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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.
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Microsec Research 7th September 2012
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
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Microsec Research 7th September 2012
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]
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Microsec Research 7th September 2012
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.
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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.
Investment Highlights
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
Face Value (INR) 5.00
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
Current Market Price (INR) 350.00
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%
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7th September 2012 Microsec Research
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
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7th September 2012 Microsec Research
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.
Investment Highlights
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
Particulars FY2010A FY2011A FY2012A FY2013E FY2014E
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 Margins (%) 8.16% 10.41% 10.80% 10.81% 10.50%
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
Current Market Price (INR) 92.05
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
Face Value (INR) 2.00
Equity Share Capital (In INR Mn) 100.05
Average P/E 9.0x
Beta vs Sensex 0.65
Average Daily Volume 11,172
Dividend Yield 2.4%
PEG Ratio NA
STOCK SCAN
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7th September 2012 Microsec Research
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
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7th September 2012 Microsec Research
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.
Investment Highlights
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
Particulars FY2010A FY2011A FY2012A FY2013E FY2014E
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 Margins (%) 3.73% 9.65% 11.04% 10.81% 11.11%
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
Face Value (INR) 10.00
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%
Current Market Price (INR) 127.00
52 Week High / Low (INR) 139/ 89
Market Capitalization (In INR cr) 135
Market Data
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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
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7th September 2012 Microsec Research
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.
Investment Highlights
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
Current Market Price (INR) 520.70
52 Week High (INR) 628.50
52 Week Low (INR) 420.00
Market Capitalization (In INR Mn) 13,104.50
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
Face Value (INR) 5.00
Equity Share Capital (In INR Mn) 125.20
Average P/E 18.6x
Beta vs Sensex 0.69
Average Daily Volume 4,688
Dividend Yield 1.15%
PEG Ratio 0.27
STOCK SCAN
0
40
80
120
SENSEX Index PI IN Equity
Particulars FY2010A FY2011A FY2012A FY2013E FY2014E
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
Net Profit Margins (%) 7.04% 8.22% 10.83% 10.02% 10.69%
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]
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7th September 2012 Microsec Research
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
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7th September 2012 Microsec Research
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
7th September 2012 Microsec Research
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
7th September 2012 Microsec Research
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.
Investment Highlights
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
Face Value (INR) 10.00
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
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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
7th September 2012 Microsec Research
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
7th September 2012 Microsec Research
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.
Investment Highlights
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
52 Week High (INR) 354.8
52 Week Low (INR) 170.1
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
Dividend Yield 1.83%
Stock Scan
15000
16000
17000
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140160180200220240260280300320340360
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Wimplast Sensex
Analyst: Neha Majithia
033 3051 2176 18
7th September 2012 Microsec Research
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
7th September 2012 Microsec Research
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.
Investment Highlights
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
Current Market Price (INR) 253.00
52 Week High (INR) 295.65
52 Week Low (INR) 113.15
Market Capitalization (In INR Mn) 10,987.53
Market Data
BSE Code 504067
NSE Code ZENSARTECH
Bloomberg Ticker ZENT IB
Reuters Ticker ZENT.BO
Face Value (INR) 10.00
Equity Share Capital (In INR Mn) 434.29
Average P/E 5.6x
Beta vs Sensex 0.76
Average Daily Volume 29,176
Dividend Yield 1.6%
STOCK SCAN
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Retu
rn (
%)
Zensar Sensex
20
7th September 2012 Microsec Research
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 7th September 2012
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
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22
Microsec Research 7th September 2012
23
Microsec Research 7th September 2012
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