KARVY VALUE INVEST - MARCH 2018
1
Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY<GO>)
Analyst Contact
040 - 3321 6296
vivekr.misra@karvy.com
Vivek Ranjan Misra
KARVY VALUE INVEST - MARCH 2018
2
Value Invest
Mar 26, 2018
Value Invest
Company Name NSE Symbol Sector
Market Cap
(Rs. Mn.)
CMP*
(Rs.)
Target
Price (Rs.)
Upside
(%)
Astra Microwave Products Ltd ASTRAMICRO Defence 6808 79 109 38
Gabriel India Ltd GABRIEL Auto Ancillary 19780 138 189 37
Greaves Cotton Ltd GREAVESCOT Industrial Machinery 28096 115 154 34
GMDC GMDCLTD Coal 38701 122 170 39
KRBL Ltd KRBL Food Processing 103101 438 635 45
Manpasand Beverages Ltd MANPASAND Beverages 41893 369 507 38
Menon Bearings Ltd MENONBE Auto Ancillary 5234 93 150 61
Mirza International Ltd MIRZAINT Footwear 13059 109 154 42
Natco Pharma Ltd NATCOPHARM Pharmaceuticals 144597 784 1107 41
Trident Ltd TRIDENT Textiles 30958 61 98 61
*As on Mar 23, 2018, Please CLICK HERE for previous Value Invest report
KARVY VALUE INVEST - MARCH 2018
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MARKET OUTLOOK
Looking Beyond the Correction
Normalization of volatility:
In the past couple of months, markets have
witnessed a rise in volatility; however, it is still below the 20 year historical average
of 22%. We believe that the volatility regime is shifting to a more normal one.
A correction, not a crash:
We believe that the market is experiencing a
correction (Sensex down 10.1% from recent high), but not a crash. This is on
account of the following reasons:
The Indian economic data is likely to improve over the coming months. In
Q3FY17-18, the economy grew at 7.2% compared to an estimate of 6.9%, in
Q2FY17-18 the GDP growth rate was 6.5%.
IMF in its latest update forecasted a growth rate of 7.4% for FY18-19 and 7.8%
in FY19-20. Leading indicators also point to a pickup in the months ahead. The
OECD leading indicator has picked up after its bottom in March 2017.
Global growth remains supportive. Growth is forecasted to pickup to 3.9% in
CY18 from 3.7% in CY17 and 3.2% in CY16.
Though it is early, IMD has indicated that the probability of an unfavorable
monsoon is low.
However, the following factors are likely to limit upside.
Beginning of trade disputes around the world, especially the prospect of
escalation between the US and China, the two largest economies.
Ongoing process of resolution of NPAs in the banking sector.
State elections in states (Karnataka, Mizoram, Rajasthan, Chhattisgarh and
Madhya Pradesh) in the run up to the general elections, which are to be held
by May 2019.
Outlook:
Though volatility is likely to rise, we believe that the markets will move up and
deliver decent returns during the year. We forecast Sensex to end year 2018 at
37500, which represents a 1 year forward PE of 16.5x, and an upside of 15% from
current levels.
In the following pages, we highlight 10 mid cap stocks that have the potential to
deliver good returns over the next 12 months.
KARVY VALUE INVEST - MARCH 2018
4
Exhibit: Volatility rising from low levels
Source: Bloomberg, Karvy Research
Exhibit: Rise in policy uncertainty likely to support rise in Volatility
Source: www.policyuncertainty.com, Karvy Research
Exhibit: OECD Leading indicator shows economy likely to accelerate
Source: OECD, Karvy Research
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2018
KARVY VALUE INVEST - MARCH 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 79
Target Price 109
Upside (%) 38
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 6808 / 105
52-wk High/Low (Rs.) 149 / 78
3M Avg.daily value (Rs. Mn)
66.3
Beta (x) 0.8
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 86.6
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 13.1
FIIs 2.4
DIIs 31.1
Others 53.4
Stock Performance (%)
1M 3M 6M 12M
Absolute (16) (33) (39) (31)
Relative to Sensex (12) (30) (41) (38)
Source: Bloomberg
Bloomberg Code: ASTM IN
Earnings to Revive in FY19E
Order book pipeline encouraging: Lower order booking and
slower execution to impact earnings growth in FY18E and we expect
Astra Microwave (ASTM) EPS for FY18E to drop by 8.3% y/y to
Rs. 5.7. However, this trend could reverse in next two years on the back
of large order inflows and earnings are expected to grow at 13.2% CAGR
to Rs. 6.1 in FY19E and to Rs. 7.3 in FY20E; despite, higher share of
low margin export orders. Hence, we assign ‘BUY’ rating for a target of
Rs. 109 representing an upside potential of 38%.
Substantial revision to FY18E guidance; Introduces FY19E
guidance: ASTM estimates revised down due to delay in ordering
for Akash sub-systems (Rs. 1,350mn), Off-set contract from ELTA
(Rs. 1,900mn) and order from BEL Ghaziabad (Rs. 360mn) which it
expects to receive by H1FY19 and close the FY19E with Rs. 6,500mn of
orders. We expect the order book to reach to Rs. 5,797mn in FY19E and
Rs. 6,696mn in FY20E.
Revenue and EPS to improve in FY19E-20E: 9MFY18 revenue
was lower by 18.6% due to delay in execution of R&D projects related
to defence, lower off-take of Akash sub-systems and space programs.
However, due to lower share of exports (~3.7% of revenue) EBITDAM
and PATM improved to 35% and 16.5%, which could moderate by year
end. Our FY18E and FY19E revenue is revised down by 4.7% and 3% to
Rs. 3,761mn and Rs. 4,326mn due to lower order book and slower
execution. However, EPS is revised upwards by 16.6% to Rs. 5.7 in FY18E
due to lower exports order and the same for FY19E is revised downwards
by 5.4% to Rs. 6.1.
Valuation and Risks: We assign ‘BUY’ rating by valuing ASTM at 18x
of FY19E EPS of Rs. 6.1 for a target of Rs. 109 representing an upside
potential of 38% from a 12 months perspective. Our estimates reasonably
weigh against inert temporality risks to order booking and execution.
However, spillage in order booking could impact our margin estimates
going forward.
Astra Microwave Products Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 4188 4250 3761 4326 5122
EBITDA 958 972 980 1016 1173
EBITDA Margin (%) 22.9 22.9 26.1 23.5 22.9
Adj. Net Profit 564 539 495 524 634
EPS (Rs.) 6.5 6.2 5.7 6.1 7.3
RoE (%) 16.4 12.7 10.5 10.3 11.4
PE (x)* 16.2 17.8 13.8 13.0 10.8
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
70
86
102
118
134
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
-18
Feb-18
Mar-18
ASTM
Sensex
KARVY VALUE INVEST - MARCH 2018
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Company Background
ASTM is one of the leading designers and manufacturers of high quality radio frequency (RF) and microwave components
and sub-systems in India. Astra Micro’s products find application in Defence, Space and Civil communication systems.
ASTM’s major products include radar, telemetry, ground surveillance antenna and electronic counter measures for
defence applications, ground based generators and S-level (on-board) for space application. Telecom products include
MSS terminals, industrial security system and civil telecom products. Meteorology products are met towers & automatic
weather stations.
