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Mix IT Up

Author: Administrator Account/Tuesday, February 23, 2010/Categories: Stocks

Mix IT Up

Spiked By Regulation
Established in 1975 NTPC is India's largest power generation company. A giant among PSUs, NTPC’s installed capacity of 42,454 MW is spread across 33 power stations. The company's capacity has grown by 4,170 MW in FY13. The company has an ambitious target of being able to produce a whopping 1,28,000 MW by 2032. NTPC enjoys healthy operational efficiency and has consistently reported high power load factor (PLF) (a high load factor means power usage is relatively constant. Low load factor shows that occasionally a high demand is set. To service that peak, capacity would be idle for long periods, thereby imposing higher costs on the system.) of 80-85% and above, compared to all-India PLF of below 70%.
NTPC’s annual growth is estimated to be in the vicinity of 6-7% over FY13-FY15, even taking into account its capacity additions. Central Electricity Regulatory Commission’s (CERC) final tariff regulations for 2014-19 period have come in as a big negative surprise. Unlike the 2009-14 regulations, there have been no significant changes from already stringent draft regulations. Based on the proposed operating norms, mainly auxiliary consumption and specific oil consumption have been tightened further from the draft regulations and hence NTPC will find it difficult to get efficiency led gains. O&M norms for FY15 have been kept at below FY14 levels which is believed to be negative in an inflationary environment. Analysts expect NTPC’s core return on equity to decline by 5-6% on back of lower earnings growth.

Current Price: Rs 112 I Target: Rs 106 I Potential Growth: -6%

New Muscle
The IT major is part of the $15 billion Mahindra Group and is a global systems integrator and business transformation consulting organisation, focused primarily on the telecommunications industry. With its global footprint and presence in more than 31 countries, Tech Mahindra is the largest IT solution provider to global telecommunication companies. Tech Mahindra was set up as JV between M&M and British Telecom (BT). Revenues from its top client BT have gradually come down to 30% as growth in other strategic accounts like AT&T has been significantly higher. In 2009, Tech Mahindra acquired a 42% stake in Satyam.
The merger of Mahindra Satyam with Tech Mahindra creates a formidable player making it the fifth-largest player in the Indian IT services sector. The merger enables the company to compete with behemoths of Indian IT and vie for larger deals which could lead to improved traction. Generally, clients are more comfortable with larger organisations with a good delivery track record. The close relationship between Tech Mahindra and Mahindra Satyam since past three years will help better integration of functions and provide synergies to the company going forward. It will enable Tech Mahindra to diversify its portfolio vertically as well as geographically.

Current Price: Rs 1867  I Target: Rs 2400 I  Potential Growth: 28.5%

Improving Asset Quality
With its strong franchise and diversified loan book, PNB’s margins continue to remain well above the industry average. Elevated levels of restructuring and consistently high slippages (despite an improvement this quarter) are key reasons straining the earnings growth and keeping the profit around Rs 11-12 billion for the last eight quarters. PNB has been consolidating its balance sheet by giving precedence to improving asset quality over growth which indicates that the quality of its book is likely to improve going forward.
PNB is northern India-based bank with over 5,800 branches, most of which are in the states of Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and Bihar. More than 50% of its branches are in rural and semi- urban areas. The bank’s balance sheet stands at around Rs 7 trillion and has one of the highest current account savings account (CASA) ratio among nationalised banks. The government’s shareholding, at 58%, leaves little scope for significant dilution. Foreign holding too is nearing maximum permissible limit of 20%.

Current Price: Rs 552  I  Target: Rs 660 I Potential Growth: 20%

Blue Blooded
Housing Development Finance Corporation Ltd is India's premier housing finance company. The firm’s main business is to provide loans for the purchase or construction of residential houses. Its distribution network spans 289 outlets, which includes 71 offices of the wholly owned distribution company, HDFC Sales. In addition, they cover over 2,400 locations through outreach programmes. HDFC’s retail loan growth is accelerating 30%, and broader mortgage growth at a modest 16%. This is unusual for a market leader.  This could

Current Price: Rs 819 I  Target: Rs 1000 I Potential Growth: 22%

Strong Numbers
The bank has once again entered an expansionary mode after making a conscious effort to contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities with the expected listing of its subsidiaries like ICICI Securities and ICICI Prudential Life Insurance. There is reason to be upbeat about the bank given its healthy 1.4% return on assets and improving return on equity. After a period of consolidation over the past two years, focus has shifted to loan growth with corporate and secured retail loans being key drivers. Over FY12 and FY13, domestic business growth will be in-line with industry average while CASA ratio will remain at 40%. Stable and improving margins, control over cost-to-income ratio (management guidance of 42% for FY12 and 41% for FY13) and a fall in credit costs (1% in FY11; 0.7% for FY12) will ensure return on assets of 1.5% over FY12/13.

Current Price: Rs 1044  I  Target: Rs 1300  I  Potential Growth: 25%

Safety In Size
ITC remains a prime defensive stock on account of the company's pricing power and high gross margins in the cigarette business which virtually assure a long-term profit growth in the vicinity of 15%. Its aggressive expansions in other FMCG segments such as ready-to-eat foods and staples will only improve upon its already high profitability. While in the cigarettes business it is virtually a monopoly player with market share in excess of 85%, ITC’s foothold in categories like personal care (Vivel and Fiama Di Wills soaps) and biscuits (Sunfeast) is only growing stronget.  Additionally, its paperboard businesses has achieved self sustenance.

