New Year Picks 2011

8/8/2019 New Year Picks 2011

1/13

ENAM Securities Direct 1

NewYearPicks2011

Strictly Confidential December 31, 2010

ENAM SecuritiesDirect

Wish you all a

Happy & Prosperous

New Year 2011


2/13

Top Picks for New Year - 2011

Therecommendedstocksareexpectedtobemajorbeneficiariesof theinfra/energy

theme & consumptionboom in India. They arebackedby strong managements,havehealthybalance sheets and some of them have corrected from their all timehighsrenderingthemcheap.Alltherecommendedcompaniesare in aposition to

reportgrowthintoplineandbottomlinegoingforward.


NewYearPicks2011 Upside%Company CMP(Rs) Target(Rs)

CoalIndia 308 385 25%

Powergrid 97 125 29%

Elgiequipments 92 127 38%

PrismCement 52 66 27%

Whirlpool 282 355 26%

HitachiHome 217 279 28%

Redington 81 99 22%

PantaloonRetail 364 485 33%

SterliteTech 74 115 55%


3/13

Coal India (CMP: Rs 308)

Excellentresource

play,

spotlight

on

washed

coal

CIL is undergoing a metamorphosis from a mere production driven company to a production plus

profitabilityfocusedminingbehemoth.Itissettingup111mntonnesofnewwashingcapacity for its

existingproductionand~90%ofincrementalproductionwillhave dedicatedwasheries.

Since washed coal realization is ~2.3x that of raw coal, we expect huge EBITDA margin expansion

(45% inFY17vs.27% inFY10)going forward.LedbybetterrealizationsandavolumeCAGRof6%,

weexpectEBITDAandPATtogrowataCAGRof23%and22%respectivelybyFY17.

Astrongbalancesheet withnetcashofUSD8.2bn(FY10)andconservativeaccountingpractices,the

overburden reserves of USD 2.7bn can increase book value by USD 1.8 bn (post tax) under the

proposedIFRSregime.

Ouroneyeartargetprice (basedonDCF)standsatRs385.Inthelongterm,CILhaspotentialtodeliver

23% CAGR return over next 5 years inline with earnings growth. With a target P/E of 15x and our

EPSforecastofRs62forFY17,CILcantradeatRs929 fiveyearshence.

Company MCap(Rscr)CMP

(Rs)

Adj.EPS(Rs) ROE(%) TargetPrice(Rs)

Upside(%)FY10 FY11E FY12E FY10 FY11E FY12E

CoalIndia 194,576 308 15 17 19 41 34 31 385 25



4/13

Power Grid (CMP: Rs 97)

RoEexpansion

through

merchant

power

sales

PGCIL captures the merchant power opportunity through sale of its spare capacity on a shortterm

openaccess(ST)basis.Itchargesonanaverage~Rs0.16/kWhandretains25%oftherevenueandthere

are NORoE caps. With anexpected increase inmerchant power sales, this would aid PGCILs ROEexpansion.InFY10STcontributed~100bpstocoreRoE.

Recently,evenincaseofadelayingenerationlinkedtransmissionproject,CERChasallowedPGCILto

bill

transmission

charges

retrospectively

to

its

customer

from

the

original

date

of

commercial

operation.

ThiswashighlypositiveforPGCILasitfacedamajorriskofstrandedassetsduetodelayingeneration

linkedprojects.

We have valued PGCIL at Rs 125/shbased on P/B of 2x FY12E core invested equity in transmission

assets17%coreRoEand7%LTgrowth).

Company MCap(Rscr)CMP(Rs)



PowerGrid 44,723 97 5 6 7 14 14 15 125 29



5/13

Aproxy

to

Industrial

capex

Elgiisaleadingmanufacturerofcompressorscateringtoindustrieslikemining,power,transportand

textiles.Itisalsoengagedinmanufacturingofautomobileservicestationequipments.Thecompressor

industry is an oligopoly industry with only four playersElgi, Kirloskar Pneumatic, Atlas Copco and

IngersollRand.

The

industry

has

huge

entry

barriers

in

the

form

of

technology.

Elgimanufacturesawiderangeofcompressorscateringtolargenumberofindustriesthusinsulatingit

fromdownturninasingleindustry.Thecompanyisfocusingonincreasingexports(exportsaccountfor

15%oftheElgistandalonebusinesscurrently).Elgiisalsoincreasingitsinternationalpresenceandhas

acquiredSABelairwhichhasgivenitastrongfootinginEurope.Ithasastrongbalancesheetwithcash

ofRs.122cr.Elgihasbeenable toreduceworkingcapital tosales from22% inFY06 to7.5% inFY10

(onstandalonebasis).

