Share Market Tips For December 2018

Escorts (NSE: ESCORTS) (Share Price: Rs.705): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Fairly Valued with TTM P/E of 19.70x.

Reasons to consider: Escorts Limited is an engineering company which offers agricultural tractors and construction equipments. In Q2FY19, the companys revenue increased by 15.4 percent YoY, led by strong growth in railway equipment and construction segments. Domestic tractor volumes grew by 4% YoY and the management has guided 12-15% growth in FY19.

Drivers: The railway segment has bagged orders worth Rs 400 crore which are to be executed in the next 12-13 months.The festive season will lead to uptick in demand during H2FY19 and exports might grow by 50% in FY19.

Financial: On the financial front the companys revenue has increased by 15.4% to Rs.1398.36 crore in Q2FY19 as compared to its corresponding previous quarter.The EBITDA and PAT for the quarter were up by 11.8% and 32.3%t YoY, respectively.

Kanoria Chemicals & Industries Ltd (NSE: KANORICHEM) (Share Price: Rs.68.35) Potential Buy

Valuation: Overvalued with TTM P/E of 37.82x

Reasons to consider: During fiscal year 2018, the companys capacity utilization was at 79 %. Thus, to meet the rising demand, the company is setting up a new formaldehyde plant at Naidupeta, Andhra Pradesh with a capacity of 1,00,000 MTPA. The company will spend Rs. 46.4 crore for this capex, which will be funded through internal accruals and debt. This proposed capacity is likely to be commissioned by June 2019. To expand the business, another plant is being set up in Windsor, Canada, to cater to the North American market. With its new venture into textiles business, it expects to operate at full installed capacity by the end of FY19 and continued to add new customers from the USA, Germany and Italy.

Driver: Kanorias resin production plant has a joint agreement with Hexion Inc., a global leader in thermoset resins, and ASK Chemicals, which is global player in foundry solutions and resins. These collaborations empower the company to add specialised and high-value products to its manufacturing portfolio.

Financial: Kanoria chemicals & industries Ltd standalone revenue for Q2FY19 came in at Rs. 133.72 crore, registering 43% yoy increase. EBITDA for the quarter rose by 6 % yoy to Rs. 15.28 crore with a corresponding margin contraction of 398 bps. EBITDA margin for the quarter stood at 11.4%. This margin contraction was on account of higher manufacturing costs.The net profit for the quarter came in at Rs. 5.33 crore, yoy increase of 6.2%. PAT margin during the quarter stood at 4 % which was 5.36% for same quarter last fiscal. Margin pressure was due to lower other income and increase in finance costs.

Zee Entertainment Enterprises Ltd. (NSE: ZEEL) (Share Price: Rs.463): Potential Buy

Valuation: Overvalued with TTM PE of 35.21x.

Reasons to consider: Vast content (in Tamil, Telugu, Kannada, Malayalam, Marathi and Bengali) with regional focus ( in six major languages); company believes that Zee5 will break even in next 3-5 years. On its digital platform Zee5, the company released 14 originals in six languages in Q1 and has 20 originals lined up for release in Q2FY19. Overall, it plans to launch 80-90 original shows in FY19.

Drivers: Robust domestic ad growth is expected to continue due to the favourable ad environment (FMCG contributes ~55% to ad revenues), sustained focus on regional markets (GEC launch in Kerala) and adding movie channels in Tamil and Kannada. The company also plans to invest in digital segment which would contribute to margin front.

Financial: In Q2FY19, the company recorded revenue of Rs 1975 crores vs Rs 1582 crores in Q2FY18. The company reported operating profit of Rs 712 crores vs Rs 680 crores in Q2FY18. PAT stood at Rs 386 crores vs Rs 624 crores (exceptional item- Rs 135 crores) in Q2FY18.

Gail (NSE: GAIL) (Share Price: Rs.343): Potential Buy

Valuation: Undervalued with TTM P/E of 14.24x.

