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Gladiator Stocks – MNC ThematicQuality stocks with favourable risk-rewardQuality stocks with favourable risk-reward
Scrip I-Direct Code Action Target StoplossKSB Pumps KSBPUM Buy in the range of 650-670 784 595Ingersoll-Rand India INGRAN Buy in the range of 740-765 920 685Time Frame: 6 Months
Research AnalystsDharmesh Shah [email protected] Pabitro Mukherjee [email protected] Kunte, CMT [email protected] Vinayak Parmar [email protected] Dagha [email protected]
March 30, 2017
• The domestic stock indices are
Nifty MNC Index: Charting new territories...
The domestic stock indices aretrading at life-time highs while manymidcap and small cap stocks havedelivered above normal returns overpast quarter. Going forward, one hasto remain more selective whilepicking the stocks as Qualitycompanies with favourable risk
Breakout from two year trading range augurs well for long term trend
2016 high2015 hi hp
reward will be difficult to find undergiven scenario
• The NSE MNC Index has scaled anew life-time high surpassing theyearly peaks of 2015 and 2016.Structurally, the current up movehas triggered a bullish turnaround as
2016 high2015 highs
has triggered a bullish turnaround asthe index has overhauled the fourmonth decline between August toDecember 2016 in just two months.While the strong rally since the startof CY17 was led by heavyweights inthe MNC space, we believe thatquality names like Ingersoll Rand andq y gKSB Pumps that are currentlyemerging out of major baseformation, provide good risk/rewardset-up for medium term investment
• Although MNC players in theindustrial space have been trading atpremium valuations with the strong
Weekly MACD diverging from its 9 period average within positiveterrain indicating bullish momentum over medium termp g
parentage, healthy balance sheetsand market share that these groupscommand across the globe as well asIndian markets. We expect thevaluation premium of MNCs tosustain given their qualitymanagement, access to niche
terrain indicating bullish momentum over medium term
technologies, globally reputedbrands and cheap finance
Source: Bloomberg, ICICIdirect.com Research
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KSB Pumps (KSBPUM): Breakout from seven month basing pattern...
CMP | 667 00 B i R | 650 670 T t | 784 00 St l | 595 00 U id 19%
Key technical observationsKSB Pumps, is a leading player in the pumps & valves industry, with a strong German parentage. The secondarycorrective phase in the stock over past two years has created a fresh opportunity for investors to ride the next up legwithin larger structural up trend.
Stock Data
CMP: | 667.00 Buying Range: | 650-670 Target: | 784.00 Stop loss: | 595.00 Upside: 19%
52 Week High / Low 774/542.1050 days EMA 625
200 days EMA 620
Breakout from seven month basing pattern augurs well...The share price surged to seven month highs in the current week after forming a basing pattern around | 600, furtheraugmenting bullish price structure. The basing pattern is likely to act as a launch pad for next leg of rally. The sevenmonth consolidation highlights steady participation from value buyers near key support. The value area around | 600is placed at 61.8% retracement of the February – July 2016 rally (| 503-774).
*Recommendation given on i-click to gain on March 302017 at 11:16 hrs
y
52 Week EMA 621
Face Value (|) 10Market Capitallisation (| Cr.) 2384
Price structure remains robust...Longer time duration charts provide an interesting insight about the primary trend in the stock price. After astupendous 12 month rally during March 2014 –February 2015 (| | 245-780) the share price has already spent 24months in consolidation phase while the rally was corrected only by 50% price wise. An elongated time correctionand shallower price correction underpins the basic tent of Dow Theory that secondary corrections are time consumingand forms part of primary trends
Stock price vs. BSE Small cap
11,000
12,000
13,000
14,000
15,000
550
600
650
700
750
and forms part of primary trends.
Momentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly MACD (E-12,26,9) is seen diverging from its nine-period average indicating strongmomentum building in the share price and augurs well for continuance of the up move, going forward.
Price performance in last five years
10,000
11,000
500
550
Mar
-16
Apr
-16
May
-16
Jun-
16Ju
l-16
Aug
-16
Sep-
16Oc
t-16
Nov
-16
Dec-
16Ja
n-17
Feb-
17M
ar-1
7
KSB Pump BSE Smallcap
54%21%
145%
-6% 1%
-60%
40%
140%
2012 2013 2014 2015 2016
ConclusionBased on the aforementioned technical observations, we believe the stock is well placed to continue its upward trendover the coming months and, therefore, offers an opportunity to ride the same with favourable risk-reward setup. Asthe share price has concluded healthy base building process, we expect it to continue trending up towards target of| 784 as the share price is expected to challenge the life highs registered in February 2015.
