Buy stocks of Yes Bank; target of Rs 407

“Yes Bank is the one of the youngest new generation private sector banks with an assets size of more than ~Rs 70 bn. At present, the bank caters to its client base with a branch network of 356 and more than 600 ATM across the country. The bank has a very ambitious plan with a strategic roadmap to achieve the balance sheet size of Rs 1,500 bn with a pan India branch network of 900 and employee base of 12,750 by 2015.”

“Yes Bank’s track record is above the industry standard across the business segments and we expect this trend to continue going forward. We expect banks advance and deposit base to grow at a CAGR of more than 25% between FY12 and FY15 while earnings of the bank is expected to grow at a CAGR of more than 35% during the same period. YBL’s Version 2 has a target CASA ratio of 30% till FY15 which is currently stood at 15%. With continuous increase in CASA ratio, YBL would be able to minimize its cost of funding which would eventually enhance the NIM of the bank from the current level of 2.7% to 3% level in the coming years. However, YBL’s strategic loan book distribution (more inclined to working capital funding) gives its an edge over its peer in terms of yield and quality of asset as well as helps the bank to maintain the NIM at higher level. YBL’s higher other income and low operating cost would also help the bank to sustain the margin in the long run. YBL has consistently delivered higher returns in term of both RoE and RoA and expected to maintain at current level going forward. We expect YBL to sustain its RoE well above the 23% mark while RoA of the bank would remain above the current level of 1.5%. In Addition, YBL is well capitalized with a total CAR of 17.9% with high quality of assets where its GNPA and NNPA expected to stands at 0.5% and 0.2% level which is amongst the best in the industry. Moreover, we expect YBL’s PCR (Provision Coverage Ratio) to remain above the 75% level which further boost the confidence about the bank’s quality of assets.”

“Considering strong CASA growth, higher NIM, superior asset quality and healthy return ratios, we expect YBL to deliver outstanding performance in the coming years. We expect YBL’s advances and deposit base to grow at a CAGR of more than 25% from FY12 to FY15E. We estimate FY13E and FY14E Net income to stand at Rs 33.6 bn and Rs 43.1 bn respectively. We initiate the company with a “BUY” rating and have valued the company on Gordon Growth Model to arrive at a Target price of Rs 407 (around ~2.1x times FY14E ABV.) implying an upside of 22% from current levels,” says BP Equities research report.

Buy stocks of Hindalco Industries; target of Rs 151

“Hindalco consolidated topline for the year FY12 at Rs 808 bn, up 12% from FY11. EBITDA for the year was up only 3% owing to higher raw material costs (up 35%). This was partially compensated by higher other income (up 52%), lower finance costs (down 4%) and lower tax rate of 18% (25% for FY11). PAT improved 38% YoY to Rs 34 bn. The company changed its policy with respect to actuarial valuation of long term employee benefits at Novelis resulting in an adjustment of Rs. 10 bn in reserves and surplus rather than showing it as an expense. Similarly an amount of Rs 5.36bn was adjusted in "business reconstruction reserve". Further profit of Rs 0.6bn in FY11 from Idea Cellular which could not be incorporated in results then has now been considered.”

“Q4FY12 performance of Novelis remained in line, with rolled product shipments for the quarter higher at 703 kt. Adj. EBITDA/tonne was almost flat at US$ 331 for Q4FY12, while for the full year it came at a record high of US$ 371. While expanding in most of the existing geographies it is also entering into China with a focus on its value added segments, while selling off its commodity business segments e.g. foils. The FCF before capex stood at US$614 mn. For FY13 the company expects EBITDA of US$1.06bn, FCF (before capex) of US$600- 700 mn, whereas total capex is pegged at US$650- 700 mn. Standalone performance was better than expected with APAT of Rs 6.4 bn, down 10% YoY but up 42% QoQ. EBITDA margin though down 205 bps YoY, improved by 55 bps QoQ to 11.3%. Topline growth of 12% YoY and 15% QoQ to Rs 76.5 bn was primarily due to higher volume (copper up 11% and aluminium up 4% on QoQ basis) and weak INR. We believe Mahan smelter to start contributing from late FY14.”

