modified india investment strategy - 19052014

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Research Desk Stock Broking

MODIfiedIndia investment strategy 2014 May 19, 2014

MODI delivered the knockout punch


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ndia Investment strategy post the election results 2014:

he Great Indian Election Mela 2014 has been concluded with the NDA winning 336 seats and getting a decisive mandat

overn the country for the period 2014-2019.The clear mandate of BJP alone winning 282 seats provides for stable govern

nd strong leadership. It is clear thatMr Narendra Modi would become the Prime Minister of the country. Mr. Modi has a pr

ack record of providing transparent governance, implementing pro-growth economic policies and empowering PSU.

Market participants are expecting industry friendly policies that will spur economic growth, employment, transparent govern

without policy logjam and corruption.A majority of the market participants are of the view that Modi would deliver economic gro

which was reflected in the pre-election rally after the opinion polls suggested the NDA could form the government. Nifty has r

harply from around 6000 levels during February 2014 to over 7100 levels a day before the election results announcement. On

lections results day, Nifty had scaled towards 7563.50 levelsas the election results indicated a clear majority for the governm

ut profit taking dragged the index to close at 7203 levels on May 16, 2014.

ndian equities are likely to outperform other asset classes as well as other emerging market equities based on expectations

trong recovery in the Indian economy and thus corporate earnings. This in turn would lead to an expansion in valuation multip

t this juncture, investment outlook is very clear and positive for long term investors and we expect the Nifty to scale tow

000 and higher in the next 12-18 months based on the projected EPS of Rs.560 and a conservative multiple of 16

Y15. For the domestic investors who under owned equities till now, this will provide an opportunity to increase the exposu

ood quality equities from a long term perspective.

Review of Returns in the last 5 years for various indices and asset classes:

ndian equit ies had outperfo rmed oth er asset classes, as shown in the graph; Nifty had generated a return of 20% in the

ne year, as against the 7.49% return generated by MCX-Gold. Nifty returns were higher than gold in the last one year as we

n the last five years. Globally, Equities had outperformed Gold in the last 5 years as well in the last one year. Indian equities

utperformed other emerging BRIC marketsconsistently in the last one year as well as in the last 5 years. This outperform

was mainly driven by heavy inflow of FII money to the tune of Rs.90,500 cr in the last one year and Rs 4,83,822 cr in the l

ears, even on the back of weak domestic macro factors which reflects FIIs confidence on the underlying fundamentals of In

conomy and corporate sector.

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Indian Equities outperformance over other asset classes


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Indian indices outperformed other BRIC markets by wide margin

Equity IndicesCMP on

May 16

% return

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BRIC Indices

India Nifty 7203.00 96.18 17.18 17.58 25 10

Russia Micex 1392.30 38.93 0.02 6.42 20 3

Brazil Bovespa 53975.76 10.14 -1.75 16.81 83 16 3

China Shanghai 2026.50 -23.39 -8.91 9.85 58 10 2

Other Global Indices

USNASDAQ 4069.29 140.90 17.43 34.19 53 13

US - S&P 500 1870.85 109.49 13.35 17.21 29 11

Germany-DAX 30 9644.59 103.78 15.37 18.03 63 9

USDow Jones 16446.81 97.41 7.97 15.40 25 11

Japan - Nikkei 225 14096.59 57.23 -6.67 18.37 49 24

UK - FTSE-100 6843.11 56.81 2.29 20.20 80 9

Singapore(STI) 3262.09 54.21 -5.55 13.79 22 6

S. Korea - Kospi 2013.44 45.57 0.69 24.08 38 7

France - CAC40 4438.52 40.83 11.71 25.36 37 9

Hong Kong - HangSeng 22718.07 37.42 -2.14 10.58 23 8

ndian economy is structurally better than Brazilian and Russian markets and better in terms of transparency when compar

Chinese markets. This has been amply reflected in terms of last 5 year Nifty returns even in the back drop of macro problem

policy logjam. In the next five years Nifty is expected to give returns which are superior to what has been achieved in the

years because of the expected improvement in macro parameters like fiscal deficit, inflation and gross capital formation

Modis leadership.

RxMODI for Macro problems: Indias GDP growth slowdown was not driven by global factors rather its duedomestic problems like policy paralysis and corruption. Markets are expecting Modi to implement aggressive growth

policies to achieve GDP growth levels of over 8% in the next 3-4 years.

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`

dia GDP growth has slowed down significantly in the last 3 years from the highs of 9% recorded during the quarter ended

010 to the low of 4.7% for the quarter ending Dec 2013. The growth rate in China also moderated towards 7.5% towards the

f 2013 from around 10% recorded during the quarter ended Jun 2010. Developed economies like the US, EU and Japan w

ad seen a decline in the GDP for a brief period were able to return to the growth path by the end of Mar 2014, with an exce

at the US had slowed down temporarily due to extreme weather conditions. However, India was not able to accelerate

conomic growth during the period; this on the back of very high consumer inflation levels and higher interest rates had taken

n domestic consumption & savings as well as corporate capex plans. Apart from this, policy logjam at the central government

etrospective regulation by various government agencies had led to slowdown in economic growth. Markets are expecting Modmplement aggressive growth policies and could return back to GDP growth levels of over 9% in the next 3-4 years.

nflation Trends: In f la t ion in Ind ia is higher than in m ajor economies and CPI not showing any signs of easing below

%. Modi could focu s on addressing the distr ibut ion bott lenecks and ho arders to br ing do wn the food inf lat ion.

nterest rates: RBI was under pressur e to maintain higher interest rates amid high CPI inflat ion, but i t cou ld cons ide

educing the interest rates on any f i rm signs of easing in inf la t ion.

