small mid cap stock picks - rakesh jhunjhunwala...we rate cera sanitaryware a buy. cera...

S

Smaall &

P

& M

Pick

Mid

ks

d Caap MICR

RESE

9th Septem

ROSEC

EARCH

mber, 201

C

H

2 1

Microsec Research 7th September 2012

Dear Patrons,

Given below is a list of 9 stocks in the small and mid cap space which have the potential to give good returns. Despite the current

broad negative Equity investment scenario in India which is a result of weak domestic economic developments and uncertain

global scenario, these companies have the ability to ride the waves and emerge stronger as India continues to remain a growth

story based on various demographic factors. The selected stocks are filtered in a way that risks associated with equity investment

are adequately addressed and valuations of these companies remain attractive given their sustainable business model and growth

potential.

The selected stocks are:

We expect the current selected companies to give a return of ~30-35% annually with a 3 Year Perspective.

Also, from the above table displaying past performance, it is evident that our Thematic Pick christened “Brand Value Picks”

dated 13/08/2009 has given an average absolute return of 304%, outperforming Sensex, BSE Midcap and BSE Small Cap by a huge

gap. Given below is a link to the report of our “Brand Value Picks”.

http://www.microsec.in/Static/Pdf/634445116595490000_brand%20value%20picks%20Aug%2013%2009.pdf

Happy Investing,

Team Microsec Research

Company CMP

Amara Raja Batteries 389

Cera Sanitaryware 350

Dhanuka Agritech 92

La Opala 127

PI Industries 521

Somany Ceramics 44

Tide Water Oil 7822

Wimplast 328

Zensar Tech 253

Current Small & M id Cap Picks

Past Performance

CompanyRe cc Pr ice

13/08/2009

CMP

31/08/2012

Re turn

3 yr s

Hawkins Cookers 367 1687 360%

TTK Prestige 157 3137 1893%

Greenply 112 184 64%

Pidilite 70 190 172%

Emami Ltd 193 489 153%

Castrol 112 298 165%

Bajaj Electricals 111 171 54%

Bata India 162 889 449%

Blue Star 345 177 -49%

Zodiac 133 173 30%

Navneet Publications 35 54 54%

Average Re turn in 3 year s 304%

Se nse x 15519 17430 12%

BSE MID CAP 5608 6005 7%

BSE Small CA P 6387 6395 0%

Note: Recommended Price adjusted to Split, Bonus, etc.

2


Table of Contents:

S.No. Particulars Sector Page Number

1 Amara Raja Batteries Ltd Auto Ancillary 3-4

2 Cera Sanitaryware Ltd Sanitaryware 5-6

3 Dhanuka Agritech Ltd Agrochemicals 7-8

4 La Opala R G Ltd Kitchenware Glass 9-10

5 PI Indutries Ltd Agrochemicals 11-12

6 Somany Ceramics Ltd Sanitaryware 13-14

7 Tide Water Oil (India) Ltd Lubricants 15-16

8 Wimplast Ltd Plastic Products 17-18

9 Zensar Technologies Ltd Information Technology 19-20

10 Disclaimer……………………………………………………. 21-23

3


We rate Amara Raja Batteries Limited a BUY. Amara Raja Batteries Limited specializes in the

manufacture of Industrial and automotive batteries. The company manufactures industrial

batteries primarily for the telecom and UPS sectors. Amara Raja manufactures automotive

batteries for the original equipment manufacturers and the aftermarket.

Investment Highlights

Amara Raja to hike four-wheeler battery capacity

Amara Raja Batteries is expanding its four-wheeler battery manufacturing capacity at its

Chittoor plant with an outlay of Rs 14 crore. This expansion will take the battery capacity up

from 5.6 million units to 6 million units a year. The capacity utilization for four-wheeler

batteries is now at 86% and projected to touch 90% by the year end. The two-wheeler

battery capacity is 4.8 million units a year; of this, 3.6 million units go to replacement and

the rest to OEMs.

Improvement of Margin may attract investor

Amara Raja Batteries reported 32% YoY growth in its top-line at Rs694Cr. On a QoQ basis,

top-line improved by ~3%. On account of better product mix and robust top-line, EBITDA

grew by a massive 76% YoY at Rs120Cr. Led by robust operational performance and higher

other income, PAT grew by 95% YoY to Rs76Cr.

Replacement demand to boost volumes & margin

In the past, auto industry has registered an extraordinary sales growth of ~30% in Original

Equipment Manufacturer. As per SIAM, the overall industry is expected to grow around

9%-11% for FY13E. OEM segment contributed around 26 % of the total turnover in 2011-

12 in the replacement market and is expected to register a growth of 11-13 % in 2012-13.

Going forward we expect the demand coming from replacement market which will drive

the volume and margin for the company.

