KIRLOSKAR BROTHERS
Reco price/date: Rs 148/November 27;
Current/Target price: Rs 152.75/Rs 215
In its quest for higher growth, the company pursued big-ticket project orders in the period 2006-08, which turned out to be a retrograde step. It witnessed a severe erosion in profitability coupled with stretched working capital, which eventually led to a de-rating of valuations. However, having learnt from its past mistakes, the company is now re-focusing on its products business and reducing exposure to unprofitable projects. With most of the existing problems behind them in FY13, FY14 could be a big turnaround year for the company. We expect all around improvement in margins, profitability, as well as return ratios. The stock is currently trading at 11 times and 7 times FY14 and FY15 estimated earnings and we believe it will be rerated as the turnaround story plays out over FY14E-15E. Initiate coverage with Buy.
Systematix Institutional Research
MANAPPURAM FINANCE
Reco price/date: Rs 35.65/November 26;
Current/Target price: Rs 36.4/Rs 44.54
Manappuram is a story which went badly wrong, from a high growth sector with over 25 per cent plus return on equity (ROE) and enterprising management, to a declining loan book, falling ROE, a more hostile regulatory environment and concerns raised around governance. Thus, the company has been a regular source of disappointment for the market over the past twelve months (from regulatory to governance). All this has led to it trading at a 50 per cent discount to its peer Muthoot. But with the stock trading at a discount to book and our expectation of the loan book growing from hereon, we think the stock merits another look. We expect the company to generate at least 18 per cent ROE in FY13E and then stabilise at around 19 per cent FY15E onwards. Upgrade to Buy.
Espirito Santo Securities
BGR ENERGY SYSTEMS LTD
Reco price/date: Rs 257.30 / November 26;
Current/Target price: Rs 267.85/Rs 230
BGR has re-rated sharply after bagging Rs 8,700 crore worth of BTG (Boilers, turbines, Generators) orders since September11. However, it’s BOP (balance of power)/EPC (Engineering Procurement and Construction), project order book continues to deplete over delays in new orders and stands at 1.7x trailing twelve month revenues. Analysts forecast the execution of BTG orders to drive a CAGR of 14 percent in standalone revenue over FY13–15, but lead to fall in EBITDA margin from 13.7 per cent in FY12 to 7.9 per cent in FY15. Thus, FY14 standalone earnings per share (EPS) has been revised downwards by 33 percent but forecast a recovery in earnings growth in FY15 though it will be largely dependent on recovery in BOP/EPC orders. Sharp reduction in the discount to BHEL price to earnings multiple prices?in higher growth prospects while ignoring margin risks. Maintain Reduce.
Avendus Equity Research
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MAHINDRA SATYAM
Reco price/date: Rs 104/November 26;
Current/Target price: Rs 102.45 /Rs 116
The company registered strong earnings growth in first half (H1) of FY13, led by rupee depreciation, improving employee utilization, and rationalization of SG&A expenses, owing to sales force integration with Tech Mahindra (TEHM). We expect growth in software services to the manufacturing and financial services sectors to drive growth in second half (H2). Further, stable growth momentum and lower forex losses are expected to drive 16 per cent earnings growth in H2 compared to H1. The stock has declined 5 per cent in November. We believe that the 30 per cent discount to HCL Technologies (HCLT) would narrow as the company continues to demonstrate improvement across operating parameters. The company has strong cash surpluses, which it can use to make acquisitions. This presents an upside trigger to our forecast. Upgrade to Buy.
Kim Eng