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Inflation trend in the last 2 years

10 Year G-Sec Yields


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MODIfiedIndia Investment Strategy:

erall, lower GDP growth and elevated CPI inflation for a prolonged period resulted in negative real growth for Aam Aadmi wh

n dumped the UPA and given a clear mandate for Modi, who has proven track record of maintaining growth rate in Gujarat

ove the national average. Majority of the market participants sensed a change in trend towards Modi which led to a strong

ction rally even though very few would have imagined a victory of this magnitude.

st the election results, even after a sharp pre-election rally Nifty is trading at a PE multiple of 17, which is near the midpoin

e PE band of 10-25 in which it was trading for the last 10 years. Given the underperformance of the China, Russia and Braziarkets in the last few years and with the uncertainty over Chinas sustained high economic growth, geo-political tension in

ssia-Ukraine and commodity dependent Brazilian economy, India is well positioned with a strong leadership which is commi

deliver economic growth. Global factors like sustained economic growth in the US, EU and Japan, expected recovery in

inese economy, stable energy prices could boost positive sentiments for the Indian equity markets. The favorable scenario co

sult in India commanding a higher PE multiple over other emerging markets, even though actual earnings growth could com

er 12-18 months.

e expect the Nifty to scale towards 9000 in the next 12-18 months based on the projected EPS of Rs.560 and give

nservative multiple of 16 for CY15. In a more optimistic scenario Nifty could even cross 10000 during the period.

ose investors who had very marginal exposure to equities, this could be the appropriate time to think towards invest

ore in equities. At this juncture one may feel that markets had run-up too fast and too sharp, but it is the price one

pay for certainty and quality. We suggest investing in good quality frontline stocks in a phased manner with a long t

rspective.

isk-on: Valuation Gap between Large Caps and Mid Caps to narrow

ose investors who had good exposure in equities, this could be the right time to think towards rebalancing th

ldings. We suggest to those who are willing to take more risk to consider investing in good quality mid-cap stocks

expect a risk-on trade to continue and valuation gap between the large-cap and mid-cap to narrow in the next

arters.

a bull market scenario the trailing twelve month PE multiple of mid cap companies were trading at an average discount of 1

en compared to the PE multiple of large cap companies giving a large valuation gap. Currently the valuation gap between la

p and mid cap companies is around 26% and we expect this to narrow down as the market starts factoring in new Governme

iatives for economic revival.

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Valuation Gap b/w Nifty & Nifty Midcap 50


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e recommend investing in good quality mid-cap stocks from a 9-12 months perspective, as we expect mid-caps to outperfor

eir large-cap peers during the period. We advise to diversify the holdings with stocks from different sectors.

Mid-cap investment ideas:

NSE Symbol Sector FV(Rs)

CMP(Rs)

P/E(x)

P/B(x)

Mkt.Cap(Rs.Crs)

Target*(Rs)

Upside(%)

APOLLOTYRE Auto-Ancl 1 172.80 8.67 1.90 8710 216 25

BEL Defence 10 1415.90 12.44 1.75 11327 1875 32

EIDPARRY Agri 1 169.15 14.21 1.22 2973 230 36

GPPL Infra-Ports 10 114.60 28.87 3.95 5540 140 22

KAJARIACER Ceramics 2 519.25 31.07 7.41 3925 625 20

KRBL Agri 1 59.05 5.45 1.33 1390 78 32

SADBHAV Infra 1 160.50 34.40 2.00 2436 210 31

SUPREMEIND Plastics 2 454.50 19.90 6.57 5773 565 24

WABAG Infra-Water 2 920.25 27.00 3.41 2447 1125 22

YESBANK Banking 10 545.55 12.19 2.77 19680 683 25

Targets are for base case scenario and can be revised upwards by around 10-15% in case of any positive re-rating for the broader Indian markets

Key Growth Drivers and Concerns

Stock Key Growth Drivers Key Concerns

APOLLOTYRE Rise in demand from OEM and decline in rubber prices Volatility in rubber prices, Currency volatility

BEL Govts thrust on defence manufacturing in India Delay in order book execution

EIDPARRY Undervaluation of the stock price, uptrend in sugar cycle El-nino could affect the Fertilizer segment

GPPLRobust foreign trade, operational efficiency and strongbrand

Any slowdown in global economic recovery,competition from other regional ports

KAJARIACER Strong domestic consumption, market leadershipAny delay in domestic economic recovery,competition from unorganized players

KRBL Market leadership, strong brand recall El-nino, trade barriers, Currency volatility

SADBHAV Governments thrust on infrastructureStiff competition for projects, high interest ratefor a prolonged period

SUPREMEINDDomestic consumption, high margin product line-up, newcapacity coming on stream

Delay in domestic economic recovery, El-Nincould affect demand from agriculture

WABAGGovernments thrust on infrastructure, traction ininternational operations, specialist in water solutions

Delay in economic recovery

YESBANK Thrust on retail business, strong economic recoveryHigher interest rates for a prolonged period,ownership tussle

ata as on: May 16, 2014

ata source: Company, Karvy Research, Bloomberg

MID-CAP INVESTMENT IDEAS


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Stock Snapshot

NSE symbol APOLLOTYRE

Current price (Rs) 172.80

52 week H/L (Rs) 184.85/54.60

Face value (Rs) 1.00

EPS (Rs) 19.94

P/E (x) 8.67

ndustry P/E (x) 9.00

P/BV (X) 1.90

Div yield (%) 0.29

Eq Shares (Cr) 50.41

Market Cap (Rs.Cr.) 8710

Price Relative to Nifty

Key Financials (Rs cr)