Reasons to consider: During FY18, the company registered 5% growth in natural gas marketing as well as in natural gas transmission volumes, while sales quantity in Petrochemicals, LHC and LPG Transmission segment rose by 17%, 15% and 11% respectively. The company was given the responsibility of construction, operation and maintenance of the Hazira Vijaypur-Jagdishpur (HVJ) pipeline project, one of the largest (1800 km long) cross-country natural gas pipeline projects in the world. The unbundling of companys gas marketing and gas transmission business may lead to value unlocking of the firm. The companys ability to market US LNG volumes increases as oil prices stabilize in the range of $60-$65 per barrel. Further, the companys lowering interest costs boasts well for strong bottom-line performance and guides for buoyant outlook.

Drivers: Petroleum and Natural Gas Regulatory Board (PNGRB) revised tariffs for key gas transportation pipelines, high pressure (HP) tariff increased by 28% and low pressure (LP) by 100%. This revised tariff is also applicable for some of pipelines of GAIL. This is likely to lead to lift GAILs profitability going forward.

Financial: The company's standalone revenue for the quarter Q2FY19 came in at Rs. 19,275.32 crore as against Rs. 12,409.65 crore in the corresponding quarter last year, registering 55.3% yoy increase.The companys core business (Natural gas marketing) grew by 67% to Rs. 15,651.93 crore against Rs. 9,378.11 crore. The EBITDA for the quarter rose by 40.1% yoy to Rs. 2,927.55 crore as against Rs. 2,090.05 crore in the corresponding quarter last year, with a corresponding margin contraction of 165 bps. EBITDA margin for the quarter stood at 15.2%.The PAT for the quarter came in at Rs. 1,962.96 crore as against Rs. 1,309.63 crore in the corresponding quarter last year, yoy increase of 49.9%.

Himachal Futuristic Communications Ltd (NSE: HFCL) (Share Price: Rs.21.2): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Fairly valued with TTM P/E of 13.80x.

Reasons to consider: Recently the company has bagged a order worth Rs.148 crore for Larsen and Toubro metro rail project. Moreover, the company is setting up an optic fiber manufacturing plant near Hyderabad having an annual capacity of 8 million fiber kilometers. Moreover, the company is expected to be one of the biggest beneficiary under Digital India Initiative. It is also expected to be one of the key players to get the deals for providing public Wi-Fi connectivity and building strong wireless technology in the upcoming 5G wave.

Drivers: With high-speed internet connectivity and seamless data flow becoming a necessity, demand for optical fibre networks is set to spiral upwards. Three key factors that will continue to drive this demand are ever-increasing data demand, Governments growing digitalization thrust and operators, preparation for 5G service launch.

Financial: Himachal Futuristic Communication's, standalone revenue for the Q2FY19 came in at Rs. 1139.71 crore, registering 96.6% YoY increase. This was primarily driven by volume growth in telecom projects with stellar order book and execution for the second consecutive quarter as compared to the first quarter of the current fiscal. The turnkey business segment showed robust revenue growth for more than 100% YoY. Further, EBITDA for the quarter rose by 35.9 % YoY to Rs. 82.72 crore with a corresponding margin contraction of 325 bps. The EBITDA margin for the quarter stood at 7.3%. This margin contraction was aided by foreign exchange variations. Net profit after taxes for the quarter came in at Rs. 39.76 crores as against Rs. 25.17 crore for the same period last year, with a YoY increase of 58%. The PAT margin for Q2FY19 stood at 3.50% as compared to 4.50%.

Alicon Castalloy Ltd. (NSE: ALICON) (Share Price: Rs.630): Potential Buy

Valuation: Fairly valued with TTM P/E of 17.63x.

Reasons to consider: Company posted robust revenue growth even in tough macroeconomic conditions. The product mix of the company includes auto components, defense, agricultural components, locomotive components, aero & marine components etc. In recent developments the company revealed its expansion in defense segment for manufacturing aluminium based wheels for tanks and other parts such as a ventilator. Company has good diversified client base to cater its huge product mix.

Drivers: Company posted export numbers of Rs. 188.44 crore during FY18 which was higher by almost 66% than last year. Export consists of 20% in annual revenue. Production forecast of Japanese aluminum is in down trend which will help company to sustain in volatile market to cater it's raw material costs. Also, during depreciating trend of dollar rupee combination export benefits will be added boost.

