October 21st, 20144 HDFC H Bank In nvestment Advisory Group Equity y Strategy No ote Since the time Modi government has come e to power, w we have seen n the Indian equity marke ets rallying g sharply on hopes of imp proved goverrnance and sstronger policcy actions. Ho owever, off la ate one thing has beco ome very clea ar that this go overnment be lieves in takin ng small but structural ste eps to improve the long term outlook k of the econo omy. Projects like “Swachh h Bharat”, Ma ake in India, and Housin ng for all are really ambitio ous but are all about the lo ong term visio on of the govvernment. In tthe near te erm the gove ernment is foc cusing its ene ergy on impro oving the leve el of governm mental efficien ncy and fast tracking ex xisting projectts which would lead to eco onomic mome entum picking g up in the ne ear to med dium term. From a macro pers spective, a lo ot of positive e events have e happened for Indian ecconomy. Firsttly, interna ational Brent crude price (tthe single largest import ittem for India)) has dropped d from $110/b bbl to $84/bbl. The net oil imports of $95 bn acco ounted for 21 % of India's ttotal import b bill and ~64% of the tra ade deficit in FY14. F This ha as the potentia al to substanttially reduce tthe CAD and fiscal deficit ffor India. The T total estimated subsid dy bill for India in 2014-15 (as per the b budget) was R Rs 2.6 trillion or 2.03% of gross domestic produ uct (GDP), with net oil sub bsidies amou unting to Rs 6 635 bn. As p per estima Rs ates, decline of o $10 in oil prices p would positively p imp pact the annu ual subsidy bill (gross) by R 350 bn n and ~Rs 56 60 bn of impo ort bill. This would w have a meaningful positive impa act on the fisccal deficit situation of In ndia and the Current C accou unt deficit. CA AD(% to GDP) 7.0% 1200 1155 1100 1055 1000 955 900 855 800 755 700 6.0% 5.0% 4.0% 3.0% 2.0% Q1FY15 Q4FY14 Q3FY14 Q2FY14 Q1FY14 Q4FY13 Q3FY13 Q2FY13 Q1FY13 Q4FY12 Q3FY12 Q2FY12 0.0% Q1FY12 Oct 14 Oct‐14 Sep‐14 Aug‐14 Jul‐14 Aug‐14 Jun‐14 May‐14 May‐14 Apr‐14 M 14 Mar‐14 Mar‐14 Jan‐14 Feb‐14 1.0% Jan‐14 ($/bbL) B Brent Crude Source: Bloomberg B Secondly, Inflation across the board b has started to fall in India as m measured by CPI and WP PI. mber 2014 CP PI data at 6.46% 6 YoY w was the lowe est since the e measure w was Infact, the Septem 2 too cam me in at a five e year low of 2.38%. Clearrly, compilled. Also the WPI data forr September 2014 this wo ould have a positive bearring on the ability a of the R RBI to move down the po olicy rates pa ath when it so chooses s (as the RBI comfort zone for Inflation n stands at 6% CPI by Ja an 2016). Oncce, the RB BI moves on to the easy y money polic cy, the posittive impact could percolatte fast into tthe economy in terms of capex ann nouncements and lower b orrowing cossts for corpora ate. This wou uld lead im mproved earnings and fresh economic activity a genera ation and wou uld lead to a vvirtuous cycle e. Source: Bloomberg B October 21st, 20144 Thirdly y, The Indian currency has s remained re elatively resili ent in face off sharply app preciating Dollar Index. (DXY Chart and major cu urrencies rebased) This w was on the ba ack of very sttrong CAD da ata eady inflow of funds by the e foreigners in n the Indian m markets both Debt and Equ uity. and ste 130.0 Majoor Currencies vs USD 125.0 Russsia (Index to 100) 120.0 115.0 110.0 Euroo Dollar Inddex Brazzil 105.0 100.0 Indiaa 95.0 India Brazil Russia Euro Oct‐14 Sep‐14 Sep‐14 Aug‐14 Aug‐14 Jul‐14 Jul‐14 Jul‐14 Jun 14 Jun‐14 Jun‐14 May‐14 May 14 May‐14 Apr‐14 Apr‐14 Mar‐14 Mar‐14 Feb‐14 Feb‐14 Jan‐14 Jan‐14 Jan‐14 90.0 Dollar Indexx Source: Bloomberg B Hence e if we look at both the e Macro fund damentals an nd the strucctural actionss taken by tthe govern nment, they all a seem to be e pointing to a very positiive long term m growth prosspects for Ind dia. Infact, recently whe en the IMF cut c down its global g growth h forecast, it maintained its forecasts ffor India. This shows the confidence of the larrge multilaterral agencies on the impro oving econom mic fundam mentals of the e country.How wever a big risk to the ab bove growth dynamics to Indian marke ets does remain from any a sharp glob bal “risk-off” event. e We be elieve that Ind dian Equities continued to remain unde er owned by tthe Indian invvestors at larg ge. It’s the e FII’s who have h actually raised their stakes in the e Indian equities over the e past 5 years. Howev ver the FII inv vestment is still s a small percentage p off their overall global equitty exposure. Of course e, over last couple of quarters we have seen ssome investm ments emanating from tthe retail/d domestic inve estor’s side both b in term of inflows to o Mutual Fun nds and direcct ownership of stocks. We think that the equity markets are in for a susta ained period o of positivity as the econom mic growth h cycle in India turns upwards. Trend in sharehold ding pattern of CNX 200 companies Source: Capitaline, C CNX 20 00 companies In ourr view, the In ndian equity markets con ntinue to pro ovide investm ment opporttunities across spectrrum and we think that investors i co ould use the ese opportun nities to build their equity portfo olios. We thiink that marrkets could continue to o be volatile e in the nea ar term as w we October 21st, 2014 approach the end of QE in the US and as the US looks to hike its interest rates apart from the other geopolitical issues. However, we feel that such volatility could be used by the investors to buy into equities with a horizon of 2-3 years. Hence we recommend our investment strategy of 50% lumpsum and rest staggered over next 3-4 months. In this context, we think that among the Stocks/Mutual funds which are likely to do well, could be the following: Recommendations: Companies Bank of India Ltd Bajaj Auto Ltd Bharat Heavy Electricals Ltd Cyient Ltd Entertainment Network (India) Ltd Grasim Industries Ltd Gujarat State Fertilizers & Chemicals Ltd Infosys Ltd Mahindra & Mahindra Ltd Oil and Natural Gas Corporation Ltd Sintex Industries Ltd CMP (Rs) As on FY14 261 2,411 228 462 458 3,317 111 3,812 1,260 419 84 5.6 21.5 15.9 19.2 26.2 34.0 12.9 20.5 20.9 13.5 7.1 Valuations (P/E) FY15E FY16E 6.5 19.1 15.2 14.3 20.3 45.7 8.5 18.2 19.1 10.8 6.3 5.4 15.9 9.9 12.1 17.0 39.7 7.1 15.5 16.8 9.5 5.6 We are also feeling that the below mentioned Equity mutual funds could also be looked upon by the investors in line with their risk profile from a 2-3 year horizon: • • • Large Cap Oriented Funds o ICICI Prudential Top 100 Fund o Birla Sun Life Frontline Equity Fund o HDFC Equity Fund Flexi Cap Oriented Funds o Franklin India High Growth Companies Fund o Reliance Equity Opportunities Fund Mid Cap Oriented Funds o SBI Magnum Midcap Fund o UTI Mid Cap Fund October 21st, 2014 Bajaj Auto Ltd CMP: Rs.2411 Background Bajaj Auto Limited is a manufacturer of scooters, motorcycles and three-wheeler vehicles and spare parts thereof. The Company operates in two segments: Automotive and Investments. The Company’s brands include Pulsar, Avenger, Discover, Platina and Ninja. Its commercial vehicles range include goods carriers, such as GC Max Diesel, GC Max CNG, RE600, and passenger carriers, such as RE 2S, RE 2S CNG, RE 2S LPG, RE 4S, RE 4S CNG, RE 4SLPG, RE Diesel, RE GDI and Mega Max. The Company’s subsidiaries include Bajaj Auto International Holdings BV and PT. Bajaj Auto Indonesia. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) 2454/1796 378.02 10.0 21.5 2.07 Shareholding Pattern (%) on 30thSeptember 2014 Promoter 50.02 FII 17.69 DII 7.95 Others 24.34 Total 100.00 Valuations and Chart 150 PE FY14 FY15E FY16E 21.5 19.1 15.9 Sensex 140 (Index to 100) 130 Bajaj 120 110 100 90 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 80 Source: Capitaline View: Bajaj Auto’s domestic two wheeler business continued to be weak whereas exports supported the growth in revenue for Q2FY15. Going forward, gain in domestic market share led by newly launched Discover150cc and new upcoming launches along with strong growth expected from export markets will be the key growth drivers for the company. Overall for FY15, we expect volumes to improve with the uptick seen in domestic market in last two month of the quarter but expect margins to remain muted in FY15 due to increase in spending towards building strong brand. Key monitarable for the stock would be the rate of improvement in market share in domestic 2W segment with the