Cons. Annual 2012 2013 2014

Sales 12153.29 12794.63 13310.33

% Change 37.05 5.28 4.03

EBITDA 1176.85 1456.66 1875.51

nterest Expense 279.02 305.58 283.79

Net Profit 409.90 612.61 1005.06

% Change -6.88 49.45 64.06

Diluted EPS (Rs) 8.13 12.15 19.91

EBIDTA% 9.68 11.38 14.09

Total Assets 8390.88 8526.56 9045.58

Net Worth 2832.77 3400.86 4574.62

Net Debt 2811.23 2340.50 334.80

FCF per share (Rs.) -6.20 6.83 -

EV/EBITDA (X) 5.80 4.49 4.47

ROE% 15.63 19.65 25.20

ROC% 11.57 13.98 21.27

ROA% 5.22 7.24 11.44

LT Debt / Equity (%) 57.02 48.61 15.60

Dividend/Share(Rs) 0.50 0.50 0.50

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Nifty APTY

Company Overview

Apollo Tyres manufactures automotive tyres for passenger vehic

commercial vehicles and also for off-highway vehicles. It sells

tyres under the brands Apollo, Vredestein, Kaizen, Maloya a

Regal. It has eight manufacturing plants spread across th

continents India, Africa and Europe, while the company exports

products to over 100 countries. The company offers its products

trucks & buses (contributes for 48% of revenue), passenger vehic

(contributes for 33% of revenue), light truck (contributes for 9%

revenue), off-highway (contributes for 9% of revenue), while fa

vehicles and bicycles contributes for 1% of revenue. The compa

caters to both the replacement market 76% and Original Equipm

Manufacturers (OEM) which contributes for 24% of total revenue

has grown organically as well as through acquisitions and h

transformed itself from a regional player when it was incorporated

the year 1972 to a global tyre manufacturer. The company genera

65% of its revenues from India, 23% from Europe and 12% frSouth Africa.

Performance highlights

Net profit has increased by 64% to Rs.1005.05 cr for FY14

compared to Rs.612.60 cr for FY13 on a consolidation basis.

Consolidated net sales had increased by 4% to Rs.13310

during FY14, from Rs. 12795 Cr for FY13.

EBITDA margin has increased by 270 basis points to 14.0

during FY14 from 11.38% for FY13.

The companysnet debt has declined substantially to Rs.335

as on Mar 31, 2014 from Rs.2340 cr as on Mar 31, 2013.

Outlook & Valuations

Apollo Tyres is likely to benefit from the surge in demand for ty

(OEM & Replacement) in India amid expectations of higher econo

growth during Modi Government. The company is expected to g

in the European markets as the Euro Zone has come out of

recession. Apollo Tyres is likely to benefit from the decline in nat

rubber prices in the global markets, as it constitutes for major port

of the cost of production, which was reflected in expansion

EBITDA margins. Apollo Tyres has called-off the acquisition

Cooper Tyre in the US, thus clearing the uncertainty over leverage issues and now focusing on organic growth. We expect

company to deliver a healthy growth driven by increased veh

demand both in India and abroad.

At CMP of Rs 172.80, the stock is trading at a valuation of 8.68x T

earnings per share. We recommend a BUY with a target price of

216, representing 9x FY15E earnings per share.

APOLLO TYRES Target Price : Rs.216


8/17



BHARAT ELECTRONICS LTD Target Price : Rs.1875

Stock Snapshot

NSE symbol BEL


52 week H/L (Rs) 1597.50/893.00


EPS (Rs) 113.85

P/E (x) 12.44

Industry P/E (x) 13.00

P/BV (X) 1.75

Div yield (%) 1.57

Eq Shares (Cr) 8.00




Cons. Annual 2011 2012 2013

Sales 5626.60 5792.04 6151.14

% Change 4.89 2.94 6.20

EBITDA 1013.72 635.68 658.40

Interest Expense 0.47 0.38 0.59

Net Profit 877.84 846.75 910.78

% Change 19.06 -3.54 7.56

Diluted EPS (Rs) 109.73 105.84 113.85

EBIDTA% 18.02 10.98 10.70

Total Assets 13328.54 15040.54 14850.96

Net Worth 5132.57 5785.50 6487.49

Net Debt -6535.53 -6818.82 -5329.42

FCF per share (Rs.) 391.02 64.46 -171.01EV/EBITDA (X) 6.84 8.47 5.95

ROE% 18.31 15.51 14.84

ROC% 18.31 15.52 14.85

ROA% 7.70 5.97 6.09

LT Debt / Equity (%) 0.01 0.01 0.00


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Nifty BEL

Company Overview

Bharat Electronics Ltd (BEL) is a Navaratna central public sec

enterprise engaged in the manufacturing of advanced electro

products for the Indian Armed Forces. It manufactures electrocommunication equipment, night vision equipment such as ima

converter tubes, night vision binoculars, periscopes, gunsights a

tank electronics. It also manufactures electronic voting machin

products for e-governance, homeland security, civilian rada

solar products, electronic components as well as telec

broadcast systems. BEL generates 33% of its revenue from Ra

& Fire control systems, 15% from Weapon Systems, 15% fr

Communication, 8% from Electronic warfare & Avionics and

from Electro Optics. BEL is also one among the 8 PSUs under

Ministry of Defence. BEL is the lead integrator of Akash,

Indian-made guided missile air defence weapon system. BEL h

a subsidiary BEL Optronic Devices Ltd (with 92.79% equity shaand has JVs with BEL Multitone Pvt Ltd (49% share) and GE

Pvt. Ltd (26% share).


