecticides, fungicides, herbicides, and PP chemicals; and other products such as ammonium bi-carbonate, sulphonated naphthalene formaldehyde liquid and sulphuric acid products. It sells its products under the brand ‘Mangala’. It has been granted in-principle approval for setting up a new 8,00,000 TPA NPK (Nitrogen, Phosphorous and Potash) plant at Panambur.

MCFL has an equity capital of Rs.118.55 crore supported by reserves of Rs.244.77 crore. The promoters hold 75% (ZFCL - an Adventz group company holds 53.03% while the UB group holds 21.97%) of the equity capital, which leaves 25% stake with the investing public. Reliance Corporate Advisory Services Ltd holds 3.46% stake in the company. ZFCL had issued an open offer for 25.9% stake at Rs.91.92 but the stock trades around 30% lower to its open offer price.

During Q3FY18, MCFL’s net profit zoomed 196% to Rs.22.94 crore on 21% higher sales of Rs.668.11 crore fetching an EPS of Rs.1.94. During 9MFY18, net profit zoomed 173% to Rs.40.28 crore from Rs.14.73 crore on higher sales of Rs.2067.19 crore fetching an EPS of Rs.3.4. Its 9MFY18 PAT was 108% higher than the PAT recorded for FY17.

Currently, the stock trades at a P/E of 16.37x. The stock has corrected around 30% from its 52-week high of Rs.89.20. Based on its financial performance, the stock looks quite attractive for investment at the current level. Investors can buy this stock with a stop loss of Rs.55. On the upper side, it could zoom to Rs.85-90 in medium-to-long-term.

Corporation Bank (BSE Code: 532179) (CMP: Rs.29.55) (FV: Rs.2)

By Pratit Nayan Patel

Company Background: Incorporated in 1906, Corporation Bank is a public sector bank (PSB) headquartered in Mangalore. The bank was nationalized in 1980. In 1997, it became the second public sector bank in India to hit the capital market. Its IPO was oversubscribed by 13 times. The bank operates 10,413 units comprising 2,517 branches, 3,169 ATMs and 4,727 branchless banking units across the country.

Financial Performance: (Rs. in crore)

Particulars Q3FY18 Q3FY17 9MFY18 9MFY17 FY17

Sales 67.11 58.60 171.06 166 236.46

PBT 7.64 7.11 17.08 16.50 22.69

Tax 4.21 3.76 5.79 6.12 7.36

PAT 3.43 3.35 11.29 10.38 15.33

EPS (Rs.) 1.75 2.55 7.82 7.89 11.35

Financial Performance: (Rs. in crore)

Particulars Q3FY18 Q3FY17 9MFY18 9MFY17 FY17

Sales 668.11 550.44 2067.19 1957.68 2503.59

PBT 34.94 12.12 61.97 22.43 30.12

Tax 12 4.38 21.69 7.70 10.70

PAT 22.94 7.74 40.28 14.73 19.41

EPS (in Rs.) 1.94 0.65 3.40 1.24 1.64

BULL’S EYE


Financials: With an equity capital of Rs.229.41 crore and reserves of Rs.11857.21 crore, Corporation Bank’s share book value works out to Rs.105.37 as at 31 March 2017. The stock is available at a P/BV of just 0.28x.

The promoter i.e. the Government of India holds 70.76% stake in the company, LIC India holds 18.91%, HDFC Mutual Fund holds 2.18% and Foreign Portfolio Investors hold 1.72%, which leaves 6.43% stake with the investing public.

Performance Review: Corporation Bank reported turnaround numbers for FY17. It recorded PAT of Rs.565.81 crore against a loss of Rs.502 crore in FY16. Its income stood at Rs.19471.52 crore. EPS was Rs.5.21. For Q3FY18, it reported a negative PAT with a loss of Rs.1240.49 crore on an income of Rs.4387.85 crore. For 9MFY18, it reported a loss of Rs.2215.55 crore on an income of Rs.13435.23 crore.

Industry Overview: PSBs will continue to have relevance in India’s economy where a major portion of the population lives in rural areas and their primary financial needs are served largely by these banks. PSBs play an important role in funding growth, particularly infrastructure. They are the major lenders to the two biggest and most important sectors of the economy – Power and Infrastructure. On the issue of NPAs (non-performing assets), PSBs are generally slow in both recognizing stress and eventually selling these assets. The government’s recapitalisation and capital infusion plans will bring back the PSBs on their feet.

Conclusion: PSU Banks are trading at multi-year lows and some of them are at their decade low! The Nirav Modi scam has completely broken the confidence of investors especially retail investors even though LIC, the big brother of PSU Banks, holds majority stake in them. If you look at the history of any country, there have been many scams irrespective of it being a communist or capitalist economy. The Lehman Brothers crisis had shaken the entire world. But despite such scams, why do banks survive in the long run? Why are bankers not imprisoned? It is because the banking system is the bloodline of any country. If it stops, the whole country stops. This is why the government of India is taking prompt action to ensure the survival of PSU banks so that rural and infra spending keeps going.

Corporation Bank has a fantastic asset franchise, given its superior NIMs compared to other PSBs and lower impaired assets. The bank has addressed concerns of asset quality and costs in the last three quarters. However, its well-capitalised balance sheet gives it an opportunity to revive growth.

We believe that Corporation Bank is the best investment bet amongst PSBs. Its share book value of Rs.105.37 is much higher than its CMP of Rs.29.55! The stock’s all-time high is Rs.163. Under the government’s infusion plan, the bank will get Rs.2187 crore. Based on all these factors, this stock looks quite attractive for investment at the current level. Investors can accumulate this stock with a stop loss of Rs.25 for a price target of Rs.45-50 in the next 9-12 months. The stock’s 52-week high/low is Rs.64.70/27.20 and its market cap stands at Rs.3389.55 crore.

Performance Review: (Rs. in crore)

Particulars Standalone Consolidated

Q3FY18 Q2FY18 Q3FY17 9MFY18 9MFY17 FY17 FY16

Total Income 4387.85 4626.49 4953.75 13435.23 14633.42 19471.47 19411.24

PBT -1902.36 -1506.17 387.50 -3648.09 729.83 843.15 -1924.45

Tax -661.87 -470.97 228.48 -1432.54 328.60 277.35 -1422.45

PAT -1240.49 -1035.20 159.02 -2215.55 401.23 565.81 -502

EPS -10.81 -9.02 1.39 -19.32 3.77 5.21 -5.44

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