idirect gladiatorstocks series14 -...

ICICI Securities Ltd. | Retail Equity Research

Gladiator Stocks: Series 14.0 Britannia Industries (BRIIND) (CMP- | 2330.00) Technical View

Strategy: Buy Britannia Industries in the range of | 2300.00-2330.00 for a target price of | 2840.00 with a stop loss below | 2135.00 on a closing basis

The stock has remained an outperformer within the FMCG sector as it continued to attract investor participation even though cyclicals took centre stage post the 2014 general elections. The sheer outperformance and robust price structure makes this an attractive bet to ride the larger up trend.

Key technical observations The share price is seen embarking upon the next up leg as it concludes four weeks of consolidation, thereby

offering a fresh entry opportunity to ride the secular bull trend The secular bullish trend in the stock is clearly visible from the rising peak and trough formation on the longer

time interval chart (refer exhibit 1). Significantly, the cornerstone of the entire rally since June 2014 has been that the rallies are faster and larger in magnitude while corrections have remained shorter and shallow. Such behaviour of the price pattern points towards the growing appetite to own the stock generating steady demand

More recently, the stock took a breather and consolidated in the range of | 2200-2050 for four weeks before scaling back to life-time highs in the last week signalling the end of the corrective phase and resumption of primary up trend. Structurally, the stock retraced its preceding four week rally (| 1846-2246) by only 38.2% while taking equal time for the rally, which highlights the firm grip of bulls in the present scenario. The 38.2% Fibonacci retracement level of | 2100 also coincided with the rising eight-week EMA (then placed at | 2089), which has historically acted as a strong support over the past year. Furthermore, since June 2014, none of the corrections lasted more than four weeks. Even the recent correction was over in four weeks continuing with the rhythm

On the oscillators front, the weekly RSI tested its bull market support band placed around the reading of 70 during the recent correction and bounced back from thereon to confirm strength in the price up move from the value area of | 2080. This signals continuance of the upward momentum in the short-term

Conclusion: Considering the overall technical set up, we expect the stock to head towards | 2850 in the medium term. The value of the higher band of the rising trend channel, which encompasses the price rally since October 2014, is placed around | 2850 over the next two quarters.

Gladiator StocksApril 15, 2015

Time frame: 6 months

Key Technical Data Recommended Price 2300-2330

Price Target 2840.00

Stoploss 2135.00

52 Week High 2345.00

52 Week Low 820.95

50 days EMA 2115.00

200 days EMA 1682.00

52 Week EMA 1623.00

*Recommendation given on i-click to gain on April 15, 2015 at 09:55 hrs

Stock price movement vs. BSE FMCG

6,400

6,900

7,400

7,900

8,400

8001,0001,2001,4001,6001,8002,0002,2002,400

Apr-1

4M

ay-14

Jun-1

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Aug-1

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p-14

Oct-1

4No

v-14

Dec-1

4Ja

n-15

Feb-1

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ar-15

Apr-1

5

Britannia BSEFMCG

Price performance over last five years

23%8% 11%

85%100%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014Year


Exhibit 1: Britannia Industries – Weekly Candlestick Chart

Source: Bloomberg, ICICIdirect.com Research

Research Analyst

Dharmesh Shah [email protected] Nitin Kunte, CMT [email protected] Dipesh Dagha [email protected] Pabitro Mukherjee [email protected]

The stock is seen resolving out of four weeks of consolidation. We expect current up move to lead towards | 2850 being value of higher band of rising trend channel over next couple of quarters

Weekly RSI is rebounding from its bull market support threshold of around reading of 70 and supports the bullish outlook on price front

2246

38.2% @ 2080

1846

Rising 8-week EMA

821

1511

690 points

946 points

1300

Target @ 2850


Fundamental view

• Britannia is a leading food company in India delivering products in over five categories viz. biscuits, breads, dairy, cakes and rusk. It reaches more than half of the Indian population with a presence in ~3.5 million retail outlets