Amara Raja Batteries Ltd

BUY Sector- Auto Ancillary

Promoter

and Promoter

Group

52.06%

FII

6.39%

DII19.41%

Non Institution

22.14%

Shareholding

Current Market Price (INR) 388.80

52 Week High/Low (INR) 404.00/190.00

Market Capitalization (In INR Cr) 3,320.60

Market Data

BSE Code 500008

NSE Code AMARAJABAT

Bloomberg Ticker AMRAJ IN

Reuters Ticker AMAR.BO

Face Value (INR) 2.00

Equity Share Capital (In INR Cr) 17.08

Average P/E (5 Years) 9.30x

Beta vs Sensex 0.71

Average Daily Volume 75,467

Dividend Yield 1.29%

PEG Ratio N.A

STOCK SCAN

Saroj Singh

Executive Research

Email [email protected]

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

Amara Raja Batteries Ltd.close

SENSEX

4


Management

Name Designation

Ramachandra N Galla Chairman

Jayadev Galla Managing Director

P Lakshmana Rao Independent Non-Executive Director

T R Narayanaswamy Independent Non-Executive Director

N Sri Vishnu Raju Independent Non-Executive Director

Nagarjun Valluripalli Independent Non-Executive Director

Craig W Rigby Casual Vacancy Director

Shu Qing Yang Non Executive Director

N Ramanathan Company Secretary

Products / Services

Amara Raja Batteries has diversified its batteries product in two segments as follow:

a) Automotive Batteries

b) Industrial Batteries

Automotive Batteries

Pro, Flo, Go, Black, Fresh, Hi-way, Harvest and Sheild

Industrial Batteries

Powerstack, Amaron Quanta, Amaron Volt, Amaron Sleek, and Applications

Valuation

We maintain our positive outlook on Amara Raja Batteries. At the CMP of INR388.80, the

stock is trading at 12.60x its FY13E EPS of INR30.84.

Key Risks

If there is slowdown in the Automobile sector then it may adversely impact Amara Raja

Batteries.

Significant rise in lead price is one of the key risks as it directly impacts Amara Raja

Batteries margin.

5

7th September 2012 Microsec Research

We rate Cera Sanitaryware a BUY. Cera Sanitaryware, incorporated in 1998, is a pioneer in

the sanitaryware segment in India. The Company is engaged in the manufacturing of

sanitarywares, trading of bathroom accessories and captive non conventional energy. Cera

Sanitaryware sells its products through Cera Bath Studios, which provides a full view of

ranges of wash basins, shower panels, shower cubicles, bath tubs, shower temples,

whirlpools, cp fittings etc to its customers.


Expansion plan to increase the capacity of sanitaryware to fuel growth: Cera has undertaken

an expansion plan with a capex of around 140 crore to increase the capacity of its sanitary

unit from 2 million pieces per year to 2.7 million pieces per year and also the capacity of

faucet plant from 2500 pieces per day to 5,000 pieces per day over a time period of 2 years.

This is expected to boost the topline of the company and support its growth plan going

forward.

Cera Style Studios and Cera Style Galleries improving retail experience for its prospective

consumers: Cera Style Studios and Cera Style Galleries are diplay centres. In Cera Style

Studios, consumers, architects and interior designers can have full view of the Cera’s

premium ranges of Wash Basins, Shower Panels, Bath Tubs, Shower Temples, CP fittings

etc. In Cera Galleries, customers can not only touch and feel, but take home their favorite

Cera design. Cera Bath Galleries are owned and managed by Cera’s dealers. It has currently

7 Cera Studios and 36 Cera Style Galleries. They have been of a great impact in improving

the reatil experience for its prospective customers.

Strong Growth in Financials, Strong ROE and Low D/E from past 5 yeas : Cera’s Net Sales

increased by 31% to INR319 crore and Net profit jumped by 21% to INR32 crore in FY12.

ROE of the company came at 25.6% with a D/E ratio of 0.24. In the last 5 years, Net sales

and PAT have grown at an average growth of 25% and 29% respectively. Average ROE of

the company came at 24%. .

Exhibit 1. Cera Sanitaryware – Historical Financials and Projections

Particulars FY2010A FY2011A FY2012A FY2013E FY2014E

Net Sales 191.4 243.0 319.4 422.0 548.0

Growth (%) 27% 31% 32% 30%

EBITDA 36.1 45.7 53.4 70.0 91.5

EBITDA Margins (%) 18.86% 18.81% 16.72% 16.59% 16.70%

Net Profit 19.6 26.6 32.0 41.6 53.4

Net Profit Margins (%) 10.24% 10.95% 10.02% 9.86% 9.74%

Net Profit Growth (%) 36% 20% 30% 28%

EPS 15.5 21.0 25.3 32.8 42.2

BVPS 70 88 110 140 179

P/E 22.6 16.7 13.8 10.7 8.3

P/BV 5.0 4.0 3.2 2.5 2.0

RoE 25.0% 26.6% 25.6% 26.3% 26.5%

Source: Company, Microsec Research (In INR Crore)

Cera Sanitaryware Ltd.

BUY Sector – Sanitaryware

Analyst: Naveen Vyas

Email id : [email protected]

BSE Code 532443

NSE Code CERA

Bloomberg Ticker CRS IN

Reuters Ticker CERA.BO


Equity Share Capital (Rs. cr.) 6.33

Average 3Year P/E 9.0x

Beta vs Sensex 0.5x

Average Daily Volmes (6 M) 24,000

Dividiend Yield 0.86

PEG Ratio NA

STOCK SCAN


52 Week High / Low (INR) 374 / 158

Market Capitalization (In INR cr) 443

Market Data

Shareholding

DII

0.05%

Others

41.62%

FII

2.97%

Promoters

55.36%

80.00

100.00

120.00

140.00

160.00

180.00

200.00

9/9/

11

10/9

/11

11/9

/11

12/9

/11

1/9/

12

2/9/

12

3/9/

12

4/9/

12

5/9/

12

6/9/

12

7/9/

12

8/9/

12

Cera Sanitaryw are SENSEX

6


Product Profile

Sanitaryware

Faucets

Wellness

Kitchen Sinks

Mirrors

Personal Care

Green products

Brand of the Company

CERA

Key Management profile

Vikram Somany - Chairman & Managing Director

Mahindra Kumar Bhandari – Director Technical Narendra N Patel - President & Company Secretary

VALUATION

At the CMP of INR350 the stock discounts its FY13E EPS of INR32.8 by 10.7x and its

FY14E EPS of INR42.2 by 8.3x. With Strong Brand Value, Consistent financial growth,

Strong ROE and under-penetrated organised industry, the prospect of the company looks

bright.