launch of new Discover brand. We maintain our positive stance on Bajaj Auto considering its focus on exports, strong R&D capabilities, huge cash and cash equivalent of Rs.83.13 bn and strong return ratios with ROE of 32.1% and ROCE of 45.5% in FY14. At CMP stock is trading at PE multiple of 19.1x of FY15E and 15.9x of FY16E. We maintain our BUY recommendation on the stock with the target price of Rs 2734 (18x FY16E EPS of Rs 152). October 21st, 2014 Bharat Heavy Electricals Ltd CMP: Rs.228 Background Bharat Heavy Electricals Limited (BHEL) is an engineering and manufacturing company. The Company is engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a range of products and services for the core sectors of the economy, including power, transmission, industry, transportation, renewable energy, oil and gas and defense. Its segment includes Power and Industry. It is a manufacturer of Power generation equipment, supplying a wide range of products and systems for thermal, nuclear, gas and hydro-based utility and captive power plants. It is also a manufacturer of a range of industrial systems and products. Products and systems supplied by the Company include captive power plants, centrifugal compressors, drive turbines, industrial boilers and auxiliaries, waste heat recovery boilers, gas turbines, pumps, heat exchangers, electrical machines, valves, heavy castings and forgings, electrostatic precipitators and seamless steel tubes. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) 291/131 135.81 2.0 16.5 1.27 Shareholding Pattern (%) on 30thSeptember 2014 Promoter 63.06 FII 15.71 DII 16.91 Others 4.32 Total 100.00 Valuations and Chart 170 PE FY15E FY16E 15.9 15.2 9.9 (Index to 100) FY14 Sensex 150 130 110 BHEL 90 70 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: The Company’s recent quarter’s results were weak largely on the back of weak macro environment. However we think that with the new government focusing on removing the impediments in the power sector (infra in general) the future could start to look up for the sector. The company too has stated that its seeing traction at the ground levels and also in some of its slow moving orders. With new orders to the tune of 15-17 GW expected to be finalized in FY15 we think that BHEL, with very strong balance sheet (~Rs.110 bn cash) and market leadership (~72% market share), is well positioned to take the benefits of the cyclical upturn. Apart from this, the company’s constant endeavor to come up with innovative products, lower costs and diversify its business to solar, railways and T&D space is likely to benefit over the medium to longer term. However, given the weak quarterly results and expectations of weak FY15, we have lowered our PE multiple for BHEL and continue to recommend BUY on the stock with a price target of Rs 275 at 12x FY16E EPS of Rs 22.9. Key monitorable for our earnings expectations would be improving order flows and faster execution. October 21st, 2014 CyientLtd. CMP: Rs.462 Background Cyient Limited, formerly Infotech Enterprises Limited, provides engineering solutions, including product development and life-cycle support, process, network and content engineering to the organizations worldwide. The Company offers a range of publication solutions, including simple authoring and information architecture development, transforming unstructured documents to structured documents, such as Technical documentation and online technical query support, two dimensional (2D) and third dimensional (3D) illustration with color codes, Usage and customization of content management system, authoring and illustration tools, Industry-certified technical publication, and Data management. The Company’s Data Transformation and Analytics business unit specifically targets three industries: Transport and Navigation, Energy and Natural Resources, and Content and Geospatial Providers. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 512/218 134.7 5.0 17.4 1.08 Promoter FII DII Others Total 22.27 37.05 12.13 28.55 100.00 Valuations and Chart 300 PE FY15E FY16E 19.2 14.3 12.1 250 (index to 100) FY14 Cyient 200 Sensex 150 100 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: The Company has been able to deliver strongly on the elevated expectations on the revenue front. We think that the business growth across segments would continue to remain steady in the medium term due to improved pipelines and higher client additions. Also, the focus of the company to add incremental domain expertise in the DNO segment would help the segment to see better revenues and utilizations. The company has a very strong balance sheet with cash balance of Rs 7.18 bn at the end of the quarter, which would help it to do more buyouts to improve either domain knowledge or to get access to more clients. Thus, we think that the management would be able to deliver on its vision of strong earnings growth in the medium term. We continue to be positive on the stock and maintain a BUY on the stock with a price target of Rs 515 at 12x FY16E EPS of Rs 38.3 (adding Rs 55 of cash per share). October 21st, 2014 Entertainment Network (India) Ltd. CMP: Rs.458 Background Entertainment Network (India) Limited is engaged in the radio broadcasting business. The Company operates in two segments: Radio Broadcasting, which consists of the activities relating to airtime sales and Events, which consist of activities relating to management of events, creating and marketing media properties. The Company operates its radio broadcasting business under the brand Radio Mirchi with a network of approximately 22 states with 32 stations. The Company is a subsidiary of Times Infotainment Media Limited. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30th September 2014 467/290 126.81 10.0 24.9 0.22 Promoter 71.15 FII 16.02 DII 2.33 Others 10.50 Total 100.00 Valuations and Chart 210 PE FY15E FY16E 26.2 20.3 17.0 170 (Index to 100) FY14 ENIL 190 150 130 Sensex 110 90 70 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: The Company continued to retain its leadership across 22 of the 32 markets that it operates and continues to remain the most profitable radio player in the country. The focus of the management is to gradually add more non radio revenues which would help the company scale its business in the long term. In the medium term a huge opportunity is likely to open with the phase 3 expansion of the FM radio network in the country for which the company has already started to prepare in term so HR and branding initiatives. We think that the strong balance sheet, healthy return ratios, large market opportunity and the strong management team would help the company to grow steadily over the medium to long term. We maintain a BUY on the stock with price target of Rs 540 at 20x FY16E EPS of Rs 27. October 21st, 2014 Grasim Industries Ltd. CMP: Rs.3317 Background Grasim Industries Limited is a company of Aditya Birla Group. The Company is engaged primarily in two businesses: Viscose Staple Fibre (VSF) and in cement. It also produces caustic soda and allied chemicals and rayon grade pulp, which are used in the manufacture of VSF. The manufacturing plants of the Company are located in India, Middle East, Sri Lanka, Canada, Bangladesh and China. It operates in three segments: fibre and pulp, chemicals and others. Fibre and Pulp segment includes viscose staple fibre and rayon grade pulp. Chemicals segment includes caustic soda and allied chemicals. Others include mainly textiles. Cement segment includes grey cement, ready-mix concrete and white cement. Textile segment includes yarn. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 3755/2432 2348 10.0 15.6 0.63 Promoter 25.51 FII 22.77 DII 16.45 Others 35.27 Total 100.00 Valuations and Chart 150 PE Sensex 140 FY15E FY16E 34.0 45.7 39.7 130 (Index to 100) FY14 120 Grasim 110 100 90 80 70 60 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: The recent quarterly numbers were not encouraging on the margin front. The pressure on margin was also aggravated by maintenance shutdown in International JV. Management believes the near term outlook for the VSF continues to be challenging due to surplus capacity in China and weak outlook on the cotton prices. However, management believes that VSF continues to hold favorable position in comparison to other fibers due to preference for comfort fabric which will lead to increase in demand for high quality cellulosic fibre. Also, the value