ASTRAMICRO: Technical View
The company is a small cap company with presence in niche areas of defence like sub systems for RF and micro
wave systems used in defence, space, meteorology and telecommunication with very few competitors and it can be
one of the major beneficiaries of the Indian government’s effort to modernize Indian defence forces. ASTRA MICRO
WAVE LTD has been under a prolonged consolidation phase for around 46 months in a very broad range of Rs. 96
to Rs. 160 before giving breakdown from the consolidation owing to the tremendous selling pressure for the past
few months on account of bearish trend in the overall broader markets. The shorter term chart structure of the stock
indicates formation of lower tops and lower bottoms. However, the longer term chart patterns indicate that the stock
is nearing major support levels around Rs. 78.5 which is around 61.8% Fibonacci retracement level for the stock’s
steep rally from Rs. 28 levels to Rs. 159.9 levels. The 14 period RSI (Relative Strength Index) of the stock is trading
at 24.92 below its 9 period averages of 31.35 in weekly charts. It suggests that the stock is in negative momentum
however, it is over sold in long term which means that the stock may bounce from these levels and there is a
possible reversal if the stock breaches next resistance levels. Another oscillator MACD suggests positive divergence
in daily chart. The stock has immediate supports pegged around Rs. 78.5 - Rs. 76 levels below which the next
meaningful support zone for the stock lies around Rs. 59 - Rs. 56 levels. On the upside, the stock has its immediate
supply zone around Rs. 93 - Rs. 97 levels crossing which a surge towards a potential upside target zone around
Rs. 110 - Rs. 113 levels may also be seen in the counter.
KARVY VALUE INVEST - MARCH 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 138
Target Price 189
Upside (%) 37
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 19780 / 304
52-wk High/Low (Rs.) 223 / 120
3M Avg.daily value (Rs. Mn)
25.6
Beta (x) 0.7
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 143.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 54.0
FIIs 11.1
DIIs 2.4
Others 32.5
Stock Performance (%)
1M 3M 6M 12M
Absolute (10) (29) (27) 13
Relative to Sensex (6) (26) (28) 2
Source: Bloomberg
Bloomberg Code: GABR IN
Future Growth to be Propelled by Burgeoning
Market Share & Strong Order Book
New Business with HMSI: The company recently won a Letter of Intent
(LoI) from Honda Motorcycles & Scooters India (HMSI) to supply front fork
for their largest selling scooter “Activa”. This is a new business opportunity
for Gabriel as the company currently supplies only shock absorbers to
HMSI. The supply will take place for the Gujarat and Karnataka plant of
HMSI and would commence in early 2019. Given that HMSI commands
~57.3% of the total scooter market in India, Gabriel is expected to have a
scalable opportunity of the front fork business with HMSI.
CVs & Railways to Push the Growth Agenda: The company
continues to be the market leader in supplying shock absorbers to the CV
segment, accounting for ~85% of the total market share. CV’s volumes are
expected to surge with the pick-up of infra-spending and mining activities
in coming quarters. Sales from railways are growing at more than 100%
YoY and Gabriel being the first mover in supplying new generation shock
absorbers to the railways, stands to significantly benefit from the ongoing
railway modernization.
Auto Industry Outlook Promising: We are bullish on the growth
prospects of the automotive industry, going forward. Higher allocation
for the rural sector in the Budget 2018-19 fares well for the two-wheeler
segment. The industry has recovered from the unsettling impact of
demonetization & GST and is set on the growth track.
Valuation and Risks: Gabriel is currently trading at 15.0x FY20E EPS.
Our positive view on the company is on the basis of robust track record
of growth, continuous order acquisition and improving market share. We
value the company at 20.5x FY20E EPS for a target price of Rs. 189,
which implies an upside potential of 37.4%. However, factors like industry
cyclicality and commodity price fluctuations may be the potential risks.
Gabriel India Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 14382 15291 17793 19720 22077
EBITDA 1276 1440 1623 1919 2283
EBITDA Margin (%) 8.9 9.4 9.1 9.7 10.3
Adj. Net Profit 752 816 888 1082 1321
EPS (Rs.) 5.2 5.7 6.2 7.5 9.2
RoE (%) 21.3 19.7 18.4 19.5 20.3
PE (x)* 17.1 21.4 22.2 18.4 15.0
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
90
115
140
165
190
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
GABR
Sensex
KARVY VALUE INVEST - MARCH 2018
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Company Background
Established in 1961, Gabriel India Limited is the flagship company of ANAND and the company provides the widest range
of ride control products in India including Shock Absorbers, Struts and Front Forks across all automotive segments i.e. 2&3
wheelers, passenger cars, commercial vehicles and railways with over 300 product models to offer. The manufacturing
facilities of the company are located across India in Chakan, Nashik, Hosur, Dewas, Khandsa, Parwanoo, and Sanand.
Four of its satellite plants are located in Malur, Aurangabad, Kumbalgodu and Manesar.
GABRIEL: Technical View
Gabriel India Ltd: The stock is in strong uptrend and making higher highs and higher lows on weekly charts. The
strong buying in the stock has placed the stock to the life time high of Rs. 222.50 levels. Thereafter, the price action
in the stock has made bearish engulfing pattern on weekly charts before resuming its down move. The fall in the
price has seen notable volume formation and placed the stock to the low of around Rs. 139 levels. The historical
price action in the stock suggests that any fall in the stock can attract market participants and the stock may resume
its up move. The immediate support for the stock is placed around Rs. 130 levels and below that is around Rs. 100
and Rs. 72 levels whereas resistance is placed around Rs. 170 levels and above that is Rs. 191 and Rs. 222 levels.
However, any sustainable move above 222 will open upside room for the stock towards unchartered territory. On
technical indicators, 14 period RSI is trading near 36 indicating comfortable placement of stock. The stock price
is rolling on lower band of Bollinger band with expanding band width which indicates increase in volatility. Going
forward any reversal in the stock will easily place the stock towards upper band of Bollinger band. The Parabolic
SAR is trading below the price on quarterly charts which indicates up move in the stock to remain intact for long
term time frame. The stock is trading below all its major moving averages near its support and historical price action
in the stock suggests that any meaningful dip in the stock will attract buyers which will help the stock to maintain
it’s up move.
KARVY VALUE INVEST - MARCH 2018
9
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 115
Target Price 154
Upside (%) 34
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 28096 / 432
52-wk High/Low (Rs.) 179 / 112
3M Avg.daily value (Rs. Mn)
190.0
Beta (x) 0.8
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 244.2
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 51.0
FIIs 7.3
DIIs 22.1
Others 19.6
Stock Performance (%)
1M 3M 6M 12M
Absolute (7) (12) (16) (29)
Relative to Sensex (3) (8) (18) (36)
Source: Bloomberg
Bloomberg Code: GRV IN
Market Leader Greaves Prepares for BS-VI World
Over three-fourths of Market is Served by Greaves: Greaves has
manufactured 5 mn diesel engines over the years and has market share
of ~78.0% in the 3 Wheeler (3w) diesel engines market. Greaves’ cost
leadership enables it to be a major source of 3w auto engines in India with
partnerships over 35 auto manufacturers. Greaves products for Agri and
Auxiliary power segment crossed 3mn pump sets and 1 mn generator
sets mark recently.