Key Concern

Any major slowdown in the Real-estate sector may negatively impact its top line as well as

bottomline.

Increase in the Raw Material prices (like Sand, Sandstone, clay, chemical fitting) may

negatively impact the bottomline of the company

7


We rate Dhanuka Agritech Limited (Dhanuka) a BUY. The company is in the business of pesticides, seeds and wind mill. It was incorporated in 1985. Dhanuka has 4 manufacturing facilities at Gurgaon and Sohna in Haryana, Sanand in Gujarat and Udhampur in J&K for formulation of various grades of pesticides. In addition to that, the company has 2 seed processing units at Mandideep in Madhya Pradesh and Turkapalli in Andhra Pradesh. The company has a research and development (R&D) unit, established in 1984 by the name of Dhanuka Agriculture Research Centre to carry out in-house field research and process development. The R&D unit received recognition from the Department of Science and Industrial Research and Ministry of Science and Technology. Dhanuka has technical collaboration with Du Pont, FMC Corporation, Chemtura Corporation, Sumitomo Chemical Co. and Mitsui Chemicals to introduce internationally proven products in the domestic market.


Focus on products launch boost revenue growth. During CY2012, company launched “Fuzi Super” (Rice Herbicide) and “Fluid” (Insecticide for control of caterpillars in pulses, vegetables, rice). 6-8 products to be launched over 2-3 years.

Expansion of distribution network leads to volume growth. Currently, it has 7,200 distributors (against 6,400 distributors in FY11) across India.

Exhibit 1. Dhanuka – Historical Financials and Projections


Revenue 4,455.49 4,910.03 5,291.88 6,246.25 7,260.00

Growth (%) 21.06% 10.20% 7.78% 18.03% 16.23%

EBITDA 587.22 785.78 800.38 938.75 1,103.67

EBITDA Margins (%) 13.18% 16.00% 15.12% 15.03% 15.20%

Net Profit 363.38 511.12 571.30 675.50 762.33


Net Profit Growth (%) 56.62% 40.66% 11.77% 18.24% 12.85%

EPS 7.92 10.22 11.42 13.50 15.24

BVPS 21.17 34.09 42.90 53.30 42.90

P/E 6.49 7.63 7.35 6.82 6.04

P/BV 2.43 2.29 1.96 1.73 2.15

RoE 6.8% 38.2% 29.7% 28.1% 31.7%

EV/EBITDA 4.65 5.30 5.41 5.04 4.29

Source: Company, Bloomberg, Microsec Research

Products / Segments

Dhanuka is mainly in the business of herbicides, insecticides, fungicides and seed treatment. The top three brands of the company are Targa Super (Herbicide), Caldan (Insecticide) and Omite among which Targa Super alone contributes 20% of its revenue. Apart from these top three brands, Dhanuka

Dhanuka Agritech Ltd

BUY Sector- Agrochemicals

Research Analyst: Gargi Deb

Email : [email protected]

Phone Number : 91 22 2285 5544


52 Week High (INR) 114.80

52 Week Low (INR) 80.10

Market Capitalization (In INR Mn) 4,604.29

Market Data

BSE Code 507717

NSE Code DHANUKA

Bloomberg Ticker DAGRI IB

Reuters Ticker DHNP. NS


Equity Share Capital (In INR Mn) 100.05

Average P/E 9.0x

Beta vs Sensex 0.65


Dividend Yield 2.4%

PEG Ratio NA

STOCK SCAN

8


has other established brands like Bombard (Insecticide), Brigade (Insecticide), Vitavax Ultra (Fungicide) and Vitavax Power (Seed Treatment).

Management

Valuation

Dhanuka traded at an average P/E of 10x in last 3 years. Currently, the stock trades at a P/E of 8.06x of FY2012 EPS. At the CMP of `92.05, the stock discounts it’s FY2013E EPS of `13.50 at 6.8x.

Key Risks

1. The adverse crop conditions due to unpredictability of weather are likely to affect the demand of pesticides.

2. The volatility of exchange rate may impact margins as 30% of raw materials are being imported.

3. Lack of diversification in revenue as 99% revenue is coming from pesticide business and it has the dependency on domestic market only.

4. Restriction on import of cheaper raw materials from China along with the inability to pass on raw material costs may hamper margins.

Ram Gopal Agarwal Chairman Board member of Hindon Mercantile, Megh Garm-Fab, Dhanuka Infotech, HD Realtors

Mahendra Kumar Dhanuka MD Board member of Haryana Pesticides Mfgrs Association, Dhanuka Lab, Golden Overseas, Madhuri Designs Export

V K Bansal CFO Earlier served as CFO of GPI Textiles LtdRahul Dhanuka Director:

MarketingBoard member of Dhanuka Lab, Golden Overseas, Exclusive Leasing & Finance Ltd

Board of Director

9


We rate La Opala R G Ltd a BUY. La Opala, Promoted by Sushil Jhunjhunwala, is India's

leading manufacturer of semi-vitreous tableware and kitchenware. It has a wide range of

opalware and crystalware products selling under established brands like La Opala, Diva and Crystal. The company also exports its products to more than 30 countries. It has products

spread across the value chain. It also channelises its products through modern retail stores.