BELs revenue has increased by 6.20% to Rs.6151.14 CFY13 as against Rs.5792.04 Cr in FY12; PAT hincreased by 7.56% to Rs.911.19 Cr in FY13 from 846.75 Cr in FY12. EPS has increased to Rs.113.85FY13 from Rs.105.84 in FY12.

During 9M FY4, Revenue has declined by 6% to Rs.30and EBITDA has increased sharply by 185% to Rs.123

cr, while PAT was at Rs.268 cr which has decreased 9.67%, when compared with the corresponding periodFY13.

BEL is a debt free and has cash and equivalents of over 5300 cr as on March 31, 2013.


BEL is likely to benefit from the Modi governments thrust

strengthening the armed forces and supporting the Indian defen

equipment manufacturers. The companys current order book

Rs. 24,502 Cr which is over 4x annual revenues gives grow

visibility while major orders are expected for Ship borne Electro

Warfare System, Hand held thermal imager, Weapon locatradar and Gun upgrade program. Further, BEL has received

Foreign Direct Investment (FDI) approval for forming a JV with M

Thales, France which could benefit the company in the long term

At CMP of Rs 1415.90, the stock is trading at a valuation of 12

TTM earnings per share. We recommend a BUY with a tar

price of Rs. 1875, representing 15x FY15E earnings per share.


9/17



EID PARRY Target Price : Rs.230

Stock Snapshot

NSE symbol EIDPARRY


52 week H/L (Rs) 178.00/103.00


EPS (Rs) 11.91

P/E (x) 14.21


P/BV (X) 1.22

Div yield (%) 3.55





Cons. Annual 2011 2012 2013

Sales 9249.39 12491.69 11382.90

% Change 132.01 35.05 -8.88

EBITDA 1063.69 1358.34 1245.80


Net Profit 312.28 312.70 206.94

% Change -20.72 0.13 -33.82

Diluted EPS (Rs) 17.96 18.00 11.91

EBIDTA% 11.50 10.87 10.94

Total Assets 8577.15 11103.25 12439.20

Net Worth 2241.54 2423.85 2432.82

Net Debt 2012.88 3563.21 4780.15

FCF per share (Rs.) -3.65 -15.60 1.75

EV/EBITDA (X) 6.06 5.73 6.69

ROE% 15.35 13.41 8.52

ROC% 11.66 9.72 7.01

ROA% 4.00 3.18 1.76

LT Debt / Equity (%) 30.24 41.66 59.94


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Nifty EID

Company Overview

EID Parry (India) Limited (EID) is the flagship company of t

Murugappa group. EID is a leading producer of sugar, ethanol, c

gen power and fertilizers (through its 62% subsidiary

Coromandel International). It also operates in bio-pesticides a

neutraceuticals segments. Its sugar division operates 9 sugar m

with a total capacity of 34750 TCD in three states (AP-5000TC

TN-19000TCD, KTK-10750TCD). Its co-gen power division has

capacity of 146 MW (AP-16MW, TN-84.5MW, KTK-45.5MW) a

its distillery division has a capacity of 230 KLPD (AP-45KLPD, T

135KLPD, KTK-50KLPD). EID also has a 2000 TPD sugar refine

in Kakinada. Its subsidiary Coromandel International is a leadi

player in the DAP & NPK complex fertilizer segment as well

agro-chemicals. EID is the preferred vendor for leading playe

across food, bakery, beverage and pharmaceuticals industrie

EID sells its sugar in the retail market under the brand Parry

EIDs standalone revenue contribution as follows - Sugar 72

Distillery 14%, Bio-products 10% and the rest from co-gen powe


During FY14, consolidated revenue grew by 5.7% to R12031 cr, while Net profit has declined by 62% to Rs. 77.cr.

During FY14, standalone revenue declined by 11.30% to R1767.42 cr, while Net profit has declined by 92% to Rs. 26.cr.

During Q4FY14, revenue has decreased by 14.63% to R541.83 cr, while it has reported a net profit of Rs 85.39

indicating improvement in the standalone sugar busineduring the quarter.


EIDs Sugar segment is likely to perform well in FY15, if either

these factors materializes - A) Linking of sugarcane prices with t

prices of sugar and other bi-products. B) Better price discovery f

ethanol and increase in mandatory blending of ethanol in petrol

Recovery in the sugar prices in the international markets. While

distillery, co-gen power and bio products segments are expect

to do well. The sugar refinery at Kakinada is expected

commence production in the next few months and contribute EBIT profits. While, its major subsidiary Coromandel is expect

contribute for significant growth at a consolidated level in the lo

term.

At CMP of Rs 169.15, the stock is trading at a discount to

investment value per share of Rs.265, besides the standalo

business. We recommend a BUY with a target price of Rs. 230.


10/17



GUJARAT PIPAPAV PORT LTD Target Price : Rs.140

Stock Snapshot

NSE symbol GPPL


52 week H/L (Rs) 120.90/42.05


EPS (Rs) 3.97

P/E (x) 28.87


P/BV (X) 3.95

Div yield (%) 1.21





Cons. Annual 2011 2012 2013

Sales 395.89 416.03 473.65

% Change 39.43 5.09 13.85

EBITDA 185.75 187.84 257.34


Net Profit 57.10 73.96 191.77

% Change -204.35 29.53 159.28

Diluted EPS (Rs) 1.35 1.64 3.97

EBIDTA% 46.92 45.15 54.33

Total Assets 1584.22 1663.42 1866.63

Net Worth 792.97 1211.74 1403.51

Net Debt 606.31 269.95 101.57

FCF per share (Rs.) -1.75 0.64 3.50

EV/EBITDA (X) 15.44 14.19 12.27

ROE% 7.47 7.38 14.67

ROC% 9.37 9.41 14.12

ROA% 3.52 4.55 10.86

LT Debt / Equity (%) 84.59 25.08 20.09


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Nifty GPPL

Company Overview

Gujarat Pipapav Port Ltd (GPPL) is an all weather port manag

and operated by APM Terminals which is one of the largest po

and terminals operators in the world. APM Terminals is the lepromoter of the company with 43.01% of the equity holdi