Greaves Prepares for a BS-VI World: Greaves has signed-up
with major Original Equipment Manufacturers (OEM) for development
of Bharat Stage 6 (BS-VI) compliant engines, which may come to force
in next 25 months. Management has commented that they had signed
these arrangements based on initial simulation data and is working
towards developing Proof-of-Concept (PoC) and Total Cost of Ownership
(ToC) models demonstrating value proposition for both OEMs and end
customers of OEMs as these initiatives range from multi-fuel to Hybrid
to retrofit solutions. However, management refrained from quantifying the
opportunity size for Greaves and competition thereof.
Growth Crawls Back; Revenues to grow by 8.8% in FY17-20E:
Post several disruptions in the market place, revenue grew by 5.0% on a
YoY basis to Rs. 13,059 mn in 9MFY18. We believe the improvement in
3w market, higher traction for agri equipments and powergen sales boost
revenue growth by 8.8% CAGR during FY17-20E to Rs. 21,068mn. Stable
material costs and other cost saving initiatives could improve EBITDA and
PAT margin reaching to 15.2% and 10.7% by FY20E.
Valuation and Risks: Greaves domestic market to turn robust with
new product launches, new geographical presence, potential addition of
customers. ‘Greaves Auto Care’-new service offering and fructification
of R&D efforts for BSVI engines could all shape into FY19E, FY20E and
beyond. We base our valuation on FY19E estimates and arrive at a
target price of Rs. 154 valuing Greaves at 20x of FY19E EPS of Rs. 7.7
representing an upside potential of 34%.
Greaves Cotton Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 16161 16344 17227 18760 21068
EBITDA 2674 2434 2455 2752 3209
EBITDA Margin (%) 16.5 14.9 14.3 14.7 15.2
Adj. Net Profit 2009 1807 1668 1877 2249
EPS (Rs.) 8.2 7.4 6.8 7.7 9.2
RoE (%) 23.0 19.9 17.8 19.5 22.4
PE (x)* 15.0 19.4 16.8 15.0 12.5
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
60
83
106
129
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
GRV
Sensex
KARVY VALUE INVEST - MARCH 2018
10
Company Background
Greaves Cotton Ltd. (GCL) is a leading diversified engineering company manufacturing machinery and equipment.
Greaves business is organised into Auto engines, Auxiliary Power Solutions, Farm Equipment Business and After-Market
business. The company has 6 manufacturing facilities and 3,500+ customer touch points spread across India. Over
the years, Greaves has increased its investments in R&D and the spending has averaged to the tune of ~1.5% of sales
during FY08-17 peaking in the fiscals before CPCB norms came into force. In future, Greaves is committed to transform
itself into fuel agnostic engineered solutions provider encompassing both manufacturing and service business lines.
GREAVESCOT: Technical View
Greaves Cotton Ltd: The stock is trading in broad range of Rs. 110-155 levels from couple of months. The
stock has seen profits taking from all time high of Rs. 178.55 levels. This dragged the stock to the low of around
Rs. 112 levels. The fall in the stock from the above said levels has seen supportive volume formation on daily charts.
However, fall in stock got protected near Rs. 112 levels and wherein from it witnessed sharp bounce. The bounce
in the stock has retraced 61.8% of retracement levels drawn from the life time high of Rs. 178.55 levels to the low
of Rs. 112.35 levels. Thereafter, the price action in the stock has made bearish engulfing pattern of weekly time
frame and reverse its up move. The historical price action in the stock suggests that the stock may attract market
participants at low levels around Rs. 110-115 levels which helps stock to maintain it’s up move. The stock is trading
near its support of Rs. 110 levels which is attractive price levels for investors. The immediate support for the stock is
placed around Rs. 110 levels and below that is Rs. 90-95 zone. On the higher side, resistance is pegged around
Rs. 140-145 zone and above it around Rs. 165-170 levels. On technical indicators, 14 period RSI is trading near 41
indicating comfortable placement of stock. The stock is trading near lower band of Bollinger on weekly charts and
expected to bounce towards upper band of Bollinger band. The Parabolic SAR is trading above the price action
indicating short term weakness in the stock which can be used for buying opportunity. The stock is trading below
all its major moving averages near its support and historical price action in the stock suggests that any meaningful
dip in the stock may attract buyers which will help the stock to maintain it’s up move.
KARVY VALUE INVEST - MARCH 2018
11
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 122
Target Price 170
Upside (%) 39
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 38701 / 595
52-wk High/Low (Rs.) 181 / 118
3M Avg.daily value (Rs. Mn)
58.3
Beta (x) 1.1
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 318.0
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 74.0
FIIs 4.0
DIIs 12.0
Others 10.0
Stock Performance (%)
1M 3M 6M 12M
Absolute (14) (23) (14) (0)
Relative to Sensex (10) (20) (16) (10)
Source: Bloomberg
Bloomberg Code: GMDC IN
Running High on Lignite Demand & Future Projects
Reduced Tax Incidence and other factors to drive Lignite
Demand: Going forward, factors like sound financials, vast array of
mineral products, several upcoming mines and power projects; and
increasing commodity prices brighten the prospect for mining and power
business. The company reported an impressive performance in Q3FY18,
wherein top line grew by 33.1%, while bottom line grew by 68.8% on
YoY basis, due to lignite becoming price competitive to coal following the
fixation of GST rate of 5% for lignite and other minerals.
Upcoming Projects to Boost Sales Performance: GMDC has 6
operational lignite mines. The Ministry of Coal has allotted 3 lignite blocks,
collectively these 3 mines have estimated 34 Mn tons of lignite reserves.
Apart from lignite, the company is also into bauxite, fluorspar, manganese,
silica sand, limestone and betonies mining. The company is in process
of setting up of Fluorspar Benefication Plant, setting up a Silica Sans
Benefication Plant and Lignite based 500 MW Power Plant.
Valuation and Risks: Strengthening of commodity prices and increased
demand for power, following implementation of schemes like, UDAY,
Deen Dayal Yojana and Saubhagya augur very well for the company.
Furthermore, the company enjoyed robust financials in FY17 with zero
debt, EBITDA margin of 26.4%, PAT margin of 20.5%, BV/share of
Rs. 126 and cash & cash equivalent of Rs. 500 Mn make this stock a value
buy. We value the stock on 1yr forward PE 8x of FY20E EPS, which is
inching towards MSCI Energy India Index average PE of 8.9 with TP of Rs.
170 with potential upside of 39%. However, likely auctioning of coal mines
for commercial use is a risk.
