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MID-CAP CORNER

AMTEK AUTO

he recovery in the automobile


segment should help the company as the domestic business
makes up 62 per cent of overall revenues and 80 per cent of operating
profit. The domestic business,
which has seen a strong increase in
the profit in recent quarters, will

Sales

see growth on higher auto sales,


localisation efforts of original
equipment makers and vendor
rationalisation.
The trigger, however, remains
deleveraging (getting rid of debt).
The companys debt is ~15,000 crore,
translating into a net debt to equity
ratio of just under two and net debt
to earnings before interest, taxes,
depreciation, and amortisation
(Ebitda) of 4.3.
The company also has to improve
its single-digit return ratios. While
there is an upside to the stock,
investors
should
track
the pace of the debt reduction and
turnround in international operations, to provide further boost to the
financials.

FIRSTSOURCE SOLUTIONS

irstsource Solutions is among


Indias top-three business
process management services
companies.
The company has turned round
after its acquisition by RP-Sanjiv
Goenka Group-led CESC in 2012.

The new management not only


paid off the $237-million foreign
currency convertible bond (FCCB)
obligations, but also restructured
the business to do away with nonprofitable clients and focus on
higher mining of existing profitable ones.
This has improved the deal
pipeline and led to higher Ebitda
margin.
Analysts expect the Ebitda margin to improve by 230-250 basis
points to 14.1 per cent over FY14-16
as the company focuses on cost
optimisation and gains. The delay
in spending related to Obamacare
(health-care measure) in the US
and high employee attrition are

INDIABULLS POWER

nalysts see strong earnings


growth for Indiabulls Power
over FY15-17, likely to be driven by
complete commissioning of all its
power generation units at
Amravati and Nashik. The recent

Supreme Court order on coal-block


allocations does not impact the
company, which does not have any
mines. It has domestic coal linkages from Coal India for its entire
planned capacity of 5,400
megawatts. The Maharashtra
Electricity
Regulatory
Commissions compensatory rate
to power plants facing shortage of
supplies from Coal India will apply
to both its plants.
The promoters plan to infuse
~350 crore in the company should
strengthen the balance sheet.
Reasonable rates and access to
cheaper domestic fuel will generate return on equity in the range of
13-15 per cent, feel analysts at

The profitability, too, is expected to improve 150-200 basis points


over two years led by better working capital cycle, growth in prefabricated business and niche product
offerings
in
the
custom-moulding business. Better
cash flows and low capital expenditure intensity will lead to higher
surplus cash flows and earnings as
the conversion of FCCBs takes care
of debt.
But some dilution is expected
which may limit upsides. While
Bloomberg consensus estimates
show a CAGR of 21 per cent in
profits over FY14-17, analysts at
IDFC Securities see a stronger
growth of 32 per cent during

pany, which has large-format


stores, plans to open 25 to 30 by
FY17 and expand its presence
nationally from the current
strength of 27. FY14 has been tough
for the company, with demand
moderating and stringent regulations on the sourcing of gold, its
key input.
However, with the partial easing of sourcing norms (such as the
removal of the ban on gold on
lease) and likely improvement in
the consumption demand, TBZs
performance in FY15 is expected to
improve. Further reduction of
import duty on gold will be a key
trigger. While rising competition is
a key risk, TBZs record should

E: Estimates; For Strides Arcolab, figures are adjusted for one-offs and FY14s are for 15 months

Earnings per share (~, RHS)


60

17,500

50

14,000

40

10,500

30

7,000

20

3,500

10

FY14

FY15E

FY16E

FY17E

(Base=100)

450

Amtek Auto

en Networks is a multi-system
operator (MSO) in India, with
13 million subscribers. Of these,
eight million will be digitised in
Phase-III and -IV, pushing its subscription revenues threefold to
~1,200 crore by FY16/FY17, estimate
analysts. Den also has a strong bal-

370
290
210
130

S&P BSE Sensex

100
Sep 2, '13

Sales

DEN NETWORKS

50
Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

4,400

3,300

2,200

1,100

0
FY14

FY15E

FY16E

FY17E

(Base=100)

350

Firstsource Solutions

290

ith lower revenue growth and


higher interest costs on
account of high debt, HCCs profit
growth has been hit in recent years.
Analysts, however, expect its debtcutting efforts to pay off. They
expect its business to pick up on the

230
170
110

100

S&P BSE Sensex

50

Sep 2, '13

Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

7,500

3.5

6,500

2.8

3,000

2.1

1,500

1.4

0.7

-1,500

FY15E

FY16E

FY17E

(Base=100)

300
250

Indiabulls Power

otilal
Oswal
Financial
Services (MOFS) stands to be
a key beneficiary of a revival in
Indian capital markets. Weak markets, declining cash volumes and
the National Spot Exchange
Limited (NSEL) scam had pres-

200
150
100

S&P BSE Sensex


50

Sep 2, '13

Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

10,200

24

8,500

20

6,800

16

5,100

12

3,400

1,700

0
FY15E

FY16E

FY17E

(Base=100)

600
480

Sintex Industries
360
240
120

100

S&P BSE Sensex

Sep 2, '13

Sales

0
Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

3,000

18

2,500

15

2,000

12

1,500

1,000

500

0
FY14

FY15E

FY16E

155

TBZ

140
125

S&P BSE Sensex

110
95

100
80
Oct 1, '14

back of an economic recovery.