accruing from Consolidated UltraTech’s Cement business augurs well for Grasim. Hence we maintain our BUY recommendation on the stock with revised SOTP price target of Rs.3892 which is summation of 7xFY16E for VSF business and 63% company’s stake in UltraTech Cement valued at Rs.2512/share (after providing for 30% holding company discount). October 21st, 2014 Gujarat State Fertilizers & Chemicals Ltd CMP: Rs.111 Background Gujarat State Fertilizers & Chemicals Limited is an India-based company which operates in two segments: Fertilizer Products and Industrial Products. Its fertilizer products include urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate, nitrogen phosphorus and potassium (NPK) and traded fertilizer products. Its Industrial Products include caprolactam, nylon-6, nylon filament yarn, nylon chips, melamine, polymer products and traded industrial products. It is having a soil and water testing laboratory and providing soil testing (for macro and micro nutrient) and irrigation water testing services. One Mobile Soil Testing cum Audiovisual Van is also operated to provide soil and water testing services at the doorstep of the farmers. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 124/44 107.87 2.0 9.5 1.80 Promoter 37.84 FII 19.10 DII 15.83 Others 27.23 Total 100.00 Valuations and Chart 230 PE GSFC 210 FY15E FY16E 12.9 8.5 7.1 190 (Index to 100) FY14 170 150 Sensex 130 110 90 70 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: The management indicated that DAP (Diammonium phosphate) consumption in the domestic market is up by ~11%YoY while complex fertilizer consumption is up 25%YoY. With increase in international DAP prices, the management expects imports to be limited which could lead to tightening in supply in H2FY15 which would benefit domestic manufacturers. The management indicated that any recovery in the Chinese economy is likely to result in improvement in the Caprolactam prices. The management substantially repaid its short-term borrowings which will lead to lower interest cost and improved profitability. With improved outlook on the Fertilizer segment and commissioning of Nylon and Water Soluble in H2FY15, we have revised earnings and multiple upwards for FY15E and FY16E. At CMP, the stock trades at 8.5xFY15E EPS of Rs.13 and 7.1xFY16E EPS of Rs.15.6. We recommend BUY on the stock with a target price of Rs.156 which is 10xFY16E. October 21st, 2014 Infosys Limited CMP: Rs.3812 Background Infosys Limited (Infosys) provides business consulting, technology, engineering and outsourcing services. Its end-to-end business solutions include consulting and systems integration comprising consulting, enterprise solutions, systems integration and advanced technologies; business information technology (IT) services consisting application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; products, business platforms and solutions, including Finacle. In November 2013, the Company announced that Infosys BPO, the business process outsourcing subsidiary announced the opening of a new delivery center in Eindhoven, the Netherlands. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30th September 2014 3986/2894 839 5.0 19.2 1.65 Promoter 15.92 FII 42.67 DII 14.48 Others 26.93 Total 100.00 Valuations and Chart 150 PE Sensex 140 FY15E FY16E 20.5 18.2 15.5 130 (Index to 100) FY14 120 Infosys 110 100 90 80 70 60 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: We think that Infosys would continue to ride on the improved macro-economic scenario in the US and the need for improved efficiencies for European companies. The ability of the company to ramp up its utilization and drive down costs would keep the margins strong in the longer term. Also the new management has its sight set on more nonlinear business model which could sustainably drive revenues and earnings in the longer term. We believe that IT businesses would continue to deliver strong earnings growth as they adapt to the changing paradigm in the industry and keeps innovating new business delivery models and processes. We think that the new management has its sight set on those goals firmly. We continue to recommend a BUY on the stock with a price target of Rs 4432 at 16x FY16E EPS