GPPL is located in Gujarat and has a capacity to han

container cargo (0.85 mln TEU per annum), bulk (5 mln TPA) a

liquid cargo (2 mln TPA). It also has a berth for handling LP

The port has emerged as one of the principal gateways on t

West Coast of India which provides access to shipping lin

through international routes as well as for the cargo belt in No

and North-west region of India. GPPL holds 38.8% stake

Pipavav Railway Corporation that connects Pipavav to the IC

network. GPPL has the capacity to handle double stack h

cube container trains that reduce the transit time. GPPL has ov

1500 acres of land for development of port related infrastructur


During FY13, consolidated revenue grew by 13.85% to 473.65 crore and EBITDA has increased by 37% Rs.257.34 cr, while Net profit has risen sharply by 159%Rs. 191.77 crore. EBITDA margin has increased to 54.3for FY13 from 45.15 during FY12.

During Q1FY14, consolidated revenue grew by 26.28%Rs. 473.65 crore and EBITDA has increased by 60%Rs.91.55 cr, while Net profit has risen sharply by 72% to R61.02 crore. EBITDA margin has increased to 63.54%


GPPL is likely to benefit from the potential growth in the tra

amid expectations that Modi government would fast track

economic growth. Container Trade is expected to grow by 4%-

in 2014 and 2015. GPPL is fully geared up for handling the larg

vessels and also the company is expanding the container ca

handling capacity to 1.35 Mln TEU from the current 0.85 mill

TEU with a cost of Rs.460 cr scheduled to be completed in t

next 2 years. GPPL has underlying strengths in the form of stro

brand APM Terminals, connectivity to cargo areas like

northern and north western India as well as shipping lin

connecting the Asia to Middle East and Europe. GPPoperational efficiency, its capability to handle the double sta

container trains would result in increased business volume

well as higher operating margins.


FY13 earnings per share. We recommend a BUY with a tar



11/17



KAJARIA CERAMICS Target Price : Rs 625

Stock Snapshot

NSE symbol KAJARIACER


52 week H/L (Rs) 521.00/199.00


EPS (Rs) 16.71

P/E (x) 31.07


P/BV (X) 7.41

Div yield (%) 0.58

Eq Shares (Cr) 7.56




Cons. Annual 2012 2013 2014

Sales 1313.03 1611.98 1838.75

% Change 37.74 22.77 14.07

EBITDA 208.10 246.67 280.71


Net Profit 80.88 104.51 124.22

% Change 33.42 29.21 18.86

Diluted EPS (Rs) 10.99 14.20 16.68

EBIDTA% 15.85 15.30 15.27

Total Assets 890.95 1047.55 1175.61

Net Worth 282.07 360.88 529.52

Net Debt 271.98 316.61 187.70

FCF per share (Rs.) 2.21 -7.94 -

EV/EBITDA (X) 7.36 7.03 10.22

ROE% 32.06 32.51 27.90

ROC% 22.77 21.26 21.49

ROA% 9.51 10.78 11.18

LT Debt / Equity (%) 31.69 22.98 14.92

Dividend/Share(Rs) 2.50 3.00 -

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Nifty KJC

Company Overview

Kajaria Ceramics is the largest manufacturer of ceramic/vitrif

tiles in India. It has an annual aggregate capacity of 46.60 mn.

meters, distributed across seven plants-Sikandrabad in UPradesh, Gailpur in Rajasthan, four plants in Morbi in Gujarat a

one at Vijayawada in Andhra Pradesh. The company is planning

increase the capacity to 64.6 mn. Sq. Meters by FY16. T

company is market leader among the organized players in the

industry; the market share of the company is at 21% followed

H&R Johnson (19%), Asian Granito (10%) and Somany Ceram

(9%). The unorganized players share in tiles industry has go

down considerably in the last few years; however, still 60% of

domestic production comes from unorganized players from Morb

Gujarat.


Kajaria Ceramics has seen a CAGR (FY11-FY14) growth

25% in revenue to Rs. 1838.75 cr and 27% growth in

profits to Rs.124.22 cr. The company has seen doubling of

revenue in the last three years.

The company was able to maintain its EBITDA marg

steadily at over 15% with better mix of product and pricing.

The net debt of the company has reduced in the last th

year despite the capital expenditure.


Kajaria Ceramics is well positioned in the ceramic tile industry

benefit from the expected robust growth in the domestic market

the next few years. We expect the company is likely to see

volumes growth of 18-20% as against the industry grow

expectation pegged at 13-15% in the next couple of years. T

commencement of increased capacity in the next two years bo

well for the company. The company is also likely to benefit from t

lower production from unorganized players whose market share

expected to fall below 50%. The replacement demand in Teir-2 a

Teir-3 cities will fuel the growth of the company further. Being t

industry leader and with the strong earnings momentum, the sto

continues to get premium valuations.

At CMP of Rs 519, the stock is trading at a valuation of 31x T

earnings per share. We recommend a BUY with a target price

Rs. 625, representing 25x FY16E earnings per share.


