peerless masterpicks april 2016 · accounts) as ceo & md, b) krishnakumar natarajan (current...

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Peerless Securities Limited Peerless Mansion, 1, Chowringhee Square, 2nd Floor, Kolkata – 700 069 Tel. No. : 91-33-2243 5942

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Website : www.peerlessec.co.in

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Peerless Securities Ltd. Peerless Mansion, 1, Chowringhee Square, 2nd Floor, Kolkata- 69

For Private Circulation Only

PORTFOLIO PICKS

INDEX OF STOCK PICKS- FOR APRIL 2016

STOCK CMP ENTRY LEVEL RANGE AVG SL TRGTS EXPECTED RETURNS STOPLOSS

MINDTREE 653.25 653.00 643 648.0 615 711 8.88% -5.82%

TATASTEEL 319.70 319.80 315 317.4 300 349 9.13% -6.19%

INFY 1218.30 1220.00 1210 1215.0 1155 1334 9.34% -5.33%

TATAMOTORS 386.60 387.00 382 384.5 366 423 9.30% -5.43%

RELIANCE 1045.20 1046.00 1033 1039.5 985 1140 8.99% -5.83%

SUNPHARMA 820.00 820.00 812 816.0 775 890 8.54% -5.49%

BHARATFORG 873.10 874.00 869 871.5 825 950 8.70% -5.61%



Monthly Performance during APRIL 2015- MARCH 2016

Monthly Return % of PMP vs. CNX 100

Month wise Return % along with Cumulative Return for FY15-16

MONTH

Apr-

15

May-

15

Jun-

15

Jul-

15

Aug-

15

Sep-

15

Oct-

15

Nov-

15

Dec-

15

Jan-

16

Feb-

16

Mar-

16

Cummulative

Return%

CNX100 -2.2 2.55 -0.15 0.65 -5.44 -2.7 2.57 -2.6 0.59 -6.51 -6.03 9.87 -9.4

PMP 2.09 2.4 -2.23 3.14 1.79 -1.01 0.63 -2.33 0.19 -4.21 -2.81 2.29 -0.06

PEERLESS MASTER PICKS- MARCH 2016 PERFORMANCE

CNX100 7128.5 7832.15 9.87%

STOCK ENTRY LEVEL SL TRGTS STATUS PRICE P/L %

RELIANCEIND 945.00 895 1025 PROFIT BOOKED 1000.00 5.82

PIDILITE 601.00 570 660 CLOSING PRICE 589.30 -1.95

SUNPHARMA 870.00 818 952 STOP HIT 818.00 -5.98

HINDUNILEVER 843.00 796 912 CLOSING PRICE 869.50 3.14

AXISBANK 379.00 360 415 PROFIT BOOKED 409.50 8.05

MINDTREE 1436.00 1352 1560 PROFIT BOOKED 1524.00 6.13

ASIANPAINTS 861.50 820 938 CLOSING PRICE 868.40 0.80

PMP RETURN 2.29%



Market and Economy Update

Government rolls back pension tax plan after backlash

Prime Minister Narendra Modi's government dropped a controversial proposal to tax pension

withdrawals, caving in after an outcry by salaried workers threatened to undermine his party's

prospects in upcoming state elections. Finance Minister Arun Jaitley had proposed in his Feb. 29

budget taxing lump-sum withdrawals exceeding 40 percent of an individual's retirement pot in the

Employees' Provident Fund (EPF), unless the sum is reinvested in an annuity. At present, withdrawals

from the EPF are tax-free.

The tax proposal sparked a backlash from small but vocal professional class, with some calling it a raid

on the retirement savings of honest taxpayers. Only around 36 million of the country's 1.3 billion people

contribute to the EPF. The move also drew flak from opposition parties, forcing the government to

change tack ahead of elections in five states in April and May in which Modi's Bharatiya Janata Party

(BJP) eyes gains.

