Wednesday, March 28, 2012

>INDIAN LEADERS & LAGGARDS: Present the top and the bottom quartile of stocks from all major sectors as per “greatness/ structural strength” scores

Why focus on sector level leaders and laggards?
Whilst our “ten baggers” note lists long term investments, investors looking to comply with sectoral benchmarks usually have to focus on identifying the best plays in each sector – ignoring large sectors such as Automobiles or Metals (just because it does not have a representative on the ten bagger list) is not an option for most investors.

Secondly, sectors that are cyclical and hence more volatile in nature necessarily stand to get punished in our “greatness” framework (which penalizes stocks whose fundamentals show volatility). However, such sectors might present tactical opportunities depending on where we are in the economic cycle. Identifying right bets from such cyclical sectors is therefore important.

Finally, identifying candidates for shorting (i.e. using our model to identify firms at the other end of the “greatness” spectrum) also becomes feasible given our latest approach of identifying sector level laggards. 

The strongest leaders and the weakest laggards from our model.

Since by definition, each sector is bound to have top and bottom quartile stocks, a more time efficient way to view the world is to look for:

■ Top quartile stocks as per our greatness model which also appear in the top half of their sectors in our forensic accounting model: Mcleod Russell, Hero, Exide, Elgi Equipment, Cummins, Jyoti Structures, Shree Cement, Castrol, Nava Bharat Ventures, Sadbhav Engineering, Deepak Fertilisers, Coromandel, Zydus Wellness, GSK Consumer, Nestle, ITC, Supreme Industries, AIA, Sterlite Technologies, Bajaj Electricals, CMC, Oracle, Tech Mahindra, Jagran Prakashan, Bhushan Steel, Cadilla Healthcare, Lupin, Aurobindo, Mahindra Lifespace, Oberoi Realty, Prestige Estates, Phoenix Mills, Jubilant Foodworks, Titan, Idea, JBF, Tata Power, Gujurat Gas and Neyveli Lignite.

 Bottom quartile stocks as per our greatness model which also appear in the lower half of their sectors in our forensic accounting model

To read full report: LEADERS AND LAGGARDS

>VIVIMED LABS: Acquisition of Uquifa Spain and Uquifa Mexico


■ Vivimed Labs Ltd engages in the specialty chemicals & pharmaceuticals businesses in India.

■ During the quarter ended, the robust growth of revenue is increased by 8.20% to Rs.928.50 million.

■ Vivimed Labs Ltd has acquired Uquifa, a 75-year-old manufacturer of pharma

■ APIs and intermediates with operations in Spain and Mexico.

■ Vivimed has offices in India, China, Europe & USA, with manufacturing facilities focused around Hyderabad city in India.

■ Vivimed Labs has floated three overseas subsidiaries, either directly/ through its subsidiary companies.

■ Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 44% over 2010 to 2013E respectively.

To read full report: VIVIMED LABS

JAIPRAKASH ASSOCIATES LIMITED: Scale-up hydro E&C with 2nd win of FY12

■ Won Rs9bn external E&C order in Bhutan improve visibility; Buy
JPA won Rs9bn (3-5% of E&C sales) construction contracts for 720MW Mangdechhu HEP in Bhutan. This is the 2nd external hydro E&C contract win for JPA in 9 months. Bhutan orders improve visibility of construction revenue by 10-16% and could compensate for the delay in start of construction at its own, Lower Siang HEP. Catalysts for JPA: 1) start of - Karcham HEP 1H12 and Yamuna Exp in 1QFY13 and 2) peaking of capex at parent and JP Infra in FY11/12 leading to deleveraging from FY13E. Buy JPA on assets trading at 31% discount to NAV, which could be un-locked by improving visibility of cash flows or divestment (Cement). Weak cement markets and leveraged balance sheet are the risks.

■ Won 2nd external hydro E&C order of FY12; More to follow
JPA won two E&C contracts for 720MW Mangdechhu HEP from Mangdechhu Hydroelectric Project Authority, Bhutan. The first contract is of Rs6bn includes construction of diversion and intake structure & tunnels package. The second contract is of Rs3bn for surge shaft, pressure shafts, Main access tunnel to power house bottom etc… In July’11, JPA won Rs21bn construction contracts for 990MW Punatsangchhu II Hydro-electric project in Bhutan beating L&T and HCC. These project wins should boost JPA’s RoCE given that both these projects would absorb the stock of equipments JPA owns and were getting free after completion on Karcham HEP in 2QFY12. Govt. of India is aiding to develop 10GW of hydropower by 2020 in Bhutan, of which JPA has already won 1.7GW and the rest are likely
order by 2015. This creates significant growth opportunity for JPA.