Gujarat Mineral Dev. Corp. Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 12153 15824 19973 24592 29289
EBITDA 2888 4174 5608 7097 8623
EBITDA Margin (%) 23.8 26.4 28.1 28.9 29.4
Adj. Net Profit 2190 3241 4433 5601 6790
EPS (Rs.) 6.9 10.2 13.9 17.6 21.4
RoE (%) 6.0 8.4 10.6 12.2 13.3
PE (x)* 9.2 12 9.8 7.8 6.4
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
90
105
120
135
150
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
GMDC
Sensex
KARVY VALUE INVEST - MARCH 2018
12
Company Background
Gujarat Mineral Development Corporation (GMDC) was incorporated in 1963 and is engaged in business of mining and
power. The company started its operations with a small sand crushing facility which is majorly used by sodium silicate
and glass manufacturers. Then it entered into beneficiation of fluorspar which is a rare mineral and has applications
in industries like steel, aluminum, hydrochloric acid, foundry flux and welding electrodes. In 1970, the company
commissioned mining of lignite which is a cheaper substitute of coal to supply it to textile industries. Since then GMDC
has emerged as one of the largest merchant sellers of lignite in the country. Apart from lignite, the company also mines
bauxite and has power divisions consisting of Thermal Power, Wind Power and Solar Power plants. The company is also
into exploration activities. The company first implemented ISO-9001 at corporate office in 2010 and aims at obtaining
it for all the mines in operation with Occupational Health and Safety Systems (OHS-18000) along with Environmental
Management Systems (ISO-14000).
GMDCLTD: Technical View
Gujarat Mineral Development Corporation Ltd: The stock price made an all time high of 316 in Nov’07, post which it
witnessed significant price correction towards 25 levels made in Dec’08. After placing a low of 25 stock rebounded,
but eventually it entered into a long consolidation mode. The stock price after placing a swing low of 52.30 in Feb’16
witnessed smart recovery, gains of 246% in span of last two years time frame, which indicates that possibly long
consolidation mode is over and fresh leg of rally has been started and going forward after completion of intermediate
price correction, bulls will take the charge of the counter. The stock price made a 52-week high of 180.90 in Oct’17
post which it witnessed profit booking from higher levels. In the month of Jan’18, stock attempted to retest its
52-week high, but failed by margin after making a lower swing high of 174 and tumbled in last couple of weeks. On
projecting Fibonacci Retracement from swing low of 52 to high of 181, till date stock price has retraced more than
38.2% of move, while it’s 50% retracement lies near Rs. 116.60 levels and its Golden Fibonacci Ratio 61.8% lies
near Rs. 101.50 levels going forward which should act as a strong support. Technically, stock is holding marginally
above its 200-Weekly Exponential Moving Average (WEMA) which is currently placed near Rs. 122.50 levels.
While, it is holding below its 200-DEMA & 50-DEMA (Daily Exponential Moving Average). On the momentum setup,
14-period weekly RSI managed to sustain above Rs. 35-levels during recent price correction, which indicates
possibility of renewed buying in the counter can’t be overruled. On the downside, stock has a key support near
Rs. 115 levels, followed by Rs. 90-95 levels. While on the higher side, immediate resistance is pegged around
Rs. 155-160 levels, above which price could extend to retest its 52-week high near Rs. 180-185 levels.
KARVY VALUE INVEST - MARCH 2018
13
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 438
Target Price 635
Upside (%) 45
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 103101 / 1586
52-wk High/Low (Rs.) 675 / 371
3M Avg.daily value (Rs. Mn)
172.4
Beta (x) 0.7
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 235.4
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 58.8
FIIs 7.3
DIIs 0.3
Others 33.6
Stock Performance (%)
1M 3M 6M 12M
Absolute (25) (28) (8) 6
Relative to Sensex (21) (25) (9) (4)
Source: Bloomberg
Bloomberg Code: KRB IN
Growth Story Continues…
Supportive global and domestic conditions for basmati rice:
KRBL Limited posted consolidated revenue of Rs. 7835 mn in Q3FY18
which is down by 1.8% as against Q3FY17 on YoY basis. The shift in
preference for branded rice, increased restaurant cultures and rise in
personal income contributed in domestic sales’ growth, while export
growth remains subdued amidst volatile international price. However,
basmati exports could rise in FY18E-19E due to steady global demand
and strengthening of economies in Gulf region following rise in crude oil
price. We believe that global and domestic conditions are supportive for
basmati rice. Hence, we rate “BUY” on the stock with TP of Rs. 635
which gives a potential upside of 45%.
Domestic Demand getting stronger: India’s agri business in Q3FY18
registered a flattish growth. India’s agri business contributed 67% while
rest of the world contributed 33% in total agri business in Q3FY18 on YoY
basis. The company witnessed a good pickup in the domestic demand,
while export demand did not pickup proportionately mainly because of
volatile international price.
Energy business to stimulate on the back of Government’s
thrust on Power: Energy business is purely a domestic play which stood
at Rs. 503 mn in Q3FY18 registering a growth of 74.7% on YoY basis.
Further, government’s thrust on power is expected to stimulate demand
for energy. The company has long term contract with state governments
for Solar and Wind power.
Valuation and Risks: With growing demand amidst lower harvest, value
added products, extensive distribution channel and sound financials, likely
export order from Iran and improving gulf economies - the key basmati rice
consuming region price realization for the company will further improve.
The stock is currently trading at P/E 24.3 which is at discount to industry
P/E of 35. Seeing business potential, we value the stock at 1 Yr Forward
P/E 24x of FY20E EPS which gives TP of Rs. 635 with potential upside of
45% and rate “BUY” on stock for next 9-12 months. However, already
high basmati rice price may prove to be deterrent to the overall demand.
KRBL Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 33628 31490 33045 35318 37406
EBITDA 4468 6435 7404 8390 9634
EBITDA Margin (%) 13.3 20.4 22.4 23.8 25.8
Adj. Net Profit 2931 3994 4740 5416 6228
EPS (Rs.) 12.5 17.0 20.1 23.0 26.5
RoE (%) 21.1 23.5 22.4 21.0 20.0
PE (x)* 17.9 24.3 21.7 19.0 16.5
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Founded in 1889 in Faisalabad, Pakistan and incorporated in 1993, KRBL is the world’s largest Basmati rice exporting
company with multi-brand presence both in domestic as well as overseas markets. Over the years, the company
has developed rice brands such as India Gate, Nur Jahan, Telephone, Train, Unity and Bawabat Al-hind to meet the
requirements of different categories of consumers. Being an integrated player, the company also deals in value added
by-products like Bran Oil and De-oiled Cakes. It has got Energy business vertical as well, wherein it uses rice husks for
captive power plant. Its energy portfolio comprises of Bio-Mass, Solar and Wind energy. KRBL has a strong presence
in export markets with 51% market share of Basmati Rice market of U.S.A, dominant presence in Middle East and
expanding its export base to Africa and Europe. The KRBL is ISO 9002, HACCP (Hazard Analysis and Critical Control
Points), KOSHER (approved by Jewish Dietary Law) and FDA (Food and Drug Administration) certified.