The company is virtually debtfree and has ROE of ~25% in FY10. Compressors contribute 86% to

revenueand92%toEBITofthecompany.Thecompanyhasaveraged ~50%growthinnetsalesoverthe

last

three

quarters

on

a

standalonebasis.

We

expect

revenue

to

grow

at

a

CAGR

of

~31%

over

FY1012E(onastandalonebasis).WehavevaluedElgiatRs.127/share givinganupsideof38%.

Elgi Equipments (CMP: Rs 92)

Company MCap(Rscr)CMP

(Rs)



Elgiequipments 1,460 92 4.2 6.4 8.0 25 33 29 127 38



6/13

Prism Cement (CMP: Rs 52)

Goingup

the

value

chain

Indias leading integratedbuildingmaterialplayerwitha robustbusinessmodelgeneratingFCFand

sustainablecompetitiveadvantage. Presence inCentral& Eastern Region where cement demand has

grown by 19% & 17.5% respectively vs. Industry growth of 10.6% in FY 2010. Robust demand

&

superior

realization

to

benefit

from

the

next

cement

up

cycle

by

leveraging

on

its

recently

concluded

capextakingitscapacityto6.6mntonnes.

Significant ease in input cost (FY 13 onwards): Captive coal mine + reduced power tariff rates

(power surplus due to est.~ 17,000 MW), to cause quantum leap in profitability in a scenario of

increasinginputcost.Wehavenotcapturedthebenefitsarisingfromcoalmineinourvaluations.

Synergies across divisions Acquisition of RMC + TBKbusiness with ROCEs of over 15% wouldprovideastrategicroutetomarketforcementbusinesswhoseextensivenetworkcanbeusedtofurther

nurtureRMC&TBKbusinesses.

Prismisavailablemerelyat4xEV/EBITDA&6xitsFY13Eearnings.Capturingthevaluechainofallthe

businesssegmentsthroughourSOTPvaluation,wehavearrivedat apricetargetofRs.66pershare.

Company MCap

(Rscr)CMP

(Rs)

Adj.EPS(Rs) ROE(%) TargetPrice

(Rs)

Upside(%)FY11E FY12E FY13E FY11E FY12E FY13E

PrismCement 2,607 52 1.9 5.1 8.9 8 18 27 66 27



7/13

Whirlpool (CMP: Rs 282)

Directplay

on

Indian

consumption

Whirlpool is a direct play on Indian consumption industry. The company hasbeen able to straddle

acrosssegmentsfromrefrigeratorsandwashingmachinestoair conditioners,microwavesandwater

purifiers.Focusingonboththemassandthepremiumsegmentsgivesitanedgeovertheotherplayers.

We believe there is a great potential for Whirlpool to grow considering the lower refrigerator

penetrationlevelinIndianmarket.Currently,thesizeofrefrigeratorindustryisonly5.5mnunitswith

penetrationofaround17%.Therefrigeratormarketcangrowto25mn by2020(growingataCAGRof

16%).The industry sizeofACs inFY10 isonly2.5mnunits (penetration level of only 3%)which is

poised

to

grow

to

18

mn

by

2020

(CAGR

of

22%).

Uninterrupted

power

supply

will

also

give

a

fillip

to

thismarket.

Whirlpoolhasastrongdemandpullandthecompanyisfastexpandingitspresenceintier2,3,4towns

where the growth rates are higher coupled with its strong product portfolio and large distribution

network..WebelieveWhirlpoolcanregisterasalesgrowthCAGRof22.8%fromFY1013E.Wehavea

targetpriceofRs.355(basedon18xFY13EEPSofRs.19.7)givingpotentialupsideof26%.

Company MCap

(Rscr)CMP

(Rs)


(Rs)

Upside(%)FY11E FY12E FY13E FY11E FY12E FY13E

Whirlpool 3,577 282 13 16 20 39 33 31 355 26



8/13

Hitachi Home (CMP: Rs 217)

Directplay

on

Indian

consumption

HitachiHome(India)isaprominentplayerinthepremiumairconditioningsegment.Thecompanyhas

twoplantsinJammuandKadiwithatotalcapacityof4lakhunits.