“At CMP of Rs 115, the stock is available at 6.2xFY14E EPS, 6.6xEV/EBITDA and 0.6xFY14E P/B. Though FY13 looks challenging, we expect value unlocking in FY14. Valuing the company on SOTP basis (5.5x standalone and 6x Novelis FY14EV/EBITDA), we arrive at a target price of Rs 151; Retain Buy,” says Emkay Global Financial Services research report.

Buy stocks of Everest Industries; tgt of Rs 220

“Everest Industries is one of India’s fastest growing building solutions company. Founded in 1934, Everest is one of the most respected and renowned business entities in India, and has dominated the market ever since. It has continuously introduced innovative and modern building products with a promise of strength, speed and safety. Everest offers a complete range of world-class building solutions: roofing, ceiling, wall, flooring, cladding, door and pre-engineered steel buildings for the industrial, commercial and residential sectors. Historically, Everest has provided rural shelters, by making corrugated roofing sheets available to farmers at a competitive price. The company is poised to capitalize on the opportunities in rural India, where various housing and infrastructure initiatives are envisaged by the Government.”

“The Everest brand of products are produced at state-of-the-art ISO:9000 certified manufacturing facilities located at Kymore, Nashik, Coimbatore, Kolkata and Roorkee. With over 6000 retail points spread across the nation, together with the strength of over 1285 highly qualified and experienced engineers, designers and technicians, Everest provides building solutions that successfully meet the highest standards of quality and durability. After successfully catering to the Indian market, Everest has widened its horizons in the international arena. With consistent exports to Europe, Africa, Australia and Asia, Everest is all set to scale new heights and establish a strong foundation in the global market. Banking on 76 years of experience and highly sophisticated technology, Everest assures customers that all its products live up to the promise of strength, speed and safety.”

“Everest Industries Ltd has reported net profit of Rs 132.10 million for the quarter ended on March 31, 2012 as against 106.20 million in the same quarter last year, an increase of 24.39%. It has reported net sales of Rs 2465.30 million for the quarter ended on March 31, 2012 as against Rs 1978.20 million in the same quarter last year, a rise of 24.62%. Total income grew by 25.63% to Rs 2495.10 million from Rs.1986.10 million in the same quarter last year. During the quarter, it reported earnings of Rs 8.74 a share.”

“At the current market price of Rs.196.00, the stock is trading at 4.90 x FY13E and 4.32 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.40.02 and Rs.45.39 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 19% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.62 x for FY13E and 2.34 x for FY14E. Price to Book Value of the stock is expected to be at 0.96 x and 0.78 x respectively for FY13E and FY14E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 220 for medium to long term investment,” says Firstcall Research report.

Hold Shriram Transport; tgt of Rs 584

“Shriram Transport Finance Company (STFC) was established in 1979, headquartered in Mumbai, India provides financial assistance to the commercial vehicles sector. The company is a part of Shriram Group, a prominent player in commercial vehicle financing business, chit funds, consumer finance, life insurance, general insurance, stock broking, property development, project engineering and IT, among others. STFC is the largest player in commercial vehicle finance. It lends finance for preowned trucks to new trucks. Shriram Transport Finance Co Ltd. is the largest asset financing NBFC with Rs. 36086.00 crores ($8.02billion) worth of assets under management. Over the past 30 years, it has developed strong competencies in the areas of loan origination, valuation of pre-owned trucks and collection. STFC has a Pan-India presence with a network of 68 SBUs and 488 branches, and has built a strong customer base of over 7.5 lacs. STFC's product portfolio consist of new truck finance, used truck finance, tyre finance, power finance, franchise finance, truck rentals, personal loans and fixed deposit. The company is a leader in organized financing of pre-owned trucks with strategic presence in 5-12 year old trucks and a market share of 20-25 percent.”

“Shriram Transport Finance Company Ltd has reported net profit of Rs 3080.70 million for the quarter ended on March 31, 2012 as against Rs. 3406.20 million in the same quarter last year, a decrease of 9.56%. Net sales are increased by 10.33% to Rs. 14836.30 million from Rs. 13447.80 million as compared to same quarter last year. Total income has increased to Rs 14854.60 million for the quarter ended March 31, 2012 from Rs. 13874.70 million for the quarter ended March 31, 2011 representing a rise of 7.06%. The EPS of the company is stood at Rs.13.61 per share for the quarter ended March 31, 2012.”