KRBL: Technical View
KRBL: On the monthly charts, the stock is in the cycle of making higher high and higher low which suggests bullish
bias on the stock from a medium to long term perspective. The stock after facing a resistance placed around
Rs. 650 levels has witnessed selling pressure on the charts and has fallen to the levels of Rs. 440 levels which is a
30% fall from the higher levels and is a decent correction for the stock, which makes the stock a good one to buy at
current levels. The stock started its upward journey after giving a breakout from Rs. 29.06 levels in 2013 since then
the stock has been given a stellar rally. On the monthly charts, the stock is trading above all the long term moving
averages which suggest that the stock has some inherent strength in it. From the short term perspective on the
daily charts, the stock has once again tested the consolidation zone, from which the stock had started rallying, the
zone had a range of around 40 points from Rs. 437-477 levels. Any breakout on the charts, the stock might see
some rally towards 505 levels and the next resistance is placed around Rs. 517 levels. If we see the downside then
the stock has a support placed around Rs. 418 levels and the next support is placed around Rs. 397 levels which
would be good level to accumulate the stock from a medium term perspective. The volumes on the charts from the
past several months have not seen a significant upsurge. Currently, the 14-day RSI is trading below the 9-DEMA
which suggests that the downward trend is likely to continue, but if the stock is able to breach Rs. 520-550 levels
in the medium term then one might see the scenario changing. On the weekly charts if we see the trend of the past
3-week fall in the stock, then the previous trading week managed to close above the levels of Rs. 439 with decent
amount of volume on the charts and during the previous trading week it also tried to move upwards above Rs. 480
levels which it failed to do so. From a medium term perspective the support is placed around Rs. 366 levels below
which the stock might test Rs. 300 levels, on the higher side if we see the stock has a resistance placed around Rs.
550 levels above which the stock might test Rs. 650 levels.
KARVY VALUE INVEST - MARCH 2018
15
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 369
Target Price 507
Upside (%) 38
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 41893 / 644
52-wk High/Low (Rs.) 512 / 336
3M Avg.daily value (Rs. Mn)
81.2
Beta (x) 0.8
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 114.5
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 44.1
FIIs 21.9
DIIs 11.5
Others 22.5
Stock Performance (%)
1M 3M 6M 12M
Absolute (6) (16) (25) 2
Relative to Sensex (1) (13) (27) (8)
Source: Bloomberg
Bloomberg Code: MANB IN
Strategic Synergies in FMCG Sector to Augur
Revenue
Manpasand-Parle Tie up- a formidable synergy in the FMCG
Sector: Under the partnership, Manpasand Beverages will have access to
Parle’s 4.5 Mn outlets across India for its flagship brand ‘Mango Sip’ juice
which will be sold under the brand name Mango Sip Gold. The company
has planned to target 1000 distributors and 5 Lakh outlets by March ’18.
Thereafter, the company plans to focus on UP, Gujarat and Maharashtra
where Parle has 15 lakh outlets.
Increased capacity utilization to strengthen margins: The
company has set up four new plants which will double its production
capacity from 1.70 lakh cases per day. Further, the company is expected
to launch a new health-based product in FY18 to aid utilization. With
increasing distribution network, it is estimated that the company will be
able to increase its capacity utilization and operate at 55% by the end of
FY19 which will help the company to reduce its per unit cost and increase
its margins.
Tie up with Havmor Ice Cream Ltd: With this foray, the company’s
flagship brand Mango Sip, which is mainly available in rural and semi-rural
regions, will now be available in urban areas through 210 food outlets
of Havmor. This tie-up will also give a boost to ‘Fruits Up’ brand, which
consists of a range of carbonated fruit drinks and premium fruit drinks in
different flavours, that is primarily targeted at urban markets.
Valuation and Risks: Manpasand Beverages has continuously been
growing by increasing its capacity and is on track with its plan of doubling
its capacities. Currently, the stock is trading at a P/E of 18.2x FY20EPS.
Seeing the stellar performance and expecting the revenue to grow at a
CAGR of 36.5% over 2 years, we value the stock at 25x (3 years’ average)
FY20EPS with a “BUY” rating arriving at a target price of Rs. 507 with
an upside of 38%. Competition from MNCs and 20% of the company’s
revenue coming from IRCTC are the key risks to the call.
Manpasand Beverages Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 5211 7015 9378 12793 17475
EBITDA 1103 1398 1969 2687 3670
EBITDA Margin (%) 21.2 19.9 21.0 21.0 21.0
Adj. Net Profit 505 726 1253 1673 2321
EPS (Rs.) 10.8 12.7 10.9 14.6 20.3
RoE (%) 8.4 6.3 9.5 11.3 13.7
PE (x)* 21.6 27.7 33.7 25.2 18.2
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Manpasand Beverages Limited is an India-based company engaged in the business of manufacturing of fruit juices in
the beverages segment. The company’s flagship brand is ‘Mango Sip’, a mango based fruit drink which is strategically
focused towards customers primarily based in semi urban and rural markets. Its other brands include Fruits Up and
Manpasand ORS. Under the Fruits Up brand, the company offers differentiated carbonated fruit drinks with real fruit
content and fruit drink with relatively higher fruit content of pulp. Carbonated fruit drinks are available in grape, orange and
lemon flavors while fruit drinks are available in mango, apple, guava, litchi, orange and mixed fruits flavors. Manpasand
ORS is a fruit drink with energy replenishing qualities with a primary focus on North East India containing rehydration salts
and fruit contents, and is available in two flavors, apple and orange. The company offers fruit drinks in mango and other
flavours and carbonated fruit drinks, in different packaging types and sizes.
MANPASAND: Technical View
Manpasand Beverages Ltd: Since its listing date, stock price has witnessed steady rally, with intermittent price
correction in between bullish trend remain intact. At the time of listing, stock price made an all time low of 142.85,
wherein from stock made a high of 388.50, gain of more than 170% in span of fifteen months. Post that stock
retraced 50% of move projected from all time low to swing high of 388.50, in span of just three months; after placing
a swing low of 253 made in end of Dec’16 stock reversed back and resumed its northward journey. From the swing
low of 253 stock price made an all time high of 512 in the mid of Sept’17, gain of more than 100% in span of nine
months. After placing all time high, stock price retraced its golden ratio 61.8% in less than four months time by
making a swing low of 349 in end of Dec’17. Noticeably, prices after making a swing low of 349 rebounded in last
couple of weeks, attempted to retest its all time high, but failed by margin by making a lower swing high of 499 in the
start of Jan’18, post that stock price witnessed profit booking from higher levels and tumbled. Currently, stock price
is hovering above its previous swing low 349. Technically, stock price is trading below its major and medium term
moving averages. On the momentum setup, 14-period weekly RSI managed to sustain above Rs. 40-levels during
recent price correction, which indicates that bulls are in control and price correction in the stock is being utilized
as a buying opportunity by long term investors in the counter. On the downside, stock has a key support near
Rs. 348-350 levels, followed by Rs. 300-310 levels. While on the higher side, immediate resistance is pegged around
Rs. 435-440 levels, above which price could extend gains to retest it’s all time high near Rs. 512 levels.