Webelievethemarketsizecangrowto18mnby2020from2.5mn currently(growingataCAGRof

22%) increasing the penetration to 25%(which is still lower considering Chinas penetration of

51%today).

We

believe

because

of

the

strong

brand

name

and

definitive

road

map

laid

by

the

management,

Hitachi

willpostbettergrowthandincreasemarketsharetodoubledigitsfromthecurrent67%.

LookingatthegrowthprospectsoftheHitachialongwithitsrobustfundamentals,webelievethestock

looksattractiveatthecurrentlevels.WearriveatatargetpriceofRs.279basedon14xitsFY12EEPSof

Rs.19.9,givinganupsideof28%.

Company MCap

(Rscr)CMP

(Rs)


(Rs)


HitachiHome 498 217 20 15 20 37 21 22 279 28



9/13

Redington (CMP: Rs 81)

Smartgrowth

driven

by

BLACKBERRY

In India,demandcontinues to remain strong driven by corporate capex 3G investments by telecom

companies from H2FY11 onwards would add to the momentum. Smart phones sales continue tobe

strong.

TheNBFChasshownstronggrowthwithnodelinquencies.InInternationalmarkets,improvementin

economicoutlook&increasingshareofvalue/nonITbiz wouldleadgrowthinthelongterm.

GivenlowPCpenetration inRedingtonsoverseasmarkets MiddleEast,Africa&Turkey, longterm

demand

outlook

seems

encouraging.

Addition

of

valuebased

products

in

the

recently

acquired

Turkishentity (Arena)willaddtotheearningsvisibility overnextfewyears.

WeexpectYoYtoplinegrowthof~23%&24%inFY11E&FY12ErespectivelywithPATYoYgrowthof

~27%&19%inFY11E&FY12Erespectively(includingArena).MaintainBUYratingwithatargetprice

of

Rs

99.

Company MCap

(Rscr)CMP

(Rs)


(Rs)Upside

(%)FY10 FY11E FY12E FY10 FY11E FY12E

Redington 3,207 81 5 6 7 14 17 18 99 22



10/13

Pantaloon Retail (CMP: Rs 364)

Aggressiveroll

out

plans

/Financial

Restructuring

Aggressive rollout plans, ~ 2 mn sq ft p.a. (currently 12 mn sq ft) over next 3 years, along with

Same storesalesgrowthwilldriverevenuesby~22%p.a. overthenext2years.Moreoveroperating

cashflows

are

sufficient

to

fund

this

expansion.

Increasedefficiency frombetter inventorymanagement (reduce inventory/sq ftby~15%)will improve

the working capital cycle.Reduced debt through QIPproceeds,willease interest burden and drive

earningsby~55%CAGRoverthenext2years.Financialrestructuring(divestingInsurancearm)will

unlockvalue.

Keytriggerstowatchoutforwouldbe:turnaroundintheelectronicbiz,divestmentoffinancialvertical

andimprovementincapitalefficiency.WemaintainaBuyratingonthestockwithaSOTPbasedTarget

PriceofRs485/

Company MCap

(Rscr)CMP

(Rs)


(Rs)Upside


PantaloonRetail 7,808 364 9 12 16 6 6 8 485 33



11/13

Sterlite Tech (CMP: Rs 74)

LongTerm

Intact

SterliteTechnologiesLtd (STL) isaplayon thehighgrowthTelecomandPowersectors inemerging

markets.ParentageofSterliteGroup lends strength toSTL.TheGroup,among the lowest costmetal

producersglobally,hasanenviable track record inexecuting largeprojectscontinuously, ina timely

manner.

STL isonlyoneof67playersglobally,having technology toproduceOpticFiber fromsilica,and is

oneof the lowest costproducers in the world.Volume growth in Optic Fiber and Optic Fiber Cable

(OFC)

will

drive

margin

expansion.

We

expect

EBITDA

from

Telecom

vertical rising

to

~60%

in

FY12E.

GivenburgeoningcapexinpowersectorandValueaddpotentialthroughBOTintransmissionlineswe

expectEBITDAfromPowervertical tomoveto~40%inFY12E.Capacityexpansionwillpropelittobe

among the top3players globally in bothsegments.Given the longtermgrowthprospectswehave

BuyratingwithatargetpriceofRs115basedon13xPEFY12E.

Company MCap

(Rscr)CMP

(Rs)


(Rs)Upside


SterliteTech 2,644 74 6 7 9 32 26 27 115 55



12/13

Thank You !!!



13/13

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New Year Picks 2011