Apar Industries Ltd: Multiple triggers for growth – BUY
CMP (Rs) 575, 12-mts Target (Rs) 724, Upside 26%
Apar Industries Ltd (AIL) commands a leading position in its two major product lines, namely conductors and transformer oil (forming major portion of Speciality oil segment) with strong presence in domestic and export markets. AIL has a commendable market share of 23% and 45% in conductor and transformer oil segments respectively. It also has presence in the fast growing power and telecom cables segments. Being a strong player, it's well placed to capitalize on the evolving opportunities in the power T&D space. Government initiatives like UDAY scheme and 'power for all' are likely to boost demand for its products. AIL recently increased capacity in both conductors and specialty oil segment to capitalize on the opportunities. The capacity addition, coupled with strong order flows, is expected to achieve a 9% top line CAGR during FY16-19E. The Company is constantly increasing the share of value added products in its product mix which would aid its margin performance. Increasing scale of operations, rising share of high margin products and lower interest costs to sales would translate into net earnings CAGR of 23% over FY16-19E. With no significant capex required, the return ratios are likely to improve in coming years. Despite strong growth prospects and the leadership position in the market, the Company is currently trading at P/E of ~10x on FY19E EPS. We recommend a BUY on the stock with a target price of Rs.724 (12.5x FY19E EPS).
Bajaj Electricals (Q2 FY17): Disappointing quarter but pieces set for growth - BUY
CMP (Rs) 231, 12-mts Target (Rs) 310, Upside 34.2%
Bajaj Electrical's (BJE's) result were quite weak due to lower revenue recognition in EPC segment, and high base (Q2 FY16 had strong EESL sales). Topline for the company was further impacted as the company had stopped wholesale sales of fans and CFL sales continue to decline. OPM for the quarter was lower by 11bps yoy due to lower topline. The company is already witnessing expansion of gross margins due to its new strategy. E&P segment had a healthy order inflow with total order book at Rs.27.2bn.. It also expects revenue growth to pickup as billing would be higher than execution in H2 FY17 in EPC. We have slightly lowered our estimates based on the two consecutive weak quarters. Regardless of such sluggish quarters, successful implementation of TOC and majority of the areas that got covered under RREP, we expect BJE revenue growth to resume from FY18 coupled with higher margins. Moreover, increased R&D investments, brand building exercise and higher ad spends would lead to better consumer demand. Based on the above factors, we value core business at 25x FY18E P/E and E&P business at 12x P/E and arrive at a SOTP target price of Rs.310.
Bosch Ltd (Q2 FY17): Play on changing emission norms - Accumulate
CMP (Rs) 20,861, 12-mts Target (Rs) 22,650, Upside 8.6%
Bosch Q2 FY17 revenues came in ahead of estimates with a 10% yoy growth compared to our estimates of a 5% yoy growth. However, OPM at 18% were lower than our forecasts of 19.2% and represented a decline of 19bps on yoy basis. Net profit came in ahead of estimates owing to higher than projected other income. Change in emission norms to BSIV at the national level is expected to drive strong growth in revenues and profitability for Bosch Ltd. Slump sale of Starters and Generators business will also improve profitability over the medium term. We cut our estimates to factor in lower than forecasted OPM. Resultantly, our target price is reduced from Rs23,500 to Rs22,650. We upgrade our rating to Accumulate post a 15% correction over the past three months.
Lupin (Q2 FY17): Strong H1 behind; H2 brings challenges - Reduce
CMP (Rs) 1,493, 12-mts Target (Rs) 1,550, Upside 3.7%
After a strong H1 that saw 34% revenue growth, we believe H2 would bring challenges as key products like Glumetza, Fortamet face competition. In Q2 Lupin reported 4% revenue and 21% EBIDTA decline qoq on back of 9% drop in US sales. Fortamet saw pricing pressure and market share loss though Glumetza remains free from newer competition. Encouragingly, Lupin managed to retain gross margin despite lower US sales while higher other expenses pulled EBIDTA margin lower by 500bps qoq. Company expects 8-10 launches in H2 FY17 and is dependent on select opportunities like Welchol, Renvela/Renegal to offset the high FY17 base of Glumetza and Fortamet. Notably, it cut GAVIS FY18 revenue guidance to US$250mn from US$300mn likely due to lack of traction since acquisition. We revise up FY17E estimates based on H1 performance though FY18E EPS remains unchanged. Assign Reduce with revised 1-year target of Rs1,550.
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