Current Price: Rs 328 I Target: Rs 380  I Potential Growth: 16%

Drying Up Demand
Nestle enjoys a strong position across categories in the foods and beverage space through its diversified portfolio of established brands such as Maggi, Nescafe, Everyday, Kit Kat and Milkmaid.
Nestle India Ltd, reported revenue growth of around 8% at Rs 21241 million, significantly lower than market estimates. Domestic sales was impacted by portfolio optimisation and pricing higher pricing. Exports grew  by 10% to Rs 900 million with rupee depreciation favorably impacting it. This quarter’s result unmistakably points towards slowing demand. Rationalization, channel prioritization, focused innovations and strength of brands remain key positives for Nestle. The company’s brand equity and market position remain positive in the long term, but the present momentum doesn’t looks promising for the scrip.

Current Price: Rs 4867 I  Target: Rs 5000 I  Potential Growth: 3%

Rural Traction
The flagship company of the Emami group, is one of the fastest growing FMCG players in India. The company is a niche player and innovator in the relatively under penetrated therapeutic and ayurvedic categories, with products such as antiseptic creams, fairness creams, talcum powders, cooling oils, balms and pain relievers. Moreover, it has a large over-the-counter (OTC) products portfolio comprising nearly 300 products based on ayurvedic formulations. The company currently has more than 3,000 distributors, a presence in 600,000 retail outlets (direct distribution reach) and a brand reach of 4 million outlets. It plans to scale up its direct distribution reach to 800,000 retail outlets over the next couple of years. Besides the domestic market, the company has a presence in more than 60 countries, including GCC, UK, Sri Lanka, Bangladesh, Nepal, Africa and the CIS. Overseas business contributes a little over 10% of its net sales.
Its market leadership in niche and under-penetrated product categories, and massive expansion plans should help Emami drive its top line in coming months. Despite the revenue concentration among the top four brands, no single brand in its stable accounts for more than 20-22% of revenues and hence provides stability to revenues. This coupled with the regular flow of 2-3 new product launches every year should help keep the company’s brand and product portfolio reinvigorated.
Emami has a very aggressive marketing strategy in place. Its two-fold advertising and promotions strategy of using celebrity endorsements (one at the national level and another at regional level) should help improve their brand communication. This coupled with expansion of distribution network and rural focus should ensure growth momentum of company’s brands.

Current Price: Rs  456 I  Target: Rs 540  I  Potential Growth: 17%

In The Lap of Luxury
Tata Motors is the largest commercial vehicles (CV) manufacturer in India with 56% market share. It also manufactures passenger cars and utility vehicles. In FY09, it acquired Jaguar and Land Rover (JLR) from Ford for $2.5 billion.
JLR registered better-than-expected wholesale volume growth of 15.3% y/y (10.5% m/m) to 39,956 units for November 2013. The performance was driven by the success of new launches and robust growth across the world markets, specifically, China and the US. Jaguar reported a 7.9% y/y growth to 6,753 units driven by the incremental volumes from the F-type and healthy growth in the XF model. Land Rover posted a robust growth of 17% y/y to 33,203 units led by continued momentum in Range Rover Evoque and aided further by the ramp-up of the new Range Rover and the new Range Rover Sport. JLR can sustain its strong performance driven by continued momentum in the global luxury vehicle market, and the success of the recently launched models and strong product launch pipeline.

Current Price: Rs 417 I   Target: Rs 480 I   Potential Growth: 15%

Re-Energised
Wipro is among the leading Indian IT companies. The company is also engaged in IT hardware (11% of sales) and consumer care and lighting (10% of sales) businesses. Wipro's IT arm is India's fourth largest IT firm, employing more than 1,47,000 professionals, offering a wide portfolio of services such as ADM, consulting and package implementation, and servicing more than 950 clients. Wipro continues to emphasis the increased focus on improving revenue growth trajectory that has been evident through recent quarters. Company indicated that apart from the overall pick up in demand environment, it’s efforts at (1) mining top clients, (2) hunting new client  and(3) getting its fair share of business in the IMS business have begun yielding results which has resulted in deal wins and backfilling of the deal pipeline. Amongst verticals, company is seeing decent traction in energy and utilities, healthcare and certain pockets of financial services. Further the local leadership enforcement along with the big IMS re-bid opportunity places Wipro well to get its fair share of wins in continental Europe.

 

Current Price: Rs 597 I  Target: Rs 700  I Potential Growth: 17%

A Victim Of Competition
Siemens India, a 75% subsidiary of Siemens AG, is a strong player in infrastructure, core industry and transport systems. The company derives about 45% of revenues each from power and the core industry sectors. The company also has a strong presence in healthcare diagnostics products. Thecautious view on the stock is largely due to the competitive market scenario coupled with stock valuations running ahead of earnings growth. Additionally, order intake continues to be sluggish with Siemens AG reporting a decline in order intake in India which significantly impairs the growth outlook in the near term. The company would continue to experience increased competition in the power space mainly from domestic players, especially in the transmission and distribution space. The company would also experience margin contraction on account of increase in input prices.

Current Price: Rs 620  I  Target: Rs 540 I  Potential Growth: -13%

Glued To Growth
Pidilite Industries is the largest branded adhesives player in India, with an iconic brand like Fevicol. Apart from a strong presence in adhesives, company has expanded into emerging segments like mechanized joinery, modular furniture, flooring, automotive care and waterproofing through Dr Fixit and Roff. We expect strong consumer driven demand to continue and drive 15% plus volume growth for the company in the near future. Strong brand leadership and pricing power will assist margin expansion in the future. Successful completion of the synthetic elastomer project (estimated cost Rs 5.5 billion; Rs 3.4 billion already spent) can provide earnings upside . Pidilite’s consistent volume growth in the consumer segment (Fevicol) and sharp margin improvements have driven the stock upwards.

Current Price: Rs 286  I  Target: Rs 325   I  Potential Growth: 13.5%

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