of Rs 245 added with Rs 507 of cash per share. October 21st, 2014 Mahindra & Mahindra Ltd CMP: Rs.1260 Background Mahindra & Mahindra Limited is an India-based company. The Company operates in nine segments. Automotive Segment consists of sales of automobiles, spare parts and related services. Farm Equipment Segment consists of sales of tractors, spare parts and related services. Information Technology (IT) Services consists of services rendered for IT and Telecom. Financial Services consists of services relating to financing, leasing and hire purchase of automobiles and tractors. Steel Trading and Processing consists of trading and processing of steel. Infrastructure consists of operating of commercial complexes, project management and development. Hospitality consists of sale of Vacation ownership. Systech consists of automotive components and other related products and services. Others consist of Logistics, After-market, Two wheelers and Investments. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 1421/847 287 5.0 21.4 1.10 Promoter 25.78 FII 40.21 DII 16.40 Others 17.61 Total 100.00 Valuations and Chart 190 PE FY14 FY15E M&M 170 FY16E 20.9 19.1 16.8 (Index to 100) 150 Sensex 130 110 90 70 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: Due to deficient monsoon management has reduced its growth expectation for tractor industry to 5% in FY15 from earlier 8% growth. However, management expects good exit of monsoon (positive for rabi crop) which may boost tractor sales in H2FY15. We expect M&M’s Utility Vehicle (UV) volumes to remain subdued in near term due to continued weakness in UV segment. However, UV volumes are expected to improve from H2FY15 on the back of improvement in the economy and new launches in Q3FY15. The benefit of synergies from MTBL merger has started reflecting in numbers and is expected to improve further once the volumes starts picking up. We remain positive on the stock on the good return ratios of over 20% and expected new launches on both product and engine side in Q3FY15. On the back of improvement in margins during the quarter, we have revised our expected EBITDA margin to 13.5% and 13.7% (13% and 13.5% earlier) for FY15 and FY16, respectively and recommend a BUY on the stock with revised target price of Rs.1472 (15x FY16E EPS of Rs.75.0 + Rs.347 as value of subsidiaries at 30% holding company discount). October 21st, 2014 ONGC Ltd CMP: Rs.419 Background Oil and Natural Gas Corporation Limited (ONGC) is an India-based company. The Company is mainly engaged in the oil exploration and production activities. The Company operates in two segments: Offshore and Onshore. Its subsidiaries include ONGC Videsh Limited (OVL), Mangalore Refinery & Petrochemicals Ltd., ONGC Nile Ganga BV, ONGC Narmada Limited, ONGC Amazon Alaknanda Limited, ONGC Campos Ltda, ONGC Nile Ganga (Cyprus) Ltd. and ONGC Nile Ganga (San Cristobal) B.V. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 472/263 165.40 5.0 14.36 2.27 Promoter 68.94 FII 7.17 DII 10.38 Others 13.51 Total 100.00 Valuations and Chart 170 PE FY15E FY16E 13.5 10.8 9.5 (Index to 100) FY14 Sensex 150 130 ONGC 110 90 70 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 50 Source: Capitaline View: We believe that ONGC could have material positive triggers in the medium term, with the increase in net crude realization, gas price hike, better execution and faster decision making, leading to early monetization of resources and prospects of higher oil & gas production over next three years. Also the ongoing diesel price hikes would lower overall under-recoveries with ONGC share declining significantly over the next two years. The Supreme Court decision on royalty applicability for Gujarat onshore crude remains a key monitorable. The stock is trading at 10.8x FY15E and 9.5x FY16E earnings. We recommend BUY on the stock with price target of Rs.480 which is 11xFY16E. October 21st, 2014 Sintex Industries Ltd CMP: Rs.84 Background Sintex Industries Limited (SIL) is an India-based company which manufactures plastics and composites. The Company operates in three business segments: Plastics, Textile and Infrastructure. The Company’s textile segment is engaged in the manufacture of fabric and yarn. The