Commencement of its Expansion plan of Opal Ware Capacity at its Sitarganj plant: The

company, which had earlier taken a capacity expansion plan with a capex of around INR25

crore, at its Siatrganji Plant in Uttarakhand, for doubling the capacity of its Opal ware to

12580 metric tonnes, has started its commercial production from July 2012. This is expected

to boost the Sales of the company going forward.

Established Brand name in Crockery Segment : La Opala has an established brand name in

the crockery segment in india. It has products spread across the value chain. It’s brands –

‘La Opala’ caters to mass market whereas ‘Diva’ and ‘Crystal’ caters to high-end market. It

has 100-strong distributor network to support the growth of its brands.

Strong Growth in Financials in FY12: La Opala’s Net Sales increased by 19% to INR115

crore and Net profit Ex EO jumped by 37% to INR12.7crore in FY12. EPS came at INR12.0

per share. ROE of the company came at 25.2% with a D/E ratio of 0.24. It has also been a

consistent dividend payer from past 10 years.

Anti-dumpting Duty imposed on imported glassware from China and UAE to benefit La

Opala: Indian Government has imposed an anti-dumpting duty on cheap imports of opal

glassware from China and UAE for a period of 5 years on December 2011, attracting a duty

in the range of 36-110% of the landed cost. This action, unless revoked, will help in

increasing the market share of the company and benefit the company in the year to come.

Exhibit 1. La Opala R G Ltd – Historical Financials and Projections


Net Sales 75.1 96.4 115.0 141.5 178.2

Growth (%) 28% 19% 23% 26%

EBITDA 13.3 21.2 26.8 31.3 39.7

EBITDA Margins (%) 17.71% 21.99% 23.30% 22.12% 22.28%

Net Profit 2.8 9.3 12.7 15.3 19.8


Net Profit Growth (%) 232% 37% 20% 29%

EPS 2.6 8.8 12.0 14.4 19.8

BVPS 36 43 52 65 82

P/E 48.5 14.4 10.6 8.8 6.4

P/BV 3.5 3.0 2.4 2.0 1.6

RoE 7.5% 22.3% 25.2% 24.5% 25.4%

Source: Company, Microsec Research (In INR Crore)

La Opala R G Ltd

BUY Sector – Kitchenware Glass

Analyst: Naveen Vyas

Email id : [email protected]

BSE Code 526947

NSE Code LAOPALA

Bloomberg Ticker LOG IN

Reuters Ticker LAOP.BO


Equity Share Capital (Rs. cr.) 10.60

Average 3Year P/E 10.4x

Beta vs Sensex 0.7x

Average Daily Volmes (6 M) 13,300

Dividiend Yield 1.56

PEG Ratio NA

STOCK SCAN

Share holding

Others

30.52%

DIIs

1.87%

Promoters

67.61%


52 Week High / Low (INR) 139/ 89

Market Capitalization (In INR cr) 135

Market Data

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

9/9/

11

10/9

/11

11/9

/11

12/9

/11

1/9/

12

2/9/

12

3/9/

12

4/9/

12

5/9/

12

6/9/

12

7/9/

12

8/9/

12

La Opala R G SENSEX

10


Product Profile

Opal Ware

Floral

Banded

Celebration

Melody

Temptation

Trendz

Crystal Ware

Barware Vases Bowls Ashtray BeerMug

Brands of the Company

La Opala

Diva

Crystal

Key Management profile

AC Chakrabortti - Chairman Sushil Jhunjhunwala - Managing Director Ajit Jhunjhunwala - Deputy Managing Director

VALUATION

At the CMP of INR127 the stock discounts its FY13E EPS of INR14.4 by 8.8x and its FY14E

EPS of INR19.8 by 6.4x. With Established Brand name, Completion of Expansion plan, and

Consistent financial growth, the company is expected to perform better.

Key Concern

Rising competition from foreign players and also unorganised companies in the domestic

market is a major concern for the company.

Increase in the Raw Material prices may negatively impact the bottomline of the company

11


We rate PI Industries Ltd. a BUY. Our rating underpins the company’s robust business model

complimented with strong marketing network and other organic factors. PI Industries Ltd. was

incorporated in 1947 in Rajasthan specializes in providing solutions for plant protection and nutrient

and Custom synthesis & Manufacturing (CSM) for contract research and production of agro chemicals.


Robust Business Agriculture dominates the Indian economy (as~66percent of the country’s directly dependent on

agriculture) and PI industries is the pioneer in this space with an operational experience of over 5

decades in providing solutions through producing and marketing of various agrochemicals for the

nourishment and protection of Indian agriculture sector.

Strong Marketing Network

PI industries has one of the oldest and vigorous marketing network spread all across India enables

them to penetrate into more zones ensuing sustainable business growth. The company possess an

efficient marketing network in the way of segregating the country into 7 zones, 26 regions and 140

territories to reach to all the clutters of beneficiaries. The marketing team has tied up with

distribution channels consists of ~8000 distributors and direct dealers and more than 35000 retail

points across the major agriculture areas in India.