KARVY VALUE INVEST - MARCH 2018
17
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 93
Target Price 150
Upside (%) 61
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 5234 / 80
52-wk High/Low (Rs.) 127 / 66
3M Avg.daily value (Rs. Mn)
29.6
Beta (x) 1.0
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 56.0
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 74.7
FIIs 0.0
DIIs 1.1
Others 24.2
Stock Performance (%)
1M 3M 6M 12M
Absolute (6) (3) 15 26
Relative to Sensex (2) 1 13 14
Source: Bloomberg
Bloomberg Code: MEN IN
Expansion Plans to Complement Higher Demand
Improved demand scenario: Board has given a nod for a fresh
investment of Rs. 220 Mn in engine bearing & bushes plant which is
expected to be completed by FY19E. The facility will enhance the capacity
by 40% to cater to the increased order book from bimetal parts. Also, capex
of Rs. 400 Mn is invested in aluminum division & the facility is expected to
be ready by FY20E. It will enhance the capacity in higher tonnage to cater
to increased customer demand. We expect revenue from engine bearing
& bushes plant from FY20E & the aluminum division from FY21E onwards.
Top line growth & improved margins: Menon enjoys a marquee
list of clientele like TATA, VOLVO, Mahindra, Greaves & Piaggio and
boasts about its superior manufacturing capabilities. Menon undertakes
designing, testing, validation & manufacturing of bearings, bushes &
thrust washers for a wide range of applications. On account of new client
addition together with incremental revenue from its investments made for
expansions along with the shift in market dynamics in favor of BS IV, we
expect the margins to stabilize by FY20E with EBITDAM reaching 27.0%
levels coupled with PATM reaching 14.0% levels.
Robust balance sheet to aid gain market share & profitability:
Net debt to equity of 0.1x, zero debt levels, net working capital to sales at
less than 25%, cash per share of Rs. 3.0 and interest coverage multiple of
24.6x indicate Menon’s balance sheet strength to remain debt free in near
future while maintaining operational superiority in gaining market share. The
company is expected to meet its capex through internal accruals & debt.
Historically, Menon Bearings has been consistently recording a healthy
profitability & return ratios; we expect the trend to continue in future with
RoE reaching 24.0% & RoCE of 29.0% levels by FY20E.
Valuation and Risks:
At CMP of Rs. 93, Menon Bearings is trading
at 18.1x to FY20E EPS. We ascribe a multiple of 29.0x which is a 3 year
average of one year forward PE to FY20E EPS and recommend a “BUY”
rating for a target price of Rs. 150 representing an upside of 61%. Threat of
counterfeit products which mainly cater to aftermarket segment along with
a slowdown in industrial & automotive segments may pose risk to the call.
Menon Bearings Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 1109 1229 1494 1610 1969
EBITDA 286 327 373 423 537
EBITDA Margin (%) 25.7 26.6 24.9 26.3 27.3
Adj. Net Profit 149 192 208 238 290
EPS (Rs.) 3.2 3.4 3.7 4.3 5.2
RoE (%) 28.7 30.0 26.3 24.5 24.0
PE (x)* 15.5 21.3 25.2 21.9 18.1
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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KARVY VALUE INVEST - MARCH 2018
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Company Background
Incorporated in 1991 & headquartered at MIDC in Kolhapur, Maharashtra, the company is engaged in manufacturing
automobile components like bushes, bearings, thrust washers, aluminum die cast and bimetal strips. These products are
customized according to the clients’ requirements in various specifications. Different varieties of bearings supplied by the
company include flanged bearings, tri-metal bearings and copper-bronze & aluminum-tin bearings for crankshafts. The
products find applications in light & heavy commercial vehicles, passenger vehicles, compressors, combustion engines
and electrical appliances such as refrigerators and air conditioners. The company caters to OEMs, replacement market
and the export market. Its products are exported to countries across the globe such as USA, UK and Middle East.
MENONBE: Technical View
MENONBE: MENON BEARINGS LTD has been in a secular uptrend forming higher highs and higher lows since
the day of its listing indicating the underlying strength in the stock. The stock has rallied from a low of Rs. 20.05
on March 24, 2015 to an all time high of Rs.126.50 on January 29, 2018 which is 517% and has corrected to
Rs. 96.55 levels i.e nearly 30% from its all time high and settled around Rs. 105 levels. The stock is trading above
all of its 21/50/100/200 period exponential moving averages in weekly chart as well as in daily chart suggesting
the overall strength in this counter. As far as the technical setup of this stock is concerned, 14 period RSI (relative
strength index) is trading above the 9 period averages in daily chart (51.71, 48.51) suggesting positive momentum
in the counter. The overall long term chart structure of the stock is positive and looks good at current levels for
long term investment. Leading indicator Heiken candlesticks suggest beginning of a afresh leg of rally in weekly
chart. Another leading indicator Parabolic SAR (stop and reverse) suggests positive trend in daily chart. The stock
has outperformed the broader indices in the current quarter showing its bullishness despite a broad based selling
across the indices. On the Bollinger bands, the stock took support near mean and moving towards upper band
and the bands are expanding in weekly chart and suggesting a fresh leg of rally towards its all time high levels. On
monthly chart, the stock has witnessed consolidation for nearly one year followed by breakout with good volume. In
the past, it has also been observed that every time the stock has made a cycle of higher low preceded by a higher
high, it has always seen value buying from such levels, which gives investors with a longer term horizon a brilliant
opportunity to go long in the counter at current levels for the above mentioned target levels in about a year’s time.
The stock has immediate supports pegged around Rs. 90 - Rs. 92 levels below which the next meaningful support
zone for the stock lies around Rs. 74-78 levels. On the upside, the stock has its immediate supply zone around
Rs. 125-127.
KARVY VALUE INVEST - MARCH 2018
19
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 109
Target Price 154
Upside (%) 42
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 13059 / 201
52-wk High/Low (Rs.) 184 / 84
3M Avg.daily value (Rs. Mn)
45.4
Beta (x) 0.9
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 120.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 73.5
FIIs 4.0
DIIs 2.7
Others 19.8
Stock Performance (%)
1M 3M 6M 12M
Absolute (18) (32) (32) 26
Relative to Sensex (14) (30) (33) 13
Source: Bloomberg
Bloomberg Code: MRZI IN
Red Tape Ladies’ and Domestic Branded Segment
to take the Growth Story Forward
Foray into Ladies Footwear & steadily increasing Domestic
branded Segment to give a fresh breath of air: Women’s shoes
under MIL will offer both formal and sportswear for women probably under
the same brand. Given its experience in successfully building the ‘Red
Tape franchise’, the entry into women’s footwear is expected to be value
accretive to the company. The management is targeting around 5 lakh
pairs of women’s shoes to be sold in 2 years post launch. For Q3FY18
domestic footwear revenue was up 70% to Rs. 900 Mn on the back of 92%
growth in online sales while wholesale channel sales were up 87%. The
new products of Bond Street and Sports ‘Athleisure’ Shoes contributed
to bulk of the growth for period ended 9MFY18 and they are on track to
achieve sales of Rs. 1.5 Bn for FY18.
Topline to be Driven by Online/Offline Stores: MIL has opened its
first such ‘Online Store’ outside Ambala city and plans to recreate the format
in few more cities. The initial response to the first store outside Ambala
city has been encouraging. The company has set up 2 warehouses one
each in Bangalore and Mumbai to meet the rising e-commerce demand. 5
such stores had already been opened by Q3FY17 and have been a huge
hit. The count should go upto 20 by end of FY18E. The target is 180 by
FY18 end and 230 by FY19 end. Capex should be Rs. 3.5-5 Mn per store
and another Rs. 35-50 Mn on inventory. Management is focusing on the
online-offline store which they plan to scale up to 70-100 stores. These
stores would be 3-5K sqft and are expected to achieve average sales of
Rs. 5 Mn/Month/Store with capex of mere Rs. 3 Mn/store.