12/17



KRBL Target Price : Rs.78

Stock Snapshot

NSE symbol KRBL


52 week H/L (Rs) 67.80/19.30/


EPS (Rs) 10.84

P/E (x) 5.45


P/BV (X) 1.33

Div yield (%) 1.35





Cons. Annual 2012 2013 2014

Sales 1631.00 2080.39 2910.46

% Change 5.59 27.55 39.90

EBITDA 230.31 296.01 440.55


Net Profit 73.03 129.86 255.11

% Change -39.31 77.81 96.45

Diluted EPS (Rs) 3.00 5.37 10.84

EBIDTA% 14.12 14.23 15.14

Total Assets 2008.56 2010.02 2714.72

Net Worth 717.16 829.47 1043.98

Net Debt 914.97 851.18 1243.06

FCF per share (Rs.) 0.35 1.62 -

EV/EBITDA (X) 5.81 4.66 5.49

ROE% 10.71 16.79 27.23

ROC% 8.09 10.90 15.49

ROA% 3.76 6.46 10.80

LT Debt / Equity (%) 14.82 9.33 19.56

Dividend/Share(Rs) 0.30 0.80 -

70.00

140.00

210.00

280.00

Nifty KRBL

Company Overview

KRBL Ltd, (KRBL), a leading player in production and expo

Basmati Rice with global delivery footprints. KRBL is a

integrated company involved in seed development multiplication, contact farming, procurement & storage of pa

production & marketing of basmati rice. The company o

basmati rice brands like India Gate, Doon, NurJahan, Indian Fa

Bemisal, Aarati, Tajmahal Tilla and Blue Bird which are well kn

both in Indian and Global rice markets. KRBL has a strong foot

in domestic market with 30% market share and enjoys 25% sh

in branded basmati exports from India. The Company has v

distribution network with presence at 6,40,000 retail outlets spr

across India. It has collaborations with global retail chains

distribution of its products and with Buhler AG for techno

support and processing machinery.


The company recorded highest ever Top-line of

2910.46 Crs in FY 14 as against Rs.2080.39 Crs in FY

up by 39.90% (y-o-y).

EBIDTA is up by 47% to Rs.460 crs in FY 14 as aga

Rs. 312 crs in FY13. EBIDTA margin is at 15.8% up by

bps on y-o-y basis.

The net profit increased by 96.45% (y-o-y) to 255.11 c

FY 14 as against Rs.129.86 crs in FY 13 and EPS in

14 has gone up by 101.86% to Rs.10.84 as aga

Rs.5.37 per share in FY 13.


Demand of Basmati Rice in India has grown up significantly on

back of change in income levels and consumer choices.

companys differentiated pricing strategy of targeting custom

across segments with products at varying price points from R

per kg to Rs.150 per kg will enable the company to win hig

market share. The company has also forayed into power busin

with total 61.85 MW power capacities. (Biomass -15.8 MW, S

2.5 MW and Wind 43.55 MW). It also generates value-added

products like bran oil, de-oiled cakes and uses rice huskscaptive power plant.

At CMP of Rs 59.05, the stock is trading at a valuation of 5.5x T

earnings per share. We recommend a BUY with a target pric

Rs. 78, representing 5x FY15E earnings per share.


13/17



SADHBHAV ENGINEERING Target Price : Rs. 210

Stock Snapshot

NSE symbol SADHBHAV


52 week H/L (Rs) 170.50/51.25


EPS (Rs) 5.40

P/E (x) 29.77


P/BV (X) 2.00

Div yield (%) 0.37





Cons. Annual 2011 2012 2013

Sales 2329.65 2866.33 2158.27

% Change 74.59 23.04 -24.70

EBITDA 338.59 416.48 396.31


Net Profit 92.78 122.29 7.48

% Change 155.76 31.80 -93.88

Diluted EPS (Rs) 6.53 8.08 0.49

EBIDTA% 14.53 14.53 18.36

Total Assets 3695.43 5573.08 6646.13

Net Worth 872.24 1173.29 1210.19

Net Debt 1864.83 3292.07 4482.59

FCF per share (Rs.) -58.14 -111.62 -76.32

EV/EBITDA (X) 11.58 13.93 16.26

ROE% 15.13 11.96 0.63

ROC% 5.96 5.05 -12.22

ROA% 3.07 2.64 0.12

LT Debt / Equity (%) 160.42 230.90 296.82


0

100

200

Nifty SADBHAV

Company Overview

Sadbhav Engineering Limited is engaged in infrastructure busin

like construction of roads, irrigation and mining. The core busin

activities of the company includes strengthening, widenrehabilitating and upgrading of roads and highways, constructing

modelling and improvement of canals, constructing syphon

earthen dams and excavating and mining minerals. Most of the r

projects done by the company are on build operate transfer (B

basis. The road projects include improvement and winding to

lane of two lane Sardar Patel Ring Road around Ahmedabad city

Build, operate and transfer (BOT) basic. Its irrigation project inclu

Majalgaon Right Canal, improvement of Shedhi Branch Canal

construction of Narmada main Canal. Its mining project inclu

Rock Excavation at Hindustan Copper Ltd, Malajkhand Project.


Top line increased by 41% to Rs.1,559 cr during Apr13-Dec

Revenues from the construction segment increased by 33%

Rs.1,555 cr and revenue from power segment declined by 1

to Rs.4.51 cr for the same period.

EBITDA margin (excluding extra-ordinary items) expanded

150 bps to 11.5%. While interest expenses increased by 3

to Rs.76.6 cr and depreciation cost increased by 42% to R

cr during Apr13-Dec13.

Net profit (excluding extra-ordinary items) increased to

50.28 cr from Rs.1.6 cr and ended the Apr13-Dec13 pe

with an EPS of Rs.3.3.