Financial: On financial front, consolidated revenue for Q2FY19 came in at Rs. 306.82 crore as compared to Rs. 265.46 crore, registering 15.6% yoy increase. EBITDA for the quarter rose by 34% yoy to Rs. 38.01 crore from Rs. 28.37 crore with a corresponding margin expansion of 170 bps. EBITDA margin for the quarter stood at 12.4%. Net profit after for the quarter came in at Rs. 13.8 crore which was Rs. 9.57 crore for same period last year showing yoy increase of 44.2%. The PAT margin for Q2FY19 came in 4.49% as against 3.60% with corresponding margin expansion of 90 bps.

Bodal Chemical (NSE: BODALCHEM) (Share Price: Rs. 112): Potential Buy

Valuation: Undervalued with TTM P/E of 9.08x.

Reasons to consider: The company expects to commence production at the new vinyl sulphone plant at Kosi, Mathura, which will help increase the capacity by 6,000 MTPA. The production of both H-acid as well as vinyl sulphone will allow its subsidiary to utilise the effluents of the two plants into each others production. This will lead to improved efficiency due to higher revenues and reduction in costs involved in managing effluent. It has also completed the formalities of acquisition of the GIDC land at Saykha for around Rs 85 crore.The company had indicated that it is working on the new product development, which is based on both forward as well as backward integration, i.e., thinoyl chloride (TC) and is establishing a TC plant of 36,000 MTPA at Unit-VII.

Drivers: Captive consumption of dye intermediates to increase to 90% from 40% in the next 2-3 years, which will lead to improvement in margins.

Financial: Bodal Chemicals reported encouraging results for Q2FY19, with its revenue rising 53.52% to Rs 393.2 crore as against Rs 256.13 crore during the previous quarter ended September 2017, which was largely due to higher realisation in dye intermediates. The dyestuff expansion also aided volumes, which grew by 54%. Also, the exports were up by 179% from Rs 61.9 crore to Rs 173 crore. The net profit rose by 81.57% to Rs 45.03 crore as against Rs 24.8 crore during the same period. Also, the improved performance of subsidiaries SPS & Trio acquired in FY17 lifted the margins.

Tata Elxsi (NSE: TATAELXSI) (Share Price: Rs. 997): Potential Buy

Valuation: Fairly valued with TTM P/E of 22.01.

Reasons to consider:New client wins, reducing dependence on JLR and working on new autonomous driving platform can help the company improve its revenue growth trajectory. Also, the new tie-up with ZEE as ZEE5 brand for seamless distribution of content via mobiles, set-top box and internet TV further establishes its position in the industry. The management is aiming for 10% sequential quarterly growth by new engagements in the engineering and electronics space.

Drivers: The Indian government has already started its journey towards upgradation of the existing petrol/diesel/CNG based automobile industry, with Tata Motors manufacturing electric vehicles (EV) for the government of India (~10,000 EVs). TEL, being a niche player in the automobile segment alongwith its technologically smart workforce (5,500 employees), is in a powerful position to grab the opportunity in the embedded software development of EVs for Tata Motors.

Financial: The companys revenue in Q2FY19 was up by 17.7% YoY from Rs 342.15 crore to Rs 402.78 crore. The EBITDA during the quarter rose by 27.4% YoY to Rs 106.7 crore from Rs 84.01 crore. EBITDA margin improved from 26.5% to 24.5% on YoY basis. It's PAT jumped by 43.5% YoY from Rs 57.2 crore to Rs 82.18 crore. PAT margin stood at 20.4% as against 16.7% in Q2FY18. The key SDS segment grew by 20.7% YoY which led to growth in total revenue, while the revenue from SIS segment declined by 36.4% YoY.

WPIL (BSE: WPIL) (Share Price: Rs. 840): Potential Buy

Valuation: Undervalued with TTM PE of 9.90x.

Reasons to consider: The company has a strong order book with a increased availability of infrastructural resources and access to the global market . It is also focusing more on the constant investment in manufacturing and R&D. The company has expanded its operations globally and now also have manufacturing operations in UK,Italy,France, Switzerland,South Africa,Zambia, Australia and Thailand through its group companies.