Acquire and Retain Talent Skilled manpower is a very important resource and enabler for the company to achieve its growth

plans and maintain its competitiveness. Insufficient numbers of qualified and experienced

personnel adversely impacted its operating results and financial. The company continues to hire

new, highly-skilled scientific and technical personnel, to execute its growth and diversification

plans. It also introduced a Rewards and Recognition policy for effective employee engagement and

incentivization. The ESOP scheme is one such important step in this direction. The company also

continues to focus on regular training programmes and providing opportunities for professional

growth to retain and attract talent.

Custom Synthesis Manufacturing PI Industries Ltd. is one of the leading players in Contract Research (CR) and Contract

Manufacturing (CM) services in India. The strength of this business has been developed through

years of experience in this business and the in depth of understanding of customer requirements.

All this is backed by defined business processes, state of the art R&D centre, kilo lab, pilot plant

and manufacturing & analytical facilities, excellent and well experienced stable and dedicated

team. Moreover the company reported a staggering 62%YoY growth in this segment in FY2011-12.

PI Industries

Sector- Agrochemicals

B U Y





Market Data

Promoter

and

Promoter

Group

63.66%

INSTITU

TIONS

9.57%

NON

INSTITU

TIONS

26.77%

Shareholding

BSE Code 523642

NSE Code PIIND

Bloomberg Ticker PI IN

Reuters Ticker PIIL.BO



Average P/E 18.6x

Beta vs Sensex 0.69



PEG Ratio 0.27

STOCK SCAN

0

40

80

120

SENSEX Index PI IN Equity


Net Sales 5,953.00 7,915.60 9,569.20 10,976.00 13,850.00

Growth (%) 32.97% 20.89% 14.70% 26.18%

Operating Profit 834.90 1,169.60 1,448.90 1,940.00 2,490.50

Operating Profit Margins (%) 14.02% 14.78% 15.14% 17.67% 17.98%

Net Profit 419.00 651.00 1,035.90 1,100.00 1,480.00


EPS 19.71 29.10 41.36 44.33 59.11

BVPS 186.16 182.00 128.77 166.55 218.48

P/E 7.13 10.05 12.87 11.75 8.81

P/BV 2.26 3.21 4.13 3.13 2.38

RoE 37.52% 38.80% 39.38% 29.30% 30.80%

Source:Bloomberg,Ace Equity, Microsec Research

Exihibit1.PI Industries Financial Performance(In INR millions except per share data and%)

Analyst: Soumyadip Raha

Email Id: mailto:[email protected]

12


Management

L

Products/Services

Agrochemicals

Fungicides

Herbicides

Contract Research

Process development

Analytical Method Development

Valuation

At the CMP of INR520.70, the stock is trading at 11.75x its FY13E EPS of INR44.33. The

stock discounts in terms of historical 5yr average PE to its peers hence making the scrip an

attractive buy.

Key Concern

Uneven and Poor monsoons are one of the major headwinds for the company.

Stringent revision in the existing government norms regarding agro-based

products may dent the company’s profitability margins.

Mr.Salil Singhal

Chairman & MD

Mr. Mayank Singhal

Managing Director & CEO

Mr. Anurag Surana

Whole-time Director

Mr. P.N. Shah

Director

Mr. Narayan K. Seshadri

Director

13


We rate Somany Ceramics Limited a BUY. The company was incorporated in 1969 by HL

Somany as a Somany Pilkington’s, which later became Somany Ceramics. The company’s

core business is to produce sanitary ware products. In the Indian tiles sector, Somany has

achieved a clear leadership position by its innovative and futuristic approach. Somany

Ceramics with the plants in Kadi (Gujarat) and Kassar (Haryana), with the production

capacity of more than 19 million squares meters per annum is the producer of the highest

quality of ceramic glazed tiles, vitrified tiles, sanitary ware or porcelain floor tiles.

Currently, the company is planning to add thirteen new showrooms by the end of this year to increase the number to 100, including over 50 exclusive one.

Investment Rationale

Robust Growth in Business:

Despite slowdown in Real Estate Industry owing to high inflation coupled with high cost of

capital, Somany Ceramics has maintained its earnings growth. The company’s total Income

stood at ~INR930 crores in FY12, registered a YoY growth of ~22%. CAGR growth of total

income over the period of FY08-12 was registered at 27.43%. Moreover, the company has

reported a YoY growth of ~11% to ~INR190 crores in the quarter ended June 2012.

Robust Growth in Profitability:

Somany Ceramics’s strong and sustainable business structure coupled with strong brand and

distribution network has helped the company to absorb the standing opportunity in the

industry, which has boosted its topline and bottomline growth. Operating profit has grown

at a CAGR of 18.91% over the period of FY08-12. Whereas, Profit After Tax (PAT) grew at a

CAGR of 59.97% over the same period.

Focus on Growth via Inorganic Route:

Somany has acquired 26% stake each in Vintage Tiles Pvt. Ltd in October 2011 and

Commander Vitrified Pvt. Ltd in April 2012. With these acquisitions it got access to 5.2 mn

sq.mt. of capacity at a capital outlay of ~INR190 mn (including debt). This strategy enables

access to capacity at lower capital requirements and thus, will improve the return ratios.

“Value -Added Products” Continue to Rise:

The contribution of higher strength and abrasion resistant quality of VC and Duragres tiles

and the unique characteristic of digital tiles to the consolidated top-line increased to ~29%

in Q1FY13 from ~17% in Q1FY12. We believe that despite rising cost of pressure there will

be slight expansion in margin, backed by the expectation of contribution from the value-

added tiles to increase further.