Valuation and Risks: We take into account slowdown in unbranded
footwear and exports segment along with the re-attempt to foray in Ladies’
fashion segment including a capex of Rs. 300 Mn on online-offline stores
for increasing demand from the domestic segment. We maintain a “BUY”
recommendation, valuing at 14.6x FY20E EPS with an upwardly revised
target price of Rs.154 representing an upside potential of 42%.
Mirza International Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 9287 9357 10141 12306 14328
EBITDA 1735 1605 1758 2105 2635
EBITDA Margin (%) 18.7 17.2 17.3 17.1 18.4
Adj. Net Profit 781 712 777 955 1286
EPS (Rs.) 7.2 5.9 6.5 7.9 10.7
RoE (%) 20.6 15.0 14.4 15.4 17.8
PE (x)* 13.4 14.6 17.7 14.4 10.7
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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KARVY VALUE INVEST - MARCH 2018
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Company Background
Mirza International was established in 1979 (promoted by Mr.Irshad Mirza, Chairman and Mr.Rashid Ahmed Mirza,
Managing Director) is spread across 30 countries. The in-house design development team manufactures high quality
products, which are stylish and comfortable, in the integrated facilities assuring Mirza as a reliable supplier to leading
international brands. Mirza International is the leading Indian supplier of leather footwear to global brands since last
15 years. Approximately 75% of total revenue generated is derived from exports. 85% of the total overseas sales are
private label goods supplied to leading international footwear companies. These international labels come to Mirza due
to the ability to have quick deliveries, offer great build quality and maintain economic prices. At present, the company
operations span across 30 countries around the globe. The main overseas markets are UK, France, Germany and USA.
In UK, the company has garnered a 25% share in the men’s leather footwear in the mid-segment category, due to the
high market penetration underlining the strong acceptance for its products.
MIRZAINT: Technical View
MIRZAINT is in an uptrend on the monthly, quarterly and yearly charts. The stock has given a negative return during
the month so far, where it has slipped more than 17%. The stock began its rally from the levels of around 6.50
levels in the month of March, 2009. The stock gradually continued to trade higher and ultimately clocked life high of
Rs. 183.65 levels in the month of September, 2017. The stock has grown 30x to what it was in the year 2009 in
a span of 8 years. Post clocking life highs, the stock has been gradually slipping lower and has already corrected
around 38% from its all time high levels. The trend on the daily and weekly charts is negative but on the higher time
frame, the trend of the stock remains intact. Retracement when drawn from the low of 6.70 and the high of 183.65
on the monthly charts, the 50% retracement for the stock comes around Rs. 90-95 levels and 61.80% retracement
levels are seen around Rs. 74 levels. The stock is likely to find support around the said retracement levels and stage
a bounce. The immediate resistance in the stock is seen to be around Rs. 130 levels, above which Rs. 145-150
would act as the next meaningful one. Any sustenance above 150 levels may take the stock once again towards its
all time high levels of around 180 in the longer time frame. Adding to it, it has also been noticed, that the stock is
falling with decreasing volumes on the monthly charts, suggesting strong hands are holding the stock and are not
willing to exit at the current levels and waiting for reversal to happen in the counter.
KARVY VALUE INVEST - MARCH 2018
21
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 784
Target Price 1107
Upside (%) 41
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 144597 / 2223
52-wk High/Low (Rs.) 1090 / 671
3M Avg.daily value (Rs. Mn)
359.7
Beta (x) 1.1
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 184.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 48.4
FIIs 24.9
DIIs 5.3
Others 21.5
Stock Performance (%)
1M 3M 6M 12M
Absolute 1 (20) (2) (1)
Relative to Sensex 5 (17) (4) (11)
Source: Bloomberg
Bloomberg Code: NTCPH IN
Specialty Generics in U.S Market to Deliver Profits
gCopaxone and gTamiflu to Drive Large Cash Flows: Mylan
(Natco’s marketing partner) is the first to launch a generic of Copaxone
40 mg in Oct 2017 and is expected to capture a significant market share
of the US$ 800 Mn (quarterly sales) drug. Sandoz launched gCopaxone
40mg in Feb 2018. There are only 2 generics of both Copaxone 20mg and
40mg in the US market. Our estimates indicate that Natco could generate
Rs. 6,667 Mn and Rs.9,742 Mn in profit share from both 20mg and 40mg
during FY18E and FY19E respectively.
gFosrenol and gDoxil to Generate Substantial Profits: Natco’s
partner Lupin became the first to launch gFosrenol in Q2 FY18 & is
expected to be the sole generic in the foreseeable future. According to our
estimates, Natco is expected to make Rs. 444 Mn and Rs. 761 Mn in profit
share for FY18E and FY19E respectively. Natco’s partner Dr.Reddy’s is
the second generic in the difficult-to-manufacture gDoxil. Our estimates
indicate that Natco could make Rs. 1168 Mn and Rs. 1123 Mn in profit
share for FY18E and FY19E respectively.
Valuation & Outlook:
We reiterate a “BUY” recommendation with Rs. 1107 target price based
on 18x FY19E EPS of Rs. 49 and cash flow per share of Rs. 224 for
FTF/Para IV opportunities (primarily gRevlimid).The target of Rs.1107
represents a potential upside of 41%.
Key Risks:
U.S Court’s ruling against Mylan on any of the 5 Copaxone patents.
Early approvals and launch of both gCopaxone 20 mg and 40 mg in
U.S by Reddy’s and Synthon/Pfizer.
Form 483 with major observations on any of the Natco’s facility upon
inspection by U.S FDA.
Natco Pharma Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 8253 11416 20650 26458 32913
EBITDA 2134 2697 6834 10024 12433
EBITDA Margin (%) 25.9 23.6 33.1 37.9 37.8
Adj. Net Profit 1195 1552 4860 7293 9035
EPS (Rs.) 8.1 9.1 27.8 39.6 49.0
RoE (%) 17.0 14.4 32.9 38.0 35.8
PE (x)* 51.9 45.3 30.6 19.8 16.0
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
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NTCPH
Sensex
KARVY VALUE INVEST - MARCH 2018
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Company Background
Founded in 1981 and headquartered in Hyderabad, Natco is a specialty generics pharma manufacturer. It is the market
leader in India in Oncology and Hepatitis C therapeutic areas. In Indian market, Natco offers 28 oncology medicines (11
for blood cancers + 17 for solid tumors) and 5 medicines in the hepatitis therapeutic area. Six brands in the oncology
segment have INR 100 mn+ sales. Natco typically pursues a pipeline of niche and complex generics products in U.S with
Para IV and Para III filings and has over 20 approved ANDAs. Natco has 5 finished dosages facilities one each in Kothur,
Nagarjuna Sagar, Guwahati and two in Dehradun. There are 2 API facilities in Mekaguda and Chennai.