Company’s Plastics segment is engaged in the manufacture of water tanks, doors, windows, prefabricated structures, sections, BT shelters and custom moulding. The Company’s infrastructure segment is engaged in housing and engineering, procurement and construction (EPC) contract. The Company’s subsidiaries include Sintex Holdings B.V., Bright Auto Plast Limited, Sintex Infra Projects Limited, Sintex Wausaukee Composites Inc. and Sintex Industries UK Ltd. Key Details 52 week H/L(Rs) Book Value (Rs) YTD FV (Rs) PE (TTM) Dividend Yield (%) Shareholding Pattern (%) on 30thSeptember 2014 107/27 106.71 1.0 7.05 0.73 Promoter 40.56 FII 17.63 DII 4.26 Others 37.55 Total 100.00 Valuations and Chart 230 PE Sintex 210 FY15E FY16E 7.1 6.3 5.6 190 (Index to 100) FY14 170 150 130 Sensex 110 90 70 50 Oct‐14 Sep‐14 Jul‐14 Aug‐14 Jun‐14 Apr‐14 May‐14 Jan‐14 Feb‐14 Mar‐14 Dec‐13 Oct‐13 Nov‐13 Sep‐13 Jul‐13 Aug‐13 Jun‐13 Apr‐13 May‐13 30 Source: Capitaline View: We think that the company has been able to deliver strongly on its earnings for the past 2-3 quarters and has allayed some of our fears on the topline stagnation. The company is the largest player in the prefabricated structures in the country and would benefit immensely from the government plans like “Swachh Bharat”, “Clean Ganga” and “Toilets for all.” The improvement in the automobile sector in the country would also have great impact on the company’s domestic custom molding business as the company is a supplier to all the major passenger car manufacturers in the country. Therefore, we think that the opportunity size is large and the company seems fully geared for taking benefit of the same. The revenues and cash flow from the textile business remains a key monitorable in the medium term. However we maintain our BUY on the stock with a revised price target of Rs 135 (9x FY16E fully diluted EPS of Rs 15), as we roll over our earnings to FY16. October 21st, 2014 Disclaimer: This communication is being sent by the Investment Advisory Group of HDFC Bank Ltd., registered under SEBI (Investment Advisors) Regulations, 2013 This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of HDFC Bank Ltd, Investment Advisory Group. In preparing this note, we have relied upon and assumed, without any independent verification, accuracy and completeness of all information available in public domain or from sources considered reliable. This note contains certain assumptions and views, which HDFC Bank Ltd, Investment Advisory Group considers reasonable at this point in time, and which are subject to change. Computations adopted in this note are indicative and are based on current market prices and general market sentiment. No representation or warranty is given by HDFC Bank Ltd, Investment Advisory Group as to the achievement or reasonableness or completeness of any idea and/or assumptions. This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the contents herein as advice relating to business, financial, legal, taxation, or other matters and they are advised to consult their own business, financial, legal, taxation and other experts / advisors concerning the company regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this note and should understand that statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised to undertake necessary due diligence before making an investment decision. For making an investment decision, investors must rely on their own examination of the Company including the risks involved. Investors should note that income from investment in such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This note does not constitute an offer for sale, or an invitation to subscribe for, or purchase equity shares or other assets or securities of the company and the information contained herein shall not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein. HDFC Bank may at any time solicit or provide commercial banking, credit, advisory or other services to the issuer of any security referred to herein. Accordingly, information may be available to HDFC Bank, which is not reflected in this material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its publication.
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