India's industrial output contracts 1.5 percent in January

Factory output contracted for the third month in a row in January, driven by a sharp decline in

production of capital goods and consumables, signalling that growth momentum in the economy

remains vulnerable. During the month, the Index of Industrial Production (IIP) shrank 1.5%, against a

1.2% contraction the previous month and a 3.2% contraction in November.

While the contraction in output in November was attributed to fewer working days due to Diwali, the

persistence of this trend the following month baffled most economists, with some proffering the floods in

parts of southern India in November and December as a reason. The Central Statistics Office (CSO)

has estimated that value-added manufacturing will grow 9.5% in 2015-16. However, during the April-

January period, manufacturing output grew 2.5%, according to the IIP data.In January, mining and

electricity sectors grew 1.2% and 6.6%, respectively, while manufacturing sector with a 75.5%

weightage in IIP contracted 2.8%.

India's wholesale prices fall for 16th straight month in Feb

India's wholesale prices fell for the 16th straight month in February, with the Wholesale Price Index

(WPI)-based inflation declining 0.91% compared with a 2.61% fall in the corresponding period of the

previous year, government data released on Monday showed. In January, the index had fallen 0.90%.

The December data has been revised to -1.06% from -0.73%. It was 6.86% in the corresponding

period of last year.As per the data, inflation in price of primary articles was 1.58% compared with 4.63%

last month.



Fed holds steady, eyes two rate hikes this year The Federal Reserve held interest rates steady on Wednesday and indicated that moderate U.S.

economic growth and "strong job gains" would allow it to tighten policy this year, with fresh projections

showing policymakers expected two quarter-point hikes by the year's end, half the number seen in

December.

The U.S. central bank, however, noted that the United States continues to face risks from an uncertain

global economy. "A range of recent indicators, including strong job gains, points to additional

strengthening of the labour market. Inflation picked up in recent months," the Fed said in a policy

statement in which it kept the target range for its overnight lending rate at 0.25 percent to 0.50 percent.



Emerging debt swelled $1.6 trillion in 2015, poses risks - IIF

Total debt in emerging markets grew by $1.6 trillion in 2015 to more than $62 trillion, the Institute of

International Finance said on Wednesday, warning that higher indebtedness raised repayment risks

and endangered future economic growth.

The Washington-based group, one of the most authoritative sources of data on investment flows to the

developing world, noted that $730 billion of bonds issued by emerging markets governments and

companies were due for repayment in 2016. Another $890 billion matures next year, a third of it in U.S.

dollars. This debt-servicing hump is a result of a borrowing spree after the 2008 global financial crisis.

Emerging market indebtedness, on the other hand, is growing across all sectors. On the positive side,

while emerging public sector debt rose over 3 percentage points in 2015 to more than 45 percent of

GDP, this remains well below the 110 percent ratio in mature markets.



STOCK PICKS MINDTREE LTD – BUY

Target Data Last Closing Price (Rs) : 653.25

Target (Rs) : 711

Buy zone (Rs) : 653-643 Stop loss (Rs) : 615

Beta : 0.44

Technical Outlook:

• The stock took support around its weekly support zone of 590-600 and rebounded suggesting a strong base is under formation around these levels. It is also the lower end of the upward sloping channel which further suggest that upward movement which have started in the stock can continue.

• One can buy this stock for the immediate target around 710-720.

Fundamental Outlook:

• Mindtree Q3FY16 USD revenue grew by 2.3% QoQ (PLe: US$182.5m, Cons.: US$182.4m) (3% QoQ in CC). EBITDA margins contracted by 83bps QoQ to 17.7% (PLe: 18.0% Cons: 18.1%) due to wage hike and campus hires (lower utilization). EPS declined by 4.6% QoQ to Rs18.0 (PLe: Rs18.7, Cons: Rs18.6), mainly due to lower Other Income

• Management remains confident of beating NASSCOM guidance (12‐ 14%), excluding benefits of acquisitions. MTCL had the best Q3 in FY16 on organic basis since Q3FY11. Company won deals worth US$204m in Q3FY16, +34% YoY. Bluefin was weak in Q3 due to seasonality but will be back on growth track in Q4FY16.