NATCOPHARM: Technical View
NATCOPHARM has witnessed stellar rally from the low of Rs. 500 levels till it clocked its life time high of Rs. 1090
levels on June 09, 2017. Thereafter, the rally took pause, on account of profit taking; price corrected and made a
52 week low of Rs. 671 levels on August 10, 2017. Post which the stock has rallied more than 56% in a very short
span of 2 months and made a high of Rs. 1050 levels. The stock faced resistance twice around Rs. 1050 levels
and corrected again more than 33%, made a low of Rs. 697 levels on March 07, 2018. Among the indicators and
oscillators front, 14 period RSI is pointing northwards and poised with bullish bias, clearly indicating the bullish
trend in the stock is likely to continue and the counter is expected to head higher in the near term. The Parabolic
SAR (Stop & Reverse) is comfortably trading below the price on daily chart, which reflects buying will remain intact
in the counter. On the weekly Bollinger Band (20,2) stock price has pierced its lower band in the earlier week and
witnessed smart rebound during the week passed by, and formed strong Bullish reversal candle, which indicates
stock price is likely to revert back to its mean in the weeks to come. The MACD has given positive crossover in
negative territory and inching towards equilibrium line, reflecting strength in the up move. The immediate support for
the stock is placed around its 52 week low of Rs. 670 levels followed by Rs. 600-610 levels, while the higher side
the stock may face resistance near Rs. 1050 levels followed by its all time high of Rs. 1090 levels, breach above the
said levels may take the stock towards Rs. 1130-1135 levels in the medium term. From the above observations, it is
evident that stock is likely to surge higher and outperform its peers in the near to medium term perspective.
KARVY VALUE INVEST - MARCH 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Mar 23, 2018) 61
Target Price 98
Upside (%) 61
Stock Information
Mkt Cap (Rs.Mn/US$ Mn) 30958 / 476
52-wk High/Low (Rs.) 110 / 60
3M Avg.daily value (Rs. Mn)
71.0
Beta (x) 1.0
Sensex/Nifty 32597 / 9998
O/S Shares(mn) 509.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 67.8
FIIs 1.6
DIIs 2.2
Others 28.4
Stock Performance (%)
1M 3M 6M 12M
Absolute (17) (33) (37) (31)
Relative to Sensex (13) (31) (39) (38)
Source: Bloomberg
Bloomberg Code: TRID IN
Robust Manufacturing Capacity; Focusing on
Increasing Asset Utilization
Margins are likely to improve on back of higher utilization
levels in home textile segment: The current utilizations between
40-50% for Bath & Bed Linen are expected to break-even in FY19E
and the utilization levels would increase to optimum level of ~85% by
FY20E-21E. EBITDA margins could be in a range of ~18-22% in FY19E
& FY20E which could be possible by rising captive consumption of yarn,
rising share of high-margin home textiles. However, cheaper raw material
and stronger realizations have led to margins improving to 39% in FY18E.
Muted performance from home textiles due to multiple
headwinds: Due to uneven procurement cycle & destocking by some
of large customers in US, the industry saw pressure in volumes in FY18E,
due to which terry towel utilization fell further in this year from 50% in FY17
to 45%. In case of Yarn, utilization increased further to 95% with lower
captive consumption leading to higher yarn sales which also impacted
margins negatively. Apart from de-stocking, stronger rupee and higher
cotton price continue to remain key headwinds for the textile industry.
Expecting Sustainable Profitability: Challenges like uneven vendor
procurement cycle, higher commodity price are expected to overcome in
FY19E and anticipating sustainable profitability through higher utilization
levels in home textile segment and margin expansion through value added
products. Considering limited capex of Rs. 1000 Mn each year, the cash
generated by the operations is to be used to deleverage the balance
sheet, management expecting a reduction of debt by Rs. 4000Mn every
year for FY19E-20E.
Valuation and Risks: Considering risks of INR appreciation, rough
cotton season is expected to be overcome in FY19E. At the current
inexpensive valuation of 5.9x FY20E P/E, we have given “BUY” rating
with a target price of Rs. 98, based on 9.5x P/E FY20E, representing an
upside potential of 61%.
Trident Ltd
Valuation Summary
YE Mar (Rs. Mn) FY17 FY18E FY19E FY19E FY20E
Net Sales 37112 47438 47540 52895 57892
EBITDA 7297 8883 8530 9923 11725
EBITDA Margin (%) 19.7 18.7 17.9 18.8 20.3
Adj. Net Profit 2421 3372 3157 4030 5268
EPS (Rs.) 4.8 6.6 6.2 7.9 10.3
RoE (%) 10.4 13 10.8 12.2 13.8
PE (x)* 10.8 13 9.8 7.7 5.9
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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75
90
105
120
135
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
-18
Feb-18
Mar-18
TRID
Sensex
KARVY VALUE INVEST - MARCH 2018
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Company Background
Headquartered in Ludhiana (Punjab), the company operates in two major business segments of home textiles and
paper; with manufacturing facilities located in Punjab and Madhya Pradesh. Keeping in view the increasing requirements
of continuously expanding operations, the company has manufacturing capacities of Terry towels with 688 looms,
bed sheets with an operating capacity of 500 looms, yarn capacity of ~0.56 Mn spindles and 5504 rotors. Trident is
generating captive power to meet the demands of the industry with the production capacity of 50 MW. The company has
a customer presence in more than 75 countries spread across six continents. The company’s prominent international
customers include nine of ten largest American retailers, six leading European retailers and five of the seven largest
Australia and New Zealand-based retailers.
TRIDENT: Technical View
Trident Ltd is in a strong uptrend in the longer time frame say, monthly, Quarterly and Yearly charts. The stock is
down around 8% for the month as on date. The stock has been part of a massive rally where it has moved from the
levels of around 6 towards Rs. 110 levels. The rally began sometime in July 2013 and it took just a tad more than
4 years to clock its life time highs of Rs. 109.50 levels in the month of September’2017. The stock has witnessed a
stellar rally and has been a multi bagger, growing more than 18 times in a span of just 4 years. Since the beginning
of its rally in 2013, the stock has been continuously heading higher with minor corrections. The stock has a tendency
to resume its fresh up move once the minor correction is over in the counter. The stock after clocking fresh highs in
September, 2017 has been under correction mode, slipping more than 40% from its highs. The immediate supports
for the stock is seen to be around Rs. 60 levels, sustaining below which it may extend its downward journey towards
52-53 levels in the near term. Though the stock is looking weak on the daily and weekly charts, the upward trend is
intact in the longer time frames. Retracement when drawn from the low of 6 and the high of 109.50 on the monthly
charts, the 50% retracement for the stock comes around Rs. 55 levels and 61.80% retracement levels are seen
around Rs. 45-46 levels. The stock is likely to find support around the said retracement levels and stage a bounce.
The immediate resistance in the stock is seen to be around Rs. 75 levels, sustaining above which it may rally
towards 82-83 in the short to medium term. Any sustenance above Rs. 84 levels, will take the stock towards Rs.
93-95 levels in the longer time frame.
KARVY VALUE INVEST - MARCH 2018
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Value Invest - Midcap (VI) is an investment product of Karvy Stock Broking Ltd formulated by our
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Disclaimer
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