• Britannia is one of the largest players in the country’s ~| 24000 crore biscuit industry. The overall biscuit market is expected to grow at ~8%. Britannia enjoys a market share of ~30%, second only to Parle in the biscuits segment. The premium sub-category of cookie-plus-cream biscuits is ~| 7200 crore in size. In this sub-category, Britannia has a market share of ~24% while Parle and ITC stand at ~25% and ~15%, respectively. However, in the cookie segment under biscuits, Britannia is the market leader with an estimated share of ~30% ahead of both the competitors ITC and Parle

• The company witnessed a CAGR of ~14% on the revenue front between FY11 and FY14 while PAT grew at ~43% during the same period. The operating margin of the company improved from ~5.4% in FY11 to ~9.5% in FY14. This supported the increase in the profitability of the company. The significant reason for the increase in operating margin was the company’s increased focus behind the value-added premium products having higher realisation and higher margin. The company’s major brands include Good Day, MarieGold, Tiger, 50 50 and NutriChoice. Their sales account for a major portion of the company’s revenues with NutriChoice contributing ~6-7% of revenues

• Looking at the recent developments within the company, the company has been focusing on premiumisation as a key revenue driver, going forward, given that the premium biscuits category is growing at ~17% per annum. Britannia has also been among the first consumer goods companies to tap online retail sites for distributing products. Last year, it introduced Good Day Chunkies through Amazon.In exclusively for a fortnight before the brand was distributed to stores

Stock Data

Particular AmountMarket Capitalization (| Crore) 28,579.0Total Debt (FY14) (| Crore) 28.4Cash and Investments (FY14) (| Crore) 306.9EV (| Crore) 28,300.552 week H/L 2320 / 820.95Equity capital 12.0Face value 2.0

Stock return (%) Stock Return ( 1M 3M 6M 12MBritania 7.2 19.1 71.5 160.3 ITC 3.2 (2.9) (0.2) 1.8 GSK Consume 4.2 10.2 21.8 42.3 Neslte (2.4) 6.1 18.7 47.3

Key metrics FY11 FY12 FY13 FY14

P/E 210.8 142.1 114.0 76.8 Div. Yield 1.8 1.4 1.6 1.4 Mcap/Sales 6.2 5.2 4.7 4.2 RoNW (%) 39.1 54.0 37.7 59.7 RoCE (%) 20.7 27.5 53.5 58.3

Financial highlights | Crore FY11 FY12 FY13 FY14Net Sales 4,605 5,461 6,136 6,829 EBITDA 300 370 473 661 Net Profit 134 200 260 370 EPS(|) 11 17 22 31

Source: ICICIdirect.com Research


Atul Auto (ATUAUT) (CMP- | 580.00)

Technical view

Strategy: Buy Atul Auto in the range of | 568–580 for a target price of | 710.00 with a stop loss below | 525 on a closing basis

Key technical observations The share price of Atul Auto emerged as one of the star performers from the small cap auto space during the

2014 bull market as it accelerated full throttle to post a five-fold rally from the low of | 124 to the all-time high of | 721. The stock is currently poised at an attractive value area while the base formation underway in the past three months is approaching maturity. This provides a good entry point for long term investors to position themselves for the next major up move within the larger uptrend

The corrective decline from the life-time high of | 721 got arrested around | 550 levels, which is a key value area for the stock based on the confluence of the following technical parameters:

• The December 2014 and January 2015 lows are placed at | 526 and | 550 levels, respectively • The 50% retracement of the last major up move from November 2014 to January 2015 (| 374 to | 721)

is placed at | 550 levels • The value of the rising 100 day EMA, which has historically acted as a key support during intermediate

corrections was then placed at | 545 levels After the initial corrective decline, the stock witnessed a steady base formation between | 50 and | 600 for over

two months between February and March 2015. This narrow range bound consolidation above the key support threshold of | 550 highlights accumulation by stronger hands at the key value area. In Wednesday’s session, the stock has witnessed a strong thrust past the upper band of last two months base formation range above | 600. The price breakout is accompanied by strong volumes, which are more than thrice the 50 day average volume of 93000 shares per day. This confirms an end of the corrective phase and resumption of upward momentum, which implies a strong possibility of the stock heading to challenge its life-time high of | 721 in the medium-term