• Company has appointed a) Rostow Ravanan (current Head for Europe, Service Lines and Key Accounts) as CEO & MD, b) Krishnakumar Natarajan (current CEO & MD) as Executive Chairman with effect from April 1, 2016. In our view, management re‐ shuffle will ensure change with continuity.

• At CMP of INR 663, the stock trades at 17x of its estimated FY17 EPS.



TATA STEEL LTD – BUY


Target (Rs) : 349

Buy zone (Rs) : 319.80-315

Stop loss (Rs) : 300 Beta : 1.66

Technical Outlook:

• The stock has taken breakout above the upward moving channel and is trying to sustain above for past couple of days suggesting 290-300 zone is acting as a good intermediate support zone for the stock.

• The stock is likely to move upwards towards 345-355 levels.


• GoI’s MIP levy on 80-85% of imported steel products is a positive step to counter cheap steel imports. While domestic price hikes are on the cards (a US$ 105 hike in best case), these should be staggered with (1) subdued domestic demand growth of 2.8% in Jan’16, (2) likely higher supply from Tata, JSTL and SAIL, and from smaller mills jumping back in action, (3) exclusion of scrap from the MIP purview leading to an increase in scrap imports and a drop in prices of long products

• Q3FY16 continued the weak trend caused by continuously falling commodity prices. The losses rake up, with only the miners reporting a positive PAT. We do believe though that with Q3FY16, the process of bottoming-out of earnings has started. While the process can be accelerated in the ferrous pack through government intervention, that in the non-ferrous pack can take support from incremental news of capacity cuts flowing in globally.

• Ferrous pack reels under pricing pressure. Industry demand growth has surprised in Q3FY16 with Oct/Nov’15 registering 7%/11% demand growth respectively. Similar buoyancy has been witnessed in sector volumes as well barring JSW Steel on account of shutdowns undertaken to augment capacity. Realisations though have played spoilsport particularly in the longs segment with average realisation drop in the pack between 5-6% QoQ, Tata Steel standalone being the only exception.



INFOSYS LTD - BUY


Target (Rs) : 1334

Buy zone (Rs) : 1220-1210 Stop loss (Rs) : 1155

Beta : 0.60

Technical Outlook:

• The stock has taken breakout of ascending triangle on daily charts and is sustaining above the breakout zone of 1180-1200 suggesting up move in the stock.

• The stock is trading with good volumes and price-volume movement suggests the immediate target of the stock is around 1150-1160.


• Infosys reported robust Q3FY16 earnings as dollar revenue growth and EBIT margins beat market estimates. US$ revenues grew 0.6% QoQ to $2,407 million. Infosys raised its FY16E constant currency (CC) revenue growth guidance to 12.8%-13.2% vs. 10-12% earlier and its US$ guidance to 8.9%-9.3% (6.4-8.4%) and reported PAT of | 3,465 crore.

• Q3FY16 EBIT margins declined 60 bps QoQ to 24.9%. Margins were impacted by 110 bps due to realization decline and another 60 basis points due to drop in utilization, increasing subcontracting costs and impact of Noah consolidation. This was offset by 110 basis points due to the benefits of both rupee depreciation and reduction in variable fee.

• Consolidated annualized attrition declined 180 bps QoQ to 18.1% vs. 19.9% in Q2 while standalone annualized declined 70 bps QoQ to 13.4% vs. 14.1% in Q2 and stands at 15 quarter low. Management highlighted that employment engagement initiatives are resonating well with the employees leading to moderation in attrition.

• At CMP of INR 1205.8, the stock trades at 21.68x of its FY15 EPS (TTM) of INR 56.55.