Somany Ceramics Ltd

Sector- Sanitaryware

BUY

Analyst: Sanjeev Jain

Phone: +91-33-3051-2100

Email Id: [email protected]

Source: Bloomberg, Microsec Research 14


Management

Brands & Products

Brands:

Products:

Valuation

At the CMP of INR43.70, stock is trading at FY12 PE of 6x. The current valuation of 4.86x

FY13E and 4.08x FY14E P/E look attractive. Hence, we recommend a BUY on the stock.

Key Concern

Any further downturn in the economy coupled with high inflation may hit the Real

Estate sector further, which may hamper the company’s earnings growth.

15


We rate Tide water oil Ltd (TIDEWATER) a BUY. Tide Water which is a part of the multi

divisional Andrew Yule group has been a pioneer of Automotive and Industrial lubricants in

India since 1928 and has five plants at Howrah, Oragadam, Turbhe, Silvassa and Faridabad.

Its repertoire of automotive products includes engine oils for trucks, tractors, commercial

vehicles, passenger cars and two/three wheelers. It has a popular Veedol range of products,

widely accepted for their quality and excellence. The company also has technical

collaboration with JX Nippon Oil & Energy Corporation, the No.1 petroleum conglomerate in

Japan. Superior quality lubricants under the brand name Eneos are manufactured and

marketed in India by Tide Water Oil. Its revenue & net profit grew at a CAGR of 13.61% &

21% respectively over FY09-12.


Tide Water has created an enduring brand: Despite intense competition in the lubricants

industry in the last decade, Tide Water has been able to successfully create and appropriate

value through adept market segmentation. Its primary market is the premium mobility

automobile segment, where it is able to leverage its trusted brand, product performance track

record and unique service attributes. Strategy to maintain competitive edge: Tide Water maintains its competitive edge by: (1)

leveraging its technological strength and product development capabilities by working

closely with global OEMs, (2) working closely with mechanics, who play a key role in

the final decision making, and (3) by expanding distribution reach in semi-urban and

rural areas, where future growth is anticipated.

To benefit from industry transition: During the last decade, the distribution channel for

automotive lubricants (lubes) witnessed a major transition from the traditional public sector

petrol pumps to bazzar trade, which was positive for private sector players such as trade

water oil. The distribution channel is now undergoing another transition. With engine

technology advancing and maintenance becoming more sophisticated, the workshop channel

is gaining traction at the cost of other distribution formats. This is likely to lead to further

polarization in the industry and benefit players that have strong/established relationships

with original equipment manufacturers (OEMs).

Key Financial Highlights (Figure in Rs CR)

Ex hibit : key

BHEL

BUY

TIDE WATER OIL (INDIA) LTD

BUY Sector – Lubricants

Current Market Price (INR) 7,822.30

52 Week High (INR) 8,135.60

52 Week Low (INR) 5,713.05

Market Capitalization (In INR Crs.) 681.48

Market Data

BSE Code 590005

NSE Code TIDEWATER

Bloomberg Ticker TWO IN

Reuters Ticker TIDE.NS


Equity Share Capital (In INR Cr) 1

5 Yr Average P/E 10.2x

Beta vs Sensex 0.58

Average Monthly Volume ('000s) 3.43

STOCK SCAN

0

20

40

60

80

100

120

140

07‐Sep‐11

07‐Oct‐11

07‐Nov‐11

07‐Dec‐11

07‐Jan‐12

07‐Feb‐12

07‐Mar‐12

07‐Apr‐12

07‐May‐12

07‐Jun‐12

07‐Jul‐12

07‐Aug‐12

07‐Sep‐12

Tide Water Sensex

Particulars FY07 FY08 FY09 FY10 FY11 FY12

Net Sales 359.43 433.10 481.04 569.39 691.55 801.33

Growth (%) 20.5% 11.1% 18.4% 21.5% 15.9%

EBITDA 15.79 32.91 44.10 94.40 97.17 85.87

EBITDA Margin (%) 4.4% 7.6% 9.2% 16.6% 14.1% 10.7%

Net Profit 8.97 23.18 27.55 57.79 64.16 59.08

Net Profit Margin (%) 2.5% 5.4% 5.7% 10.1% 9.3% 7.4%

Diluted EPS (INR) 102.96 266.04 316.23 663.33 736.44 678.11

P/E 75.97 29.40 24.74 11.79 10.62 11.54

BVPS 1,184.81 1,427.45 1,710.92 2,316.78 2,984.37 3,523.68

P/BV 6.60 5.48 4.57 3.38 2.62 2.22

EV/EBITDA 8.29 8.41 4.96 4.15 5.35 6.59

RoE 8.97 20.37 20.17 32.98 27.82 20.87

Source: Company, Microsec Research

16


Management

Shri R. N. Ghosal(Managing Director)-He has been Executive Director of the Company

since 29th July, 2009 and holds a Post Graduate degree in Chemistry from IIT, Delhi. He has

35 years of experience and is in the service of the Company from 20th October, 1995.

Shri S. Swaminathan(Additional Director)-He holds a Bachelor Degree in Engineering. He

is Director (Planning) in Andrew Yule & Co. Ltd. He has considerable expertise in Industrial

Engineering, Corporate Planning & Administration.

Products

Valuation

At the CMP of INR 7822, the stock trades at a P/E and EV/EBIDTA of 11.87x and 6.59x, its

FY12 earnings. Its relative inexpensive valuation & flexibility to withstand business cycles

makes it an attractive pick.