2012 2013 2014 2015 2016Year
Source: Bloomberg, BSE, ICICIdirect.com Research
3
KSB Pumps (KSBPUM): Weekly Bar Chart
Target @ | 784
Breakout from seven month consolidation indicates major shift in price structure
774
780
50% retracement of March 2014 – February 2015 rally503
Breakout from 7 month range & higher bottom formation
245
Weekly MACD diverging from its 9 period average within positiveterrain indicating bullish momentum over medium term
Source: Bloomberg, ICICIdirect.com Research
4
Stock Data
KSB PUMPS: Fundamental view
Fundamental ViewStock Data Fundamental View
Farmer friendly Union Budget 2017-18 provides irrigation thrust, KSB set to benefit…Union Budget 2017-18 delivered on its expectations with a clear focus on achieving its vision to double farm incomeby 2022. Total allocation towards agriculture & farmer welfare was increased 16% YoY to | 41,855 crore in FY18E.Notably, the government also proposed to increase the corpus under Nabard for long term irrigation projects to| 40,000 crore from the earlier limit of | 20,000 crore. Apart from this a dedicated micro irrigation fund is proposed
b i h i i i l f | 5000 All i d h fl hi P dh M i K i hi Si h
Particular AmountMarket Capitalization | 2349.7 croreTotal Debt (CY16) | 5.2 croreCash and Investments (CY16) | 202.1 croreEV | 2152.7 crore52 k H/L 774 / 503 to be set up with an initial corpus of | 5000 crore. Allocation towards the flagship Pradhan Mantri Krishi Sinchayee
Yojana was also increased 28% YoY to | 7377 crore. Higher budgetary spends and implementation of these megaprojects bodes well for domestic pump industry and set to benefit KSB going forward
Pumps segment to be key driver for growth, going forward!On a full year basis in CY16, pump sales came in at | 684 crore, up 2% YoY. However, KSB is in the middle ofexecuting an impressive capex programme with increasing supplies to the domestic high engineered pump market
Key Metrics
52 week H/L 774 / 503Equity capital | 34.8 croreFace value | 10
CY15 CY16 CY17E CY18E executing an impressive capex programme with increasing supplies to the domestic high engineered pump marketand development of KSB India as a global export hub/sourcing agent for the parent group i.e. KSB AG. On themacro side, the thrust of the central government on increasing the penetration of irrigation, promotion of energyefficient pumps, wider penetration of solar water pumps and incremental capex execution by the domestic oil & gasrefining sector for modernisation and upgradation bode well for KSB. In the pump segment, we expect sales togrow at 12.5% CAGR in CY16-18E to | 858 core in CY18E (| 684 crore in CY16).
Strong parentage leader in technological intensive pumps market
CY15 CY16 CY17E CY18EP/E 34.2 36.0 28.9 25.1 Target P/E 35.5 37.3 30.0 26.1 EV / EBITDA 20.0 21.7 17.3 14.9 P/BV 3.9 3.6 3.4 3.1 RoNW (%) 11.4 10.1 11.6 12.2 RoCE (%) 12.8 10.6 12.6 13.5
Strong parentage, leader in technological intensive pumps market…KSB Pumps, promoted by KSB AG (Germany), was established in 1960 and set up a pump manufacturing facility atPimpri, Pune (Maharashtra). The company has been at the forefront of importing technology from its parent fordelivering cutting edge, high quality products in the domestic market. Globally, KSB AG is one of the largest pumpmanufacturers with sales in excess of €2.2 billion (~US$2.8 billion) out of the total pump market, which is pegged atUS$47 billion as of 2014. In India, it commands a market share of ~8% (pump sales of | 664 crore in CY14) out ofthe total industry size of | 8500 crore as of FY14. KSB supplies ~35% of its pumps in the standard pumps segment(used for irrigation & building services) while supplying the rest 65% of its pumps to the industrial segment which
Financial Highlights
| Crore CY15 CY16 CY17E CY18ENet Sales 820.7 817.6 912.0 1,014.6 EBITDA 106.0 99.1 122.6 141.7
(used for irrigation & building services) while supplying the rest 65% of its pumps to the industrial segment, whichis technology intensive in nature.
Healthy balance sheet; strength to grow!!KSB has a healthy balance sheet with surplus cash of | 200 crore (CY16). Being present only in the product business(not EPC) it witnessed an efficient working capital cycle of ~50 days (best in industry). With reasonable growthdrivers in place and the company executing an impressive capex programme we expect growth to return, going
Source: Company, ICICIdriect.com Research
Net Profit 68.7 65.3 81.3 93.5 EPS (|) 19.7 18.8 23.4 26.9
forward. On a consolidated basis, we model sales, PAT CAGR of 11.4%, 19.7%, respectively, in CY16-18E.