TATA MOTORS LTD - BUY


Target (Rs) : 423

Buy zone (Rs) : 387-382

Stop loss (Rs) : 366 Beta : 1.89

Technical Outlook:

• Tata Motors have taken support around 280-300 level and bounced back sharply . The stock is forming a double bottom pattern on monthly charts which is bullish for the stock.

• The target on the upside will be till 420-425 in short term.


• Tata Motors’ (TML) Q3FY16 Consolidated revenues were at |72,256 crore (up 3.3% YoY, 17.8% QoQ). Net revenue of JLR was at £5781 million (down 1.7% YoY, up 21.7% QoQ) (JLR wholesale: 150,461 units vs. our estimate 133,568 units)

• Consolidated EBITDA margins were at 14.2% (down 123 bps YoY, up 279 bps QoQ). Reported EBITDA margins of JLR were at 14.4% (down 422 bps YoY, up 155 bps QoQ). JLR’s margins were higher sequentially on account of operating leverage benefit while on a YoY basis it was down on account of poor geography mix & non occurrence of China tax rebate which happened in Q3FY15.

• TML’s domestic business has been negatively impacted by a slowdown in the economy, which led to a sharp decline in MHCV volumes since FY12. However, demand for MHCV recovered in FY15 (17% YoY growth), and witnessed growth of 18% YoY in 9MFY16. We have built in volume growth of 17% in 17E for TML’s MHCV volumes reflecting higher economic growth

• At CMP of INR 388.90, the stock trades at 17.54X of its FY15 EPS (TTM) of INR 22.27.



RELIANCE INDUSTRIES LTD -BUY


Target (Rs) : 1140 Buy zone (Rs) : 1046-1033 Stop loss (Rs) : 985 Beta : 1.07

Technical Outlook:

• The stock has been facing stiff resistance in the zone of 1020-1060 on weekly basis and has not been able to clear this zone for the last two years.

• The stock has formed rounded bottom pattern and is likely to move upwards on crossing the above mentioned resistance zone.

• The immediate target for the stock will be in the range of 1140-1150.


• GRM surged to USD11.5/bbl (our estimate: USD11.2/bbl) at 7 years high compared to USD10.6/bbl in Q2FY16 and USD7.3/bbl in Q3FY15. RIL managed its highest ever refining throughput of 18MMT (17.1MMT in Q2FY16, 17.7MMT in Q3FY15) and utilization of 116% (110% in Q2FY16)

• GRM premium over Singapore benchmark has widened to 6‐ year high of USD5.3/bbl.

• RIL entered in to a long term supply contract for Basrah Heavy improving cover for heavy crude on long‐ term basis. Highest‐ ever quarterly production of ULSD @ 4.2 MMT achieved in line with strategy to maximize ULSD in view of better realization against 500 ppm diesel

• Exports dipped 2% QoQ aiding strong GRMs as RIL took advantage of robust local demand. It currently operates 750 fuel retail outlets which are running at industry leading throughputs of ~200KLPM. The USD2.6/bbl GRM‐ enhancing new petcoke facility will get commissioned in phases by Q2‐ Q3 FY17. Management said that the lower petcoke prices support the viability of the project despite lower spot LNG prices

• At CMP of INR 1044.90, the stock trades at 12.82x of its FY15 EPS(TTM) of INR 82.13



SUN PHARMACEYTUCAKS INDUSTRIES LTD – BUY

Target Data Last Closing Price (Rs):820

Target (Rs) : 890

Buy zone (Rs) : 820-812

Stop loss (Rs) : 775

Beta : 0.32

Technical Outlook:

• The stock took breakout above symmetrical triangle pattern and has been sustaining above it . It is also trading around the lower end of the Bollinger band and likely upmove towards the upper range of the band is possible.

• The breakout target of the symmetrical triangle pattern will be around 890-900 which will be the immediate resistance zone for the stock.