HCCs efforts over 18 months to
speed the liquidation of receivables
is already paying dividends. It also
plans to divest non-core assets.
Analysts expect HCC to repay about
60 per cent of its restructured debt
by end-FY17. Importantly, its order
intake continues to grow, something not many construction and
engineering companies have managed. While the core business is
steady, order inflows are also likely
to improve at a compound annual
growth rate (CAGR) of 17 per cent
over FY15-17. Analysts at Elara
Capital estimate a six-fold leap in
the core profitability to ~240 crore
and return ratios crossing 15 per

sured the scrip since January 2012.


While the scam outcome is awaited, an adverse ruling could hurt
MOFS. Meanwhile, the company
has forayed into housing finance.
This should boost growth rates and
profitability in the long run. Asset
management and private equity
businesses also enjoy higher
returns on equity (RoE), and
improving sentiments in the capital markets should lead to stronger
growth. Also, RoE of the financing
and investment banking businesses (closely linked to the broking
business) should improve as the
broking growth gathers momentum. MOFS has a strong balance
sheet, with cash of ~200 crore and
zero debt.

a focus on the branded and tender


businesses for Africa, and the acquisition of Bafna Pharma in India should
aid growth in these markets. While
Strides has a robust US pipeline, the
near-term trigger will be the nowshortened $150-million payout expected from Mylan. Of this, Strides
will invest $20 million in biotechnology and the rest will be given to shareholders. The stock, which fell on the
Mylan payment haircut, has recouped
losses, given the new payout plan,
robust earnings growth (21-29 per cent
over FY15-17), strong balance sheet and
attractive valuations. Analysts say the
merger with Shasun will help it
expand its portfolio, vertically integrate operations and enter contract,

he companys bottling problems


in Tamil Nadu are getting
resolved and the volume growth is
likely to resume in a couple of quarters. The logistics-related issues in
Andhra Pradesh and Telangana are

Compiled by BS Research Bureau

getting over. Tilaknagar Industries


has changed its policy to focus on
profitability and not volumes. Its
focus on premium brands such as
White House rum will boost profitability. It is also developing new
brands. It has five millionaire brands
and analysts estimate its Courrier
Napoleon brandy to also become a
millionaire brand in FY15. Better volume growth in FY16 and improved
profitability have the potential to
drive earnings.
Analysts at Phillip Capital feel
that with the focus on organic
growth, premiumisation and
canteen stores department segment, and price rises in various
states, there is potential for share-

Earnings per share (~, RHS)


8

1,500

1,000

500

2
NA

0
FY14

FY15E

FY16E

FY17E

(Base=100)

145
130

S&P BSE Sensex


115
100

Den Networks

85

100
70

Sep 2, '13

Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

6,000

4,500

3,000

1,500

-2
-4

0
-1,500

-6
FY14

FY15E

FY16E

FY17E

(Base=100)

500

HCC

410
320
230
140

S&P BSE Sensex

100
Sep 2, '13

Sales

50
Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

1,500

25

1,200

20

900

15

600

10
5

300
0

0
FY14

FY15E

FY16E

FY17E

(Base=100)

350

Motilal Oswal Financial Services

290
230
170
110

100

S&P BSE Sensex

50

Sep 2, '13

Sales

TILAKNAGAR INDUSTRIES

FY17E

(Base=100)

Sep 2, '13

rowth prospects hang on the traction recent generic launches in


the US (sales potential of $800 million
a year) will get, and market share gains
from Strides Arcolabs existing basket.
Setting up a manufacturing base and

Net profit (~cr, LHS)

2,000

Sales

STRIDES ARCOLAB

0
FY14

ance sheet, with net cash of ~110


crore. This is crucial and will
enable Den to invest in digitisation, broadband and the Indian
Soccer League. Den is the first
national MSO to turn profitable
and its new ventures will further
improve its profitability.
High competition from direct-tohome and MSO companies is a key
risk and can lead to subscriber churn
and limited average revenue per user
growth, but Dens record and strong
management inspires confidence.
The scrip trades at 6.5 times FY16
estimated enterprise value/Ebitda,
at a 46 per cent discount to Hathway.
Analysts expect this valuation gap
to narrow as Den realises benefits of
digitisation.

MOTILAL OSWAL FINANCIAL SERVICES

-07
FY14

Sales

HCC

Sales

TRIBHOVANDAS BHIMJI ZAVERI

ribhovandas Bhimji Zaveri


(TBZ) is a jewellery retailer.
Strong brand equity, established
presence in the west and south and
in-house design and manufacturing are its key strengths. The com-

Net profit (~cr, LHS)

21,000

Sales

SINTEX INDUSTRIES

he turnround in the economy


is likely to boost Sintex
Industries moulded products segment (64 per cent of total revenues)
and other businesses. The new
spinning project in Gujarat is
expected to drive growth from the
June 2015 quarter.

>

Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

1,750

40

1,400

32

1,050

24

700

16

350

0
FY12

FY 14*

FY15

FY16

(Base=100)

170

S&P BSE Sensex


140
110

100

80
50

Strides Arcolab
20

Sep 2, '13

Sales

Oct 1, '14

Net profit (~cr, LHS)

Earnings per share (~, RHS)

1,200

900

600

300

0
FY14

FY15E

FY16E

FY17E

(Base=100)

160

S&P BSE Sensex


140
120
100
80

Tilaknagar Industries
Sep 2, '13

60
Oct 1, '14

Source: Capitaline, Bloomberg, Religare Institutional Research

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