Among oscillators, the MACD (E-12/26/9) had flattened just below its trigger line and sustained above its nine period average while prices witnessed a base formation. The oscillator has now ventured into positive territory above its trigger line indicating build-up of positive momentum, which augurs well for the stock, going forward

Conclusion: We believe the stock has concluded a healthy corrective phase and is set to embark upon its next up move and challenge its life-time high of | 721 in the medium-term. Therefore, it provides an attractive entry opportunity along with a good risk-reward set up for medium term investors to ride the next up move

Time frame: 6 months

Key Technical Data Recommended Price 568-580

Price Target 710.00

Stoploss 525.00

52 Week High 721.80

52 Week Low 168.50

50 days EMA 574.00

200 days EMA 471.00

52 Week EMA 448.00

*Recommendation given on i-click to gain on April 15, 2015 at 10:07

Stock price movement vs. BSE Small Cap index

6,700

7,700

8,700

9,700

10,700

11,700

160

260

360

460

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660

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Atul Auto BSESmallCap

Price performance over last five years

141%

11%

149%

82%

369%

0%

80%

160%

240%

320%

400%

2010 2011 2012 2013 2014


Exhibit 2: Atul Auto – Daily Bar Chart

Source: Bloomberg, ICICIdirect.com Research

The share price has resumed upward momentum after the strong thrust past the upper band of the base formation range above | 600 levels. We believe the stock has concluded a healthy corrective phase and is all set to challenge its life high of | 721 levels over the medium term

The MACD has ventured into positive territory above its trigger line signalling strength in the current up move

Strong volumes accompanying price rallies and shallow volumes during intermediate corrections highlights the overall positive price structure

Dec’14 & Jan’15 Lows @ 550

375

Base formation at 100 day EMA (|545) & 50% retracement of Nov’14-Jan’15 rally at |550

721


Fundamental view

• Atul Auto’s growth trajectory has been impressive with volumes growing at ~40% CAGR in FY09-14 even as the domestic three-wheeler (3-W) segment has grown at ~7% CAGR over the same period. Volumes have been improving on the back of added dealerships and increasing geographic presence along with market share gains in existing markets. Currently, Atul is present in nearly all states barring Tamil Nadu and West Bengal. Also, the dealer network comprises 200 primary dealers and ~125 sub-dealers across the country. The management has guided that the number of primary dealerships will rise to ~300 by the end of FY17E. This would help meet Atul’s aspiration of ~ 20% volume growth.

• With the management guiding that the new petrol engine product likely to be launched in the next six months, we believe Atul’s volumes are likely to grow faster. The petrol product is also likely to boost export volumes with the management expecting exports to grow exponentially on a low base. Currently, petrol/alternate fuel engine products, accounts ~40% of total domestic 3-W market, further providing strong growth opportunity.

• In a segment that offers little scope for product differentiation, Atul has been able to carve out a niche for itself focusing more on providing good after-sale service and product customisation. The continued volume growth and product acceptance is now expected to lead to doubling of capacity. This facility would be focusing on export demand, which the company expects to significantly rise as it competes with a complete diesel/petrol portfolio. The facility is likely to be fully operational by H2FY17E. Capex requirement for the project is likely to be ~| 150 crore, to be funded through internal accruals.

• Despite continued volume growth, Atul’s margins have remained largely subdued over the past two years as conversion costs have been high and the sluggish market scenario has prevented OEMs from passing on costs. Going ahead, we believe an improvement in volumes, better product mix and benign costs would lead to sharp gross margin expansion. Also, with a further improvement in utilisation levels, operating leverage benefits are likely to accrue and aid margins. Thus, we believe margins will trend higher and grow to 14.0%, 15.0% in FY16E, FY17E, respectively

• We feel Atul’s specialised focus has clearly paid rich dividends as evidenced by market share gains. We believe that with further capacity addition and new petrol product launch, Atul can efficiently tap export markets along with urban markets in India and, thereby, continue the strong growth momentum. Strong growth potential coupled with strong balance sheet and robust return ratios (>40% RoCE), hence we are positive on the stock.