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Ingersoll-Rand (INGRAN): Symmetrical triangular breakout augurs well...
CMP | 760 00 B i R | 740 765 T t | 920 00 St l | 685 00 U id 22%
Key technical observationsIngersoll-Rand India is a leading innovation and solutions provider with powerful brands and leading positions withintheir market. The company focuses on the air solution segment. The stock witnessed a multi-fold rally in 2014-15rallying from a low of | 336 in February 2014 to an all time high of | 1105 in April 2015. After the three-fold rally the
k d i i h k ff h d l d d i h d Th
Stock Data
CMP: | 760.00 Buying Range: | 740-765 Target: | 920.00 Stop loss: | 685.00 Upside: 22%
52 Week High / Low 790/62150 days EMA 698
200 days EMA 700stock entered into a corrective phase to work off the excesses developed during the 2014-15 dream run. The recentdevelopments on price front indicate conclusion of the 24 month corrective phase and signal resumption of theprimary uptrend thereby providing fresh entry opportunity to ride the next up move.Breakout from Triangular consolidation pattern signals resumption of uptrend.......The entire price correction since December 2015 till date has occurred in a well defined Symmetrical Triangle patternas highlighted in the adjoining weekly time interval chart. A triangular base formation pattern formed at the end of thecorrective trend signals accumulation by stronger hands ahead of the impending reversal. The strong up move in
*Recommendation given on i-click to gain on March 302017 at 11:13 hrs
52 Week EMA 705
Face Value (|) 10Market Capitallisation (| Cr.) 2410
g y g p g g pcurrent weeks trade has resulted in a decisive breakout from the symmetrical triangle pattern. The price breakout isalso accompanied with strong volumes of more than double of the 50 weeks average volume of 0.7 lakh shares perweek highlighting larger participation at the breakout level signalling a structural turnaround in favour of the bulls.
The price wise correction since all time high of | 1105 got arrested near the 61.8% Fibonacci retracement of the entire2014-15 bull run at | 590 levels. Thereafter, the stock has been witnessing a base formation above its long term 200weeks EMA which was then placed around | 600 levels. The sideways consolidation above the key support of 200weeks average highlights positive price structure
Stock price vs. BSE 500
10 50011,00011,50012,00012,50013,000
630
680
730
780
weeks average highlights positive price structure.
The lower band of the current triangular consolidation is placed around | 685 levels, which will act as a major supportbase for the stock, going forward.Long term time wise behaviour quantifies overall bullish price structure....The major rally in 2014-15 (| 336 to | 1105 ) occurred in 14 months. The corrective decline off the April 2015 highs of| 1105 has already completed 24 months while retracing just 61.8% of its preceding rally. Extended time wisecorrection and limited price correction highlights the robust price structure
Price performance in last five years
10,00010,500
580
Mar
-16
Apr
-16
May
-16
Jun-
16Ju
l-16
Aug
-16
Sep-
16Oc
t-16
Nov
-16
Dec-
16Ja
n-17
Feb-
17M
ar-1
7
Ingersol Rand BSE500
32%-15%
113%
-11% -7%
-60%
40%
140%
2012 2013 2014 2015 2016
correction and limited price correction highlights the robust price structureMomentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly MACD (E-12,26,9) is seen sustaining above its nine period and has recently venturinginto the positive territory above its trigger line signalling build-up of positive momentum and augurs well forcontinuance of the up move, going forward.ConclusionBased on the above observations, we believe the stock is attractively poised and offers good entry opportunity from a2012 2013 2014 2015 2016
Year
gmedium term horizon. We expect the stock to resolve higher from here on and retrace at least 61.8% of the entiredecline of 2015-2016 (| 1105 to | 577) there by projecting upside towards | 920 levels in the medium term.