Key Concerns

Volatile raw material prices: Most of Company's raw materials such as base oil and

additives are crude oil derivatives. As such, raw material price volatility is a key risk.

However, given low price sensitivity of lubricant demand and endogenous demand, Tide

water has historically been able to successfully deal with this challenge.

OEMs introducing own brands: Some OEMs have introduced their own brands. However,

for these OEMs, lubricants are not a core business, and they do not have an addressable

market beyond their immediate requirements.

17


WIM Plast Ltd is one of the groups company of “Cello” Group, which has strong consumer

base throughout the country and is one of the leading market players of Plastic Industry. With

its rapid expansion, new product innovation, strong consumer base, increased plastic

consumption and accelerated growth in plastic industry, the company is poised to grow in near

future.


Wimplast Limited

BUY Sector- Plastic Products

Indian

Promoters

74.98%

Non-

Institutions

25.00%

Others

0.02%

Revenue at CAGR of 22.72%; PAT at CAGR of 49.55%: The Company’s revenue has been

growing at a CAGR of 22.72% for the last 5 years on back of new innovative products,

increased use of plastic products amongst the households and industrial users and strong

consumer base throughout the country. Whereas, the net profit has increased multifold and

grown at a CAGR of 49.22%, with negligible interest costs and increased other income. We

expect the company to maintain the growth in FY13 as well.

Rapid business expansions to help company yield better results: The Company has set up 3 new

manufacturing units at Chennai, Haridwar and Daman in FY12, with total project cost of

INR28.84 crores. In addition to these, the project of manufacturing unit of Plastic moulded

Furniture at Kolkata, West Bengal is in process and is expected to complete shortly. We expect,

going ahead the Company is well equipped with strategic plans for the years to come, which

will in return help the company yield better results.

New Products to aid future growth; margins to bottom out: In FY12, the Company has come

out with 25 new range of products with multiple applications. We expect, this product mix

which depicts different varieties including the premium products and industrial applications

will boost up the volumes and class of consumers to serve in national as well as regional

segment.

Zero debt balance sheet; steady cash flow: Despite continuous expansions, the company has

retained its debt free financial standings and has improved its cash flow from operations.

Particulars (INR IN Cr) FY2009A FY2010A FY2011A FY2012A FY2013E

Net Sales 94 134 168 201 242

Growth (%) 29.77% 42.73% 25.24% 19.99% 20.00%

EBITDA 14 25 29 37 46

EBITDA Margin (%) 15.32% 18.88% 17.43% 18.14% 19.00%

Net Profit 8 17 18 23 27

Net Profit Margin (%) 8.52% 12.69% 10.84% 11.29% 11.36%

Net Profit Growth(%) 162.30% 112.63% 6.94% 25.01% 20.81%

EPS 13.33 28.35 30.33 37.90 45.79

P/E(x) 3.60 6.04 5.71 5.30 7.17

P/BV(x) 0.89 2.50 2.24 2.09 2.98

ROE(%) 15.55% 27.74% 24.94% 26.20% 26.66%

EV/EBITDA(x) 1.87 3.90 3.35 3.15 3.74

Source: Company Data, Microsec Research

Exhibit 1. Wimplast Lmited Financial Performance (INR in Crores except per share data and %)

Current Market Price (CMP) 328.15



Market Cap (INR in Crores) 196.95

Market Data

BSE Code 526586

NSE Code WIMPLAST

Bloomberg Ticker WMP IN

Reuters Ticker WIMP.BO

Face Value (INR) 10

Equity Share Capital (INR in Crores) 6

Average P/E (Last 3 Years) 6.31

Beta Vs Sensex 0.76

Average Daily Voloume (Last 1 Year) 8367


Stock Scan

15000

16000

17000

18000

19000

20000

21000

140160180200220240260280300320340360

3-Ja

n-1

1

3-M

ar-1

1

3-M

ay

-1

1

3-Ju

l-1

1

3-Sep

-1

1

3-N

ov

-1

1

3-Ja

n-1

2

3-M

ar-1

2

3-M

ay

-1

2

3-Ju

l-1

2

3-Sep

-1

2

Wimplast Sensex

Analyst: Neha Majithia

[email protected]

033 3051 2176 18


Management Key Personnel

Products

Valuation

Key Risks & Concerns

Wimplast

Management

Ghisulal D.Rathod

Chairman

Pradeep G. Rathod

CEO/MD

Madhusudan Jangid

CFO

Kapil D. Joshi

Sec/CO

The company caters to the needs of households and industrial users. The main products of

the company are plastic moulded furniture like centre tables, utility products, premium

range furniture, stools, etc. With India’s Consumption of Plastics to grow from 7.5 Million

tonnes to 15 million tonnes by 2015 and set to be the third largest Consumer of plastics in

the world, the company is poised to grow and attain its market leadership with its new

products.

Constant fluctuations in raw material prices which can result in margin pressure.

Foreign currency fluctuation (i.e. Rs/$) which can cause for the rise in cost of Raw

materials.

Changes in Technology.

Changes in demand pattern i.e. consumer demand which is unpredictable.

At the CMP of INR328.15 per share, Wimplast is quoting at P/E of 7.17x its FY13E. On the

basis of EV/EBITDA, the stock trades at 3.74x for FY13E.

19


We rate Zensar Technologies Limited (Zensar) a BUY. Our rating underpins the company’s

strong organic top line growth led by depreciation of INR against the USD, successful

integration of Akibia, and initiatives to unlock value. However, a reversal in currency

movements, which remained one of the key contributors for Zensar’s healthy performance,

may impact the company’s performance.