Stock Data

Particular AmountMarket Capitalization | 1338.3 CroreTotal Debt (FY14) | 0 CroreCash (FY14) | 45 CroreEV | 1293.3 Crore52 week H/L (|) 722 / 168Equity capital | 11 CroreFace value | 5DII Holding (%) 9.0FII Holding (%) 3.3

Stock return (%) 1M 3M 6M 12M

Atul Auto Ltd -1.6 -12.8 62.3 218.7Bajaj Auto Ltd 3.6 -9.8 -10.8 4.4TVS Motor Company Ltd -8.2 -17.5 14.3 175.1

Key metrics FY14 FY15E FY16E FY17E

P/E (x) 44.9 30.1 21.7 15.2 EV/EBITDA (x) 28.5 21.6 15.2 10.6 P/BV (x) 14.2 11.2 7.9 5.8 RoNW (%) 31.6 37.1 36.6 38.1 RoCE (%) 42.5 46.6 48.4 49.4

Financial highlights | Crore FY14 FY15E FY16E FY17ENet Sales 429 512 630 806 EBITDA 45.4 61.5 88.0 120.7 Net Profit 29.8 44.5 61.7 87.8 EPS (|) 13.6 20.3 28.1 40.0

Source: ICICIdirect.com Research


Strategy Follow up Date Scrip Product Strategy RP Target SL Gain/Loss % Comment9-Jun-14 EIH Hotels Cash Buy 94.00 150.00 74.0 32.0 Booked 50% profit at 124.00

9-Jun-14 Essel Propack Cash Buy 95.00 155.00 64.00 31.00 Booked 50% profit at 124.009-Jun-14 Federal Bank Cash Buy 117.00 165.00 97.0 17.0 Booked 50% profit at 136.50

9-Jun-14 SBI Cash Buy 271.00 351.50 235.00 Open1-Dec-14 Castrol India Cash Buy 496.00 660.00 430.0 Open

27-Jan-15 Cummins Cash Buy 880.00 1070.00 795.00 Open2-Mar-15 Simplex Infra Cash Buy 432.00 565.00 375.0 17.0 Booked 50% profit at 506

4-Mar-15 Page inds Cash Buy 12400.00 15800.00 11100.00 9.00 Booked 50% profit at 135004-Mar-15 Cox & Kings Cash Buy 322.00 418.00 285.0 Open

17-Mar-15 Torrent pharma Cash Buy 1135.00 1340.00 1020.00 17.00 Target almost achieved9-Apr-15 Hindustan Unilever Cash Buy 916.00 1,095.00 838.0 Open

9-Apr-15 Concor Cash Buy 1685.00 2070.00 1510.00 Open9-Apr-15 Kansai Nerolac Cash Buy 233.50 275.00 213.0 Open


NOTES:

• It is recommended to enter in a staggered manner within the prescribed range provided in the report

• Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis

• The recommendations are valid for three to six months and in case we intend to carry forward the position,

it will be communicated through separate mail. Trading Portfolio allocation

• It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products

• Please avoid allocating the entire trading corpus to a single stock or a single product segment

• Within each product segment it is advisable to allocate equal amount to each recommendation

• For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate

equal amount to each recommendation


Recommended product wise trading portfolio allocation

Allocations Return Objective

Products Product wise allocation

Max allocation in 1 stock

Number of Calls Frontline Stocks Mid-cap stocks

Duration

Daily Calls 8% 2-3% 3-4 Stocks 0.50-1% 2-3% Intraday Short term Delivery 6% 3-5% 7-10 p.m 4-5% 7-10% Opportunity based Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technical 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Technical Breakout 15% 5-10% 1-2 Stocks 10% and above 15% and above 3-6 Months Cash in Hand 10% - - - - -

100%


Pankaj Pandey Head – Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai – 400 093 [email protected]


Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

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