Source: Bloomberg, BSE, ICICIdirect.com Research
6
Ingersoll-Rand (INGRAN): Weekly Bar Chart
61.8% retracement ofentire decline at | 920
Breakout above Symmetrical Triangle patternsignals resumption of primary uptrend1105
645
832786
577
336
Base formation at the major support areaaround |600 being confluence of :-The long term 200 weeks EMA- The 61.8% retracement of the precedingrally (| 336- |1105)
Rise in volumes at the breakout level highlightaccumulation by stronger hands
Weekly MACD giving buy signal indicating bullish bias for
a y ( 336 05)
Weekly MACD giving buy signal indicating bullish bias forthe medium term
Source: Bloomberg, ICICIdirect.com Research
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Strategy Follow up
Open Recommendations:
Date Scrip Name Rec Price Target Stoploss CMPReturn till date
(%)28-Feb-17 Kajaria Ceramics 578 679 523 564 -2.4%14-Mar-17 Titan 453 548 398 455 0.4%15-Mar-17 Kansai Nerolac 360 425 326 375 4.2%17-Mar-17 Dabur 273 318 248 275 0.7%20-Mar-17 IDBI 75 98 66 75 0.0%23-Mar-17 GMDC 121 154 102 125 3.3%28-Mar-17 Sun TV Network 780 920 715 787 0.9%
Summary Performance - Recommendations till date Open Recommendations 7Total Recommendations 131 Yield on Positive recommendations 19.0%Closed Recommendations 124 Yield on Negative recommendations -8.0%Positive Recommendations 89Strike Rate 72%
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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 six months and in case we intend to carry forward the position, it will be communicated through separate mail.
Trading portfolio allocationTrading portfolio allocation
• It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products
• Please a oid allocati g the e ti e t adi g co p s to a si gle stock o a si gle p od ct • 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 recommendationF l Th ‘D il C ll ’ d i 3 i d d i I i • For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation
9
Recommended product wise trading portfolio allocation
Duration
Daily Calls 8% 2-3% 3-4 Stocks 0.5-1% 2-3% Intraday
Number of CallsReturn Objective
Frontline Stocks Mid Cap StocksProduct Product wise
allocation
AllocationsMax allocation in
1 Stock
Stocks on the Move 6% 3-5% 7-10 Per Months 7-10% 10-15% 3 Months
Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week
Weekly Technicals 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
Gladiator Stocks 15% 5 10% 1 2 Stocks 15% and above 20% and above 6 MonthsGladiator Stocks 15% 5-10% 1-2 Stocks 15% and above 20% and above 6 Months
Cash 10% -100%
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Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,ICICI Securities Limited,1st Floor Akruti Trade Centre1st Floor, Akruti Trade Centre,Road No 7, MIDCAndheri (East)Mumbai – 400 [email protected]
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DisclaimerANALYST CERTIFICATION
We /I Dharmesh Shah Dipesh Dagha Nitin Kunte Pabitro Mukherjee Vinayak Parmar Research Analysts authors and the names subscribed toWe /I, Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed tothis report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) orsecurities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) orview(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 stockbrokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number –g p g y gINH000000990.ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its varioussubsidiaries 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.comICICI 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 ourInvestment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from
i i i fi i l i i h i i d i i f i h h lmaintaining a financial interest in the securities or derivatives of any companies that the analysts cover.The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report andinformation 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 ICICISecurities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is under no obligation to update orkeep 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 applicablerated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicableregulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or incertain other circumstances.The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no independentverification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information herein is solely forinformational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities orother financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these recommendations. Nothing inthis section constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriateto your specific circumstances. The securities discussed and opinions expressed herein may not be suitable for all investors, who must maketheir own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not betaken 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 Securitiesaccepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of these recommendations. Past performance is notnecessarily a guide to future performance Investors are advised to see Risk Disclosure Document to understand the risks associated before
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necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated beforeinvesting in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are notpredictions and may be subject to change without notice.
DisclaimerICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have beenmandated by the subject company for any other assignment in the past twelve months.ICICI Sec ities o its associates ight ha e ecei ed a co pe satio f o the co pa ies e tio ed he ei d i g the pe iod p ecedi gICICI Securities or its associates might have received any compensation from the companies mentioned herein during the period precedingtwelve months from the date of these recommendations 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 merchantbanking or brokerage services from the companies mentioned herein in the past twelve months.ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICISecurities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or thirdSecurities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or thirdparty in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives haveany material conflict of interest at the time of publication of this reports.It is confirmed that Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee and Vinayak Parmar, Research Analysts giving theserecommendations have not received any compensation from the companies mentioned herein in the preceding twelve months.Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactionsICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the
/ i i d h i f h l d f h h di h bli i f h h d icompany/companies mentioned herein as of the last day of the month preceding the publication of these research recommendations.Since Associates (ICICI group companies) of ICICI Securities are engaged in various financial service businesses, they might have financialinterests or beneficial ownership in various companies including the subject company/companies mentioned herein.It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies mentionedherein.ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented herein.Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned hereinNeither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein.We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysisactivities.This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of orlocated in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securitiesdescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession thisdocument may come are required to inform themselves of and to observe such restriction.
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