Depreciating INR boosted organic top line. Zensar reported a healthy top line expansion in

FY2012 led by significant depreciation of INR during the year. With this, Zensar’s top line,

on an organic basis, increased 19.7% y-o-y in FY2012. Continuing with its performance in

FY2012, the company reported a notable 36.5% y-o-y expansion in revenues during Q1

FY2013 as well.

Successful integration of Akibia adds value. The acquisition of Akibia during FY2011

enabled Zensar to strengthen its presence in the expanding Infrastructure Management and

Information security space. Furthermore, with its expertise to support and secure mission-

critical data centers, Akibia enabled Zensar to offer full life cycle capabilities to service its

global clientele.

The acquisition supported the company to report notable client additions in FY2012. The

company added 112 new clients during the year, leading its total client base to over 400

during the year. The acquisition, equipping Zensar with enhanced offerings, is likely to help

it report healthy client additions in upcoming quarters as well. Moreover, including Akibia,

the company’s top line increased whopping 56.6% y-o-y to INR17,824.8 Mn in FY2012.

Initiatives to enhance shareholders’ value are commendable. In addition to interim dividend

of INR3.0 per share, paid during the year, Zensar announced a final dividend of INR4.0 per

share at the end of FY2012. This brings the total dividend payment, by the company, to

INR7.0 per share, just double of INR3.5 per share in FY2011. With a good value unlocking

history and sufficient cash balances despite an acquisition recently, Zensar is expected to

continue its value generating initiatives in the upcoming years as well.

Exhibit – Zensar – Historical Financials and Projections

Source: Bloomberg, Microsec Research

Zensar Technologies Ltd

BUY Sector – Information Technology

Research Analyst: Nitin Prakash Daga

Email : [email protected]

Phone Number : 91 33 3051 2100

Promoter

and

Promoter

Group

48.30%

FII

8.53%

DII

2.16%

Non

Institutions

41.01%

Shareholding





Market Data

BSE Code 504067

NSE Code ZENSARTECH

Bloomberg Ticker ZENT IB

Reuters Ticker ZENT.BO



Average P/E 5.6x

Beta vs Sensex 0.76


Dividend Yield 1.6%

STOCK SCAN

-30

0

30

60

90

120

150

9-Sep-11 9-Dec-11 9-Mar-12 8-Jun-12 7-Sep-12

Retu

rn (

%)

Zensar Sensex

20


Management

Products / Services

Consulting

Software Services

Packaged Solutions

Collaboration Services

BPO Services

Infrastructure Services

Valuation

Zensar traded at an average PE of 5.66x in last five years. At CMP of INR253, the stock

trades at a PE of 6.99X of FY2012 EPS. In addition, the CMP discounts Bloomberg

consensus FY2013E and FY2014E earnings at 5.74x and 5.12x, respectively, which looks

attractive from an investment point of view.

Key Risk

Depreciation of INR against the greenback remained one of the principal reasons for growth

in Zensar’s top line. Although the home currency further depreciated in Q1 FY2013, a trend

reversal in the same may negatively impact the company’s performance, going forward.

Furthermore, an appreciation in INR may adversely affect Zensar’s margins, thereby may

lead to lower than expected growth in EPS. In addition, as over 70% of the company’s

revenues come from the US, it could intensify the impact of appreciation of home currency

on its performance.

Source: Company Data

Source: Company Data

21


Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP‐Research [email protected]

Naveen Vyas Midcaps, Market Strategies AVP‐Research [email protected]

Gargi Deb Agriculture & Pharma Research Analyst [email protected]

Sutapa Roy Economy Research Analyst s‐[email protected]

Sanjeev Jain BFSI Research Analyst [email protected]

Anik Das Mid Cap Research Analyst [email protected]

Neha Majithia Mid Cap Research Analyst [email protected]

Soumyadip Raha Mid Cap Executive Research [email protected]

Saroj Singh Mid Cap Executive Research [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical VP [email protected]

Ranajit Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Dhruva Mittal Institutional Equities Sr. Manager [email protected]

Puja Shah Institutional Desk Dealer [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Ketan Mehta PMS Sales AVP [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected]

Research‐Support

Subhabrata Boral Research Support Asst. Manager Technology [email protected]

Recommendation

Strong Buy >20%

Buy between 10% and 20%

Hold between 0% and 10%

Underperform between 0% and ‐10%

Sell < ‐10%

Expected absolute returns (%) over 12 months

MICROSEC RESEARCH IS ALSO ACCESSIBLE ON BLOOMBERG AT <MCLI>

22


23


Disclaimer: This document is prepared by the research team of Microsec Capital Ltd. (hereinafter referred as “MCL”) circulated for purely information purpose to the authorized recipient and should not be replicated or quoted or circulated to any person in any form. This document should not be interpreted as an Investment / taxation/ legal advice. While the information contained in the report has been procured in good faith, from sources considered to be reliable, no statement in the report should be considered to be complete or accurate. Therefore, it should only be relied upon at one’s own risk.

MCL is not soliciting any action based on the report. No indication is intended from the report that the transaction undertaken based on the information contained in this report will be profitable or that they will not result in losses. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors, as they believe necessary. Neither the Firm, nor its directors, employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. 24

small mid cap stock picks - rakesh jhunjhunwala...we rate cera sanitaryware a buy. cera...

Documents