“At the current market price of Rs.521.60, the stock is trading at 8.23 x FY13E and 7.51 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 63.40 and Rs.69.50 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 9% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.42 x for FY13E and 2.23 x for FY14E. Price to Book Value of the stock is expected to be at 1.59 x and 1.31 x respectively for FY13E and FY14E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 584 for medium to long term investment,” says Firstcall Research report.

Buy stocks of Hindustan Zinc; target of Rs 151

“Hindustan Zinc’s (HZL) FY12 annual report analysis shows the company’s strong focus on expansion of mining capacity. The management has indicated that the global zinc market is set to witness closure of 1.2mt mining capacity by 2016, which should support zinc prices. We broadly agree with the above rationale and it was also one of the strong arguments in our initiating coverage report on the non-ferrous sector, ‘The Long (zinc) & Short (aluminium) Of It’. We retain our Buy rating as well as the target price of Rs151, which is 27% higher than the CMP.”

“HZL continued to generate strong cash flow and its net cash balance touched a record high of Rs179,472mn at the end of FY12. It added free cash flow of Rs29,822mn in FY12 as compared to Rs30,887mn in FY11, despite a multi-fold jump in dividend payment, from Rs2,956mn in FY11 to Rs12,277mn in FY12, on account of higher dividend payout and also interim dividend payment. To get higher yields, HZL has started investing in tax-free bonds of NHAI, PFC, IRFC, HUDCO, REC and perpetual bonds of Tata Steel from FY12 onwards. However, these investments, at Rs13,796mn, accounted for only 8% of total cash and cash equivalents. Liquid mutual fund and bank deposits accounted for 63% and 29%, respectively, of total cash and cash equivalents. Although reserves and resources (R&R) addition remains positive, a detailed analysis indicates less optimism than what is depicted by the headline numbers. Gross R&R rose 8.7% in FY12 as compared to 3.5% increase in zinc-lead metal, implying the deterioration of grade. Besides this, R&R at the flagship mine, Rampura Agucha, dropped, while Zawar mine, which is yet to renew its mining lease, accounted for 32% of net R&R addition.”

“Inventory turnover days improved on an annual basis, but deteriorated on quarterly basis, while debtor turnover days worsened on both counts, but still near 10 days. Trade payable days fell on quarterly as well as annual basis. HZL is currently trading at P/E multiples of 7.9x and 7.3x on FY13E and FY14E earnings, while EV/EBITDA multiples stand at 4.0x and 3.2x for the same period. We assign a Buy rating to the stock with a target price of Rs151 (5.0x FY14 EV/EBITDA), which is 27% higher than the CMP,” says Nirmal Bang research report.

Buy stocks of Divi's Labs; target of Rs 1287

"Divi's Laboratories Ltd (Divi's) has a significant presence in both Generic APIs and CRAMS business, with each of these segments contributing equally to the topline. The company operates predominately in the export market, which accounts for nearly 93% of its overall revenue with ~75% of it coming from developed markets like the US and EU."

"In the generic API segment, Divi's enjoys a significant market share in its key products and derives 47% of its revenue from the top 5 products, which are in the matured stage. The company also has a strong pipeline of ready to market products, in addition to its developmental pipeline, which provides Divi's with strong revenue visibility over the long term. Seeing the robust growth potential in the API space, we expect revenues from this segment to grow at a CAGR of 19.6% to Rs 1306.9 crore by FY14."

"Backed by the strong relationship with the innovators, presence across the entire CRAMS value chain and its ability to support the innovator in late life-cycle strategies has enabled Divi's to establish itself as a leading player in the CRAMS space. Further, the increased focus of MNCs on outsourcing led by cost arbitrage and strong R&D capabilities will only benefit Divi's. We expect this custom synthesis business to grow at a CAGR of 25% to Rs 1277 crore by FY14."

"Compared to peers, Divi's have been able to maintain strong margins on account of its ability to swiftly execute capex and ensure quick capacity ramp up. Divi's policy of adding capacities, only post clear visibility of orders ensures that there is no spare capacity and strong cash flows from the very 1st week of operations leads to ROCE being much higher than peers."

Valuation

"At the CMP of Rs 952, Divi's is trading at 19.6x and 15.5x its estimated earnings for FY13 and FY14, respectively. Divi's is trading at a considerable premium to its counterparts in the domestic market i.e. Biocon, Jubilant as well as to the international players. However, considering the high margin business, steady organic growth, strong cash flows and high return ratios, we believe the premium is completely justified. We initiate coverage on Divi's Laboratories Ltd as a BUY with a Price Objective of Rs 1287 (target 21.0x FY14 P/E) representing a potential upside of 35% over the next 18 months," says Ventura research report.