• SUNP’s Q3 revenues at Rs 70.7bn were 4% higher than our estimate but 3% lower than consensus. US business declined by ~US$25mn QoQ (ex Taro) and one off sales of US$40mn in Q2FY16, we believe (lower halol sales + market share loss in Sumatriptan), despite very strong sales from Taro (US$258mn, up $46mnQoQ). Domestic business growth continued to be impacted by cessation of bonus/discount (+8.6% YoY). EM and ROW businesses were flat YoY, impacted by currency devaluation and exit from non-remunerative geos

• Margins expanded 230bps QoQ to 30.6% supported by a strong operating performance at Taro (margins up 820bps QoQ led by price hikes). Ex-Taro, we believe base business margins declined ~150bps QoQ, largely led by higher R&D spends (+110bps QoQ). However, benefits of operating leverage were visible (other operating expenses: -Rs 2.3bn QoQ).

• Earning call update : (a) Set to invite USFDA for a re-inspection at Halol in Q1FY17. (b) Sumatriptan sales suspended temporarily due to Halol facility upgrade (IMS shows zero sales in Oct-Dec’15 quarter). (c) gGleevec market share ramp-up to be gradual, given Novartis’ special pricing schemes and patient resistance. (d) India sales to normalise ahead. (e) Consolidation of GSK’s opiates business lead to higher API sales. (f) SUNP has 156 ANDAs pending approval. (g) SUNP received target action dates for products filed from Halol, (h) Tax rate to increase gradually

• At CMP of INR 811.60, the stock trades at 50.93x of its FY15 EPS(TTM) of INR 16.16.



BHARAT FORGE LTD – BUY

Target Data Last Closing Price (Rs): 873.10

Target (Rs) : 950

Buy zone (Rs) : 874-869

Stop loss (Rs) : 825

Beta : 1.29

Technical Outlook:

• The stock has taken breakout above the downward sloping trendline and is trading with good volumes. Once the stock starts trading above 900 it will try to test the next resistance level.

• The stock is likely to move towards our target of 950 in near term.


• BHFC’s Q1 sales tonnage was lower 4.8% YoY (lower 7% QoQ) at 50,741 MT. This was the first time in nine quarters that the shipment tonnage recorded a YoY decline. Standalone exports declined 14.3% YoY, while domestic sales fell 2% YoY. In the gross sales mix, exports constituted 58.3%, while domestic sales constituted 41.7%

• In the Q3FY16 geographical sales mix, Europe constituted ~19%, US 38.3%, India 40.2% and the Rest of the World 2.5%. The biggest decline was in the North American region, with a decrease of 18.3%. India revenues declined 8.9%, while Europe declined by 5.9% YoY. Other regions fell by 6.3% YoY

• EBITDA margin came at 30.2% (flat YoY and up 140bps QoQ), which was better than expectations. Gross margin, the main driver of the YoY EBITDA margin betterment, improved both YoY and QoQ by 310bps and 230bps, respectively. This helped arrest the decline in EBITDA at 12.4% YoY, to Rs3.17bn. EBITDA per ton fell 8% YoY to Rs62,523 (up 6.1% QoQ).

• In its outlook, BHFC has indicated a positive trend for CVs in India and Europe. The outlook for PVs in India, Europe and North America is positive. On the other hand, the company expects Oil & Gas and mining segments to trend downwards overseas, while the latter is expected to be better in India



DISCLAIMER

Disclosure: We, (Amartya Ray, MBA, Kaushik Hore, B.com (H), author and the name subscribed to this report, hereby

certify that all of the views expressed in this research report reflect our personal views about the subject issuer(s) or securities and no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. As per records or Information, Research Analyst or his/her relative or Research entity does not have any

financial interest in the subject company other than disclosed.

Disclosure of Interest Statement A w er hip f he ck - N

Ser e fficer irec r r e p ee - N

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Rating Definitions BUY : Where the stock is expected to deliver more than 12% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver 12% to 5% returns over the next 12 month period SELL : Where the stock is expected to deliver greater than -5% returns over the next 12 month period

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peerless masterpicks april 2016 · accounts) as ceo & md, b) krishnakumar natarajan (current...

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