Sadbhav currently has nine BOT projects in its portfolio out of w

three are operational and six are under construction. The comp

has completed the financial closure for all its projects in its portfo

The financial closure of its projects allows the company to s

execution as well as facilitates the company to bid for fur

projects. The Debt-to-Equity ratio is expected to improve furthe

the company has taken up a mix of activity in rebalancing of bala

sheet items. The pickup in economic activity and infrastruc

projects awards shall bode well for the leading infrastrucdeveloper. Sadbhav has a robust order book of 7800 cr wit

visibility of next 3 years. There is a visible pick-up in execution in

road projects.


TTM earnings per share. We recommend a BUY with a target p

of Rs. 210, representing 28x FY15E earnings per share.


14/17



SUPREME INDUSTRIES Target Price : Rs.565

Stock Snapshot

NSE symbol SUPREMEIND


52 week H/L (Rs) 509.00/290.20


EPS (Rs) 22.84

P/E (x) 19.90


P/BV (X) 6.57

Div yield (%) 1.65





Cons. Annual 2011 2012 2013

Sales 2469.46 2927.90 3403.99

% Change 23.04 18.56 16.26

EBITDA 358.77 473.32 537.00


Net Profit 195.84 241.68 290.10

% Change 25.55 23.41 20.03

Diluted EPS (Rs) 15.42 19.03 22.84

EBIDTA% 14.53 16.17 15.78

Total Assets 1525.46 1532.08 2032.36

Net Worth 547.71 696.73 878.98

Net Debt 502.24 338.98 448.68

FCF per share (Rs.) -6.46 17.65 -1.42

EV/EBITDA (X) 7.81 6.70 8.81

ROE% 40.72 38.84 36.82

ROC% 24.00 26.43 27.19

ROA% 14.44 15.81 16.28

LT Debt / Equity (%) 37.95 15.05 26.37


0

100

200

Nifty SI

Company Overview

Supreme Industries Ltd. is a plastic products manufactur

company with annual polymer handling capacity of close to 3 la

tonnes. The July12-June13 revenue composition is largely frplastic piping systems(51%), packaging products(21%), indust

products(19%) and consumer products (9%) with technology

up and some exclusive production-cum-marketing rights fr

Rasmussen Polymer Development-Switzerland for Cro

laminated films, Sapac Packaging Solution-Belgium for Inst

packaging solution, Foam Partner-Switzerland for Reticulated

foam, Sanwa Kako-Japan for 2 stage foam, PE Tech-Korea

Cross linked foam, Wavin Overseas-Holland for Plastic pip

system, Industrie Polieco MPB SRL-Italy for Sewerage syste

Kumi Kasai Co. Ltd-Japan for Automotive components and N

Corporation-Japan for Composite pipes. The company has

distribution network (over 20,000 retailers) and is exploring Retailing options.


During Jul13-Mar14 sales has grown by 14% to Rs.2,685

Revenues growth of 12.6% was achieved by plast

business and construction revenue of Rs.38.5 cr by way

sale of commercial space in Supreme Chambers dur

quarter ending Dec13 was recorded.

Operating expenses has increased to 21% to Rs.2,514

mainly on account of raw material expenses and limit

EBIDTA grown to 10% at Rs.376 cr during Jul13-Mar14. During Jul13-Mar14 PAT stood at Rs.164 cr and EPS

Rs.12.94.


Malanpur capacity for plastic piping products, Hosur capacity

packaging products and Halol capacity for composite produ

coming into production with expected near-normal rainfall

boost demand for piping products, improved supply ch

predictability in packaging products and visibility in indust

products demand from auto makers has improved. New h

margin and niche markets are to open up as product line-up l

composite LPG cylinders, pipes and pallets are definite altern

for traditional products. Commercial space sale will pick up

coming years as the real estate market is expected to revive.

At CMP of Rs 454.50, the stock is trading at a valuation of 19.9

TTM earnings per share. We recommend a BUY with a targ



15/17



VA TECH WABAG LTD Target Price : Rs.1125

Stock Snapshot

NSE symbol WABAG


52 week H/L (Rs) 930.00/374Face value (Rs) 2.00

EPS (Rs) 34.08

P/E (x) 27.00


P/BV (X) 3.41

Div yield (%) 0.76

Eq Shares (Cr) 2.65




Cons. Annual 2011 2012 2013

Sales 1241.82 1443.52 1618.85

% Change 1.48 16.24 12.15

EBITDA 121.03 132.08 154.86


Net Profit 52.57 73.75 90.34

% Change 17.46 40.29 22.49

Diluted EPS (Rs) 8.47 27.85 33.71

EBIDTA% 9.75 9.15 9.57

Total Assets 1403.01 1774.04 1890.60

Net Worth 570.96 642.02 715.39

Net Debt -284.82 -213.34 -204.44

FCF per share (Rs.) 1.61 -42.26 14.72

EV/EBITDA (X) 8.64 7.00 7.26

ROE% 10.81 12.16 13.31

ROC% 10.46 11.79 12.15

ROA% 4.21 4.64 4.93

LT Debt / Equity (%) 0.05 0.06 0.36


0

100

200

Nifty Wabag

Company Overview

VA Tech Wabag offers water treatment solutions. It is involved

conceptualizing, designing, engineering, procurement, supp

construction and erection of water, wastewater treatment planand their operation & maintenance (O&M). It offers engineerin

procurement & construction (EPC) and O&M solutions for sewa

treatment, processed & drinking water treatment, efflue

treatment, sludge treatment, desalination and reuse for institution

clients like municipal corporations, power, steel and oil & g

companies. VA Tech Wabag subsidiaries operate in south Ea

Asian, Middle East and African countries.


During Apr13-Dec13 consolidated Net sales has grown

44% to Rs.1,341 cr. The companys international operatio

have gained traction contributing to 65% of revenues and 23

of profit on consolidated basis for the same perio

Traditionally, 40% of the revenues are booked during the Ja

Mar quarter.