Buy stocks of Maruti Suzuki; target of Rs 1210

"Maruti Suzuki is India’s largest PV manufacturer with ~40% market share. With the industry shifting towards dieselisation, Maruti's diesel engine capacity expansion plans look to be on the right track. Falling crude prices and a reversal in the interest rate cycle in H2FY13E will help improve the sales over FY13E/FY14E. We estimate ~36% CAGR (FY14E-12) increase in EBIDTA and a gradual increase in RoCE over~16% FY14E."

"In early 2012, the stock embarked upon a strong rally (Rs 900-1428), thereby reinforcing its presence within index performing stocks. After an impulsive run up, the stock has witnessed a decent correction over the past few months. Question is whether this is a reversal of the up trend or a buying opportunity. A look at the monthly time interval charts indicate continuation of an up trend and point towards the fact that the share price has approached the major long term support zone of Rs 1060-1040. Various historical monthly high or lows and the presence of long term trend line connecting 2008- 2011 lows make this range a solid support for Maruti’s share price."

"This stock has recently made a sharp rebound twice from Rs 1050-1060 respecting this long term support zone. High volumes during early June are an attestation of increasing participation in the stock near support levels. We expect a change of guard in the short-term downtrend, which is likely to see the stock price rally towards Rs 1200-1210 levels. The higher side targets for Maruti are projected using the Fibonacci retracement of the current decline (Rs 1428-1051). The 50% retracement is at Rs 1239 while the 50 day moving average for the stock is present at Rs 1211. Among oscillators, the monthly RSI (14) continues to trend in the positive zone despite the recent correction and supports bullish bias," says ICICIdirect.com research report.

Buy stocks of Bata India; target of Rs 1008

"Bata India Ltd. (BIL) focused on premium products and sacrificed volume, which grew by a mere 1.1% in CY11. It has started focusing again on volume and as a result, volume grew 14% in 1QCY12. As per the management, volume growth is expected to remain in double-digits in CY12. Strong volume growth along with higher realisation (due to better product mix) should result in revenue growing 20.0-25.0% as against our estimate of 19.7% in CY12E. Revenue has already grown by a robust 30.6% in 1QCY12. The management is confident of doubling its revenue in the next four-five years."

"BIL opened ~67 new outlets (including Hush Puppies stores) in 1QCY12. It set up ~25 more stores in 2QCY12 and new store addition has already touched ~92 in 1HCY12, which is expected to be ~150-170 by the end of CY12. Of the total 146 outlets opened in CY11, around 53% were opened in 2HCY11, which resulted in high inventory and lower revenue from these outlets in CY11. Currently, BIL is front-loading the setting up of new outlets and out of the total target of ~150-170 outlets planned in CY12, it has already opened ~92 outlets in 1HCY12. BIL has started bar-coding its products and currently 60-70% of its products are bar-coded. As a result, BIL would be able to report healthy revenue growth and also control its inventory in CY12. BIL plans to incur a capex of Rs1,000mn - ~Rs700mn in retail and ~Rs300mn in upgrading its manufacturing facility - in CY12E."

"Footin, owned by BSO (Bata Shoe Organization), is very popular in Thailand, Bangladesh etc, catering to college-going youth in the range of 15-25 years. BIL launched Footin in India in 1QCY12, with its USP being contemporary designs at an affordable price of Rs500-700/pair. In order to de-link Bata’s brand image, BIL is setting up exclusive Footin outlets of 1,000-1,500 sq ft. It has already opened nine Footin outlets till now in Delhi and Mumbai, where the response has been excellent. Currently, the exercise is more of a trial and if the response stays buoyant, BIL plans to aggressively open Footin outlets in the next two-three years. BIL is also very bullish on kids and women segments and is looking at launching new brands, either BSO-owned or strong in-licensed brands, in India."

Stay neutral on stocks of Reliance Industries

RIL's 1P reserve higher than Niko's new 2P reserve: RIL does not give 2P reserve numbers and only gives out 1P reserve number in its annual report. Post the downgrade in FY12, RIL's 1P gas reserves were 104bcm (3.7tcf, net share number). It should be noted that RIL's reserve numbers also include its share in PMT (RIL stake at 30%). Even after adjusting PMT reserves (estimated), RIL's 1P reserve number will still be higher than Niko's 2P reserve number of 1.9tcf.