 Buy value assets 31% discount & 10% EPS CAGR in FY11-13E
We view JPA as one of the best asset plays (31% disc to NAV). Triggers: a) start of projects (esp. Karcham), BTG order for 2GW Bara Ph 2, b) monetization of realty, c) bottom-out of cement prices in FY13 and d) approval for Gr. NOIDA airport.




  • A little cheer for Textile Industry in Budget 2012

  • Enjoying market leadership in diverse product range

  • Strong presence across the globe be with wide Distribution networks

  • Unlocking the value of its subsidiary will help to reduce debt

To read full report: SKNL

>DLF: Gurgaon remains strong; Golf course launch key trigger

■ Strong sales booking expected in 4Q; Reiterate Buy
We expect strong rebound in sales booking for DLF in 4Q led by pick up in new launches especially in its core market of Gurgaon. DLF has launched over 5mn sq ft of new projects with sale value upwards of Rs25bn in 4Q. We see 5-10% upside risk to our FY12 booking estimate of Rs41bn (Rs16bn in 4Q). We reiterate our Buy rating with PO of Rs245 (25% upside) and believe the recent weakness (YTD, DLF up only 6% against 30% for Realty Index) offers good entry price.

■ Gurgaon remains strong; Golf course launch key trigger
DLF will be the key beneficiary of strong trends in Gurgaon given 43% of its NAV is derived from Gurgaon. DLF’s recent launches in New Gurgaon have been at significant premium to our estimate and competition. If this trend sustains for future launches, we expect 6-8% upside risk to our gross NAV estimate of Rs288/sh. The Golf course launch in 1HFY13 will be the key trigger as it will help DLF achieve 50% higher sales booking in FY13 (Rs62bn) against FY12 (Rs41bn).

■ Operational cash break even expected in FY13
We expect DLF to achieve operational cash break even in FY13 against a deficit of Rs15bn seen in FY12 as 1) its sales booking improves substantially in FY13 leading to additional cash flow of Rs2-2.5bn/qtr and 2) execution picks up pace due to measures undertaken by DLF in FY12 (outsourcing to third party, substantial jump in completions). The fall in interest rates should also help cap interest cost expense in FY13.

■ Debt reduction hinges on non core sale
Management expects to conclude three large non-core asset sales (Wind Mills, Aman Resorts and NTC Mumbai land, valued upwards of Rs50bn) in 1HFY13 which would help reduce debt significantly. This would further augment positive cash flows expected from improved sales booking in 1HFY13.

To read full report: DLF


MT Educare (MT Edu), promoted by Mr Mahesh Shetty, provides educational coaching services for classes 9 and 10 (State board, CBSE and ICSE), classes 11 and 12, graduation (commerce), preparatory/entrance tests (engineering, medical and MBA) and professional courses such as chartered accountancy.

Objects of the Issue:

  • Part financing the cost of construction – (includes the cost of land acquisition of a PUC campus in Karnataka)
  • Establishing new coaching centers at 20 locations
  • General corporate purposes

Investment Highlights:
  Business Prospects: MT Educare is the one of the leading players in the Indian educational coaching industry in terms of largest number of coaching centers. It operates 190 coaching centers across 106 locations in Maharashtra, Karnataka, Gujarat, and Tamil Nadu; with primary operations in Mumbai with 138 centers.

 Recognized Brand name: It is one of the largest and one of the oldest players in the Mumbai coaching industry under the brand name “Mahesh Tutorials”, enjoying a good brand image.

Key Concerns:
  Geographic concentration: MT Educare is concentrated highly in the regions in and across Mumbai which contributes the most to its revenue; although the company is present in four states, out of its 190 coaching centers, ~73% (138) centers are in Mumbai. This high dependence on a single geography poses a significant risk to the company.

  Parallel Education system - lack of governmental recognition: Coaching business forms a part of the parallel education industry which has been a key concern for the government as it lacks accountability. The Government is bound to regulate this business in the future, which will affect revenue and profitability. 

  Intense competition: The coaching industry is highly fragmented and competitive with most of the players being strong in their regions posing risk to expansion plans in future. Also it is highly unorganized with most of the local teachers providing coaching to students. Being a low capital intensive industry, it attracts huge entrepreneurial interest thas further intensifying the competition.

Valuation & Advice:
At the offer price band of Rs 74 – 80, the issue is available at FY12E P/E of 21.1-22.8x. Career Point Infosystems Ltd, a listed entity with similar business, is valued at a historical P-E multiple of 12.7x. Though the brand name is well recognized, it is hard to quantify returns with

certainty. The business model is unsustainable in the longer term with the industry bound to be regulated by the government. Also, at a price band of Rs 74 – 80, the valuation is stressed. Considering its constraint in scalability, investors can Avoid this issue.