Operating expenses has moved up by 39% and leav

EBIDTA at Rs.86 cr which is higher by 32% during Apr1

Dec13 period. EBDITA margin slipped by 60 bps to 6.4%

same period.

Net profit and EPS has grown by 40% to Rs.42.2 cr a

Rs.15.7 per share respectively. While net profit mar

remained almost constant at 3.1% for Apr13-Dec13.

Current order intake of Rs.3,000 cr is above the ini

guidance of Rs.2,600-2,700 cr for FY13 total order back

stands at Rs.6,000 cr.


India significantly lacks water and waste water infrastructure a

we expect public spending, given the mandate, on EPC and O&

to be significantly higher in coming years. Financial and Technic

collaborations between Sovereign, multilateral and bilate

agencies will be strengthened in achieving Millenniu

Development Goals. VA Tech Wabag being specialist wa

Solution Company is well positioned to capitalise this opportunWe expect the geographical spread and momentum both in ter

of revenue and profits to grow as margins from internation

operations are to improve.


TTM earnings per share. We recommend a BUY with a target pri

of Rs. 1125, representing 26x FY15E earnings per share.


16/17



YES BANK Target Price : Rs. 683

Stock Snapshot

NSE symbol YESBANK


52 week H/L (Rs) 599.00/216.10


EPS (Rs) 44.74

P/E (x) 12.19


P/BV (X) 2.77

Div yield (%) 1.47





Std. Annual 2012 2013 2014

Net Interest Income 1615.64 2218.79 2716.26

% Growth 29.57 37.33 22.42

Net Revenue 2474.19 3476.73 4437.93

Net Profit 977.00 1300.68 1617.78

Diluted EPS 27.13 35.55 44.35

Net Loans 37900.52 46937.86 55467.28

Total Assets 73625.68 99104.13 109015.79

Saving Deposits 2503.78 6022.65 9327.52

Total Deposits 45258.25 62618.50 67627.97

Networth 4676.64 5807.67 7121.74

NPAs 83.86 94.32 174.93

Prov.for Doubt Debts 40.70 76.64 263.71

Res for Loan Loss /

NPA (%) 79.18 92.59 85.10

Tier 1 capital % 9.90 9.50 9.80

ROE 23.07 24.81 25.02

ROA 1.47 1.51 1.55

Dividend Per Share 4.00 6.00 8.00

Net Interest Margin 2.68 2.81 2.88

NPA/Total Asset (%) 0.11 0.10 0.16

0

100

200

Nifty YESBANK

Company Overview

Yes Bank Ltd is among the top five private sector banks

operates as a full service commercial bank engaging in corpor

and institutional banking, financial markets, investment banki

corporate finance, branch banking, business and transact

banking, and wealth management operations. It has a network

560 branches across 200 cities, with over 1139 ATMs and

national operating centers in Mumbai and Gurgaon. The bank a

focuses on development banking in the areas of food

agribusiness, Infrastructure and microfinance. The banks advan

portfolio as on March 31, 2014 comprised of corporate

institutional banking (large corporate) 63.3%, commercial bank

(mid-sized corporate) 15.5% & retail banking (including MSM

21.2%. The retail banking has been major growth driver which

increased to 21% from 14.9% from a year ago and as per

management it will surge to 30-35% of total advances in

coming two years time.


Net interest income has increased by 22.4% Y/Y to Rs2716in FY14 from Rs2219 cr in FY13 on account of growthcustomer assets and relatively steady net interest margThe net interest margin (NIM) expanded to 3% during period.

As on March 31, 2014, total deposits grew by 10.8% (Y/YRs 74192 cr and advances have increased by 18.4% to 55,633cr.

Its gross NPAs stood at 0.31% (Rs.174.9 Cr.) of gr

advances and net NPAs at 0.05% (Rs.26.1 cr.) of advances as at March 31, 2014. It has capital adequacy rof 14.4% and Tier I ratio of 9.80%, as on March 31, 2014.


Yes bank, has seen compounded growth of 25% in advances in

last 5 years while, Net profit has seen a CAGR of 28% from Rs.4

cr. in FY10 to Rs.1617 cr. FY14. The bank was able to maint

over 23% return on equity and 1.5% return on assets in the

three years. The bank is expected to see 18-20% growth

advances for FY14-FY16 and the net interest margin could impro

marginally from the current 3% mainly due improving CASA ra

which is expected to grow to 27% from the current levels of 22

The net profit is expected grow over 20% from FY14-FY16. W

improving economic scenario the expected stress on the corpor

advances likely to come down. Also, the retail segment would b

major driver of loan growth as well as fee income.

We recommend a BUY for a target Rs.683 valuing at 2.7x FY1

book value per share.


17/17



KARVY STOCK BROKING - RESEARCH DESK

Name Role Phone Number E-mail Id

JK Jain Head of Research 040 - 4467 7482 [email protected]

Rajendra Prasad Research Analyst 040 - 4467 7491 [email protected]

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Arul Kaarthick Research Analyst 040 - 4467 7491 [email protected]

Kaushal Jaitliya Research Analyst 040 - 4467 7494 [email protected]

Prashant Kanuru Research Analyst 040 - 4467 7491 [email protected]

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Disclosures Appendix

nalyst certification

he following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal vbout the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specommendation(s) or views contained in this research report.

isclaimer

he information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analys

pon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information a

re not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Inv

ust make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they b

ecessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking no

erson connected with any associate companies of Karvy accepts any liability arising from the use of this i nformation and views mentioned in this document.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time.

mployee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The

endering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommenas either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Lt

eport is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitu

ffer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives related to such securities.

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