Niko states that additional investments contingent on gas price revision: Niko stated that the new reserve estimates factor pertain only to the current producing fields - D1D3/MA and additional investment decisions on development plans (satellite and NEC) are contingent upon natural gas pricing (revision scheduled in March 2014). Further, it stated that the reserve/production estimates by Ryder Scott (independent reserve consultant) does not assume any additional drilling in D1D3/MA fields, as Ryder Scott believes that no new wells will be required to recover the revised 2P reserves in D1D3/MA fields in the KG-D6 block.

Key things to watch on RIL: (1) Resolution of cost recovery issues with the government, (2) DGH approvals for E&P program and update on KG-D6 ramp-up, (3) Clarity on 7-year income tax holiday for KG-D6 gas (we model tax holiday), (4) Margin trend in refining and petchem, (5) Developments on USD12b capex plan, and (6) Update on BWA and retail foray.

Cutting SOTP; Maintain Neutral: We have cut our plateau production assumption from 60mmscmd in FY18 to 40mmscmd and cut our overall recovery from 10 tcf to ~7tcf. However, our FY13 and FY14 estimates remain unchanged. Our revised SOTPbased target price is INR760 (earlier INR785) as we cut our KG-D6 value to INR51/ share from earlier INR74/share and NEC-25 to INR13/share (earlier INR15/share). We maintain Neutral due to concerns of (1) RoE slipping to sub-12% levels, (2) falling KG-D6 volumes, and (3) increased share (75%) of cyclical refining and petchem businesses. The stock trades at 11.3x FY13E adjusted EPS of INR63.4 and 7.4x FY13E EV/EBITDA.

Buy stocks of Larsen and Toubro; target of Rs 1670

“Over the years, LT has continuously evolved through building new skill sets and competencies to effectively benefit from emerging trends and opportunities through out economic cycles in several business/geographic segments. LT has acquired higher adaptability, enabling it to seize macro opportunities and weather volatility better than its peers. In the last few years, Buildings & Factories, Process Industries and Power have been the key growth drivers while, Overseas Markets, Urban Infrastructure and Railways are likely to emerge as key growth drivers.”

“LT had instituted a very strong risk management process in 2005, which led to a structural change in reported margins (from 7-8% to 12-13%), driven by tight control on project profitability and cash flows. LT has preferred to withdraw rather than bid aggressively to win orders at the cost of margins. The company has maintained tight control over net working capital (just 10% of revenue) and project cash flows in a constrained environment. All the projects of L&T IDPL have been funded on a non-recourse basis, though this results in higher borrowing costs at the project SPVs. At the beginning of the capex cycle in 2003, there were expectations that the infrastructure boom in the country will lead to the creation multiple LT-like companies. The belief was that some of the mid-sized construction companies would take the leap into the next league. However, looking back at the Golden Decade of Indian Infrastructure, we find very few winners and many losers. LT has emerged much stronger and its competitive positioning in the middle of the current economic cycle is vastly superior as compared to the beginning. We believe this provides LT a unique opportunity to capitalize on the ongoing investments in infrastructure and industrial capex.”

“We have upgraded our FY14 earnings estimate for L&T by 5% to factor in improved business momentum in overseas markets (in L&T International FZE) and marginal improvement in E&C EBITDA margin (up 20bp to 12.3% now), given the sharp decline in commodity prices. We expect LT to report standalone revenue CAGR of 13% and PAT CAGR of 10% over FY12-14; consolidated PAT CAGR would be 9%. We estimate consolidated EPS at INR86 (up 10%) for FY13 and INR93 (up 9%) for FY14. We maintain Buy with a revised SOTP-based target price of INR1,670 (up from INR1,417). We have valued LT standalone at 15x FY14E earnings and subsidiaries at INR439/share. Our revised target price indicates 24% upside. L&T currently quotes at a 12% PER premium to Sensex, which is the lowest since FY04 and we believe that this adequately captures the macro headwinds to the investment climate. Between FY95-04, L&T's lowest PER discount to Sensex was 3.6%, and thus downside is limited from current levels, in our opinion,” says Motilal Oswal research report.