Drivers: The Company has managed to achieved a good balance by developing its international business and creation of Waste Water Pump division which along with the Infrastructure division. Which is expected to be one of the major drivers in the upcoming quarters. Moreover, WPIL looks to cement its position in the various geographies and markets it operates going forward.

Financial: On the financial front, the net sales of the company came in at Rs.117.86 crore in Q2FY19 which has hiked by 94.31% on YoY basis as compared to its corresponding quarter.The stock has witnessed 700% jump in its PBIDT. Profit after tax stood at Rs.20.64 crore at the september end quarter,FY19 expanding by over 600% from 2.27%.

Indian Hume Pipe (NSE: INDIANHUME) (Share Price: Rs. 348): Potential Buy

Valuation: Fairly valued with TTM PE of 19.50x.

Reasons to consider: The company's sturdy revenue recognition for the quarter supported higher margins,OPMs expanded by 88 bps y-o-y to 12.6% in Q2FY19, while NPM improved by 327 bps y-o-y to 7.2%.Order book of the company swelled by 9.5% y-o-y with its estimated balance of work at Rs 3736.93 crs as at October 31, 2018. In addition, unfaltering order inflows from the state of Karnataka and Madhya Pradesh and revival of inflows from Tamil Nadu and Gujarat helped ballooning of the order book in the current fiscal.

Drivers: Indias construction industry is forecasted to grow at 6.1% in 2018 versus 5% growth in 2017 - 2017 growth bogged down by the impact of demonetization.Additionally,governments continued focus on infrastructure and water supply schemes would further spur order inflows and and would be considered as a major driver.

Financial: The consolidated revenue for the quarter Q2FY19 came in at Rs. 421.85 crore, registering 94.5% yoy increase.EBITDA for the quarter rose by 108.9% yoy to Rs. 52.31 crore with a corresponding margin expansion of 85 bps. EBITDA margin for the quarter stood at 12.4%.The PAT for the quarter came in at Rs. 29.79 crore, yoy increase of 258.1%.

Bandhan Bank Ltd (NSE: BANDHANBNK) (Share Price: Rs.504): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Overvalued with TTM PE of 36.11x.

Reasons to consider: Bank posted healthy earnings growth with a 47% jump in net profit backed by robust interest income and loan growth. Bank's single lender relationship with client is the key to asset quality.

Drivers: Bandhan has recently received permission to open 40 new branches, which it intends to open by 31st Dec 2018. Of this, 5 branches have been opened as of 12-Dec-18, taking the total branch count to 943.

Financial: In Q2FY19, bank reported 47.4% YoY rise in profit at Rs 488 crore for the quarter. Net interest margin (NIM) for the quarter came in at 10.30% compared with 9.3% in the year-ago quarter. Gross non-performing assets remained largely stable at 1.29% for the quarter compared with 1.26% in the June quarter.

Moil Ltd. (NSE: MOIL) (Share Price: Rs.176): Potential Buy

Valuation: Undervalued with TTM PE of 9.98x.

Reasons to consider: MOIL Q2FY19 revenue was higher than street estimates, driven by better than expected sales volume. Blended ore realisations stood at Rs10,560/tonne were 12.7% below our estimates, which partly offset the benefit of higher volumes. The company had taken 5% price hike in the month of Sep'18 and 10% in Oct'18, the benefit of the same is expected to be reflected in Q3FY19.

Driver: International manganese ore prices have recovered sharply in the past two months. Consequently, the company has also increased its manganese ore price by 5% in September 2018 and by 10% in October 2018. We expect recovery in EBITDA margin for MOIL with full impact of price hike likely to be visible in Q3FY2019. Management has guided for sales volume growth of 10% in FY2019 supported by strong domestic steel production growth outlook.

Financial: In Q2FY19, bank reported 47.4% YoY rise in profit at Rs 488 crore for the quarter. Net interest margin (NIM) for the quarter came in at 10.30% compared with 9.3% in the year-ago quarter. Gross non-performing assets remained largely stable at 1.29% for the quarter compared with 1.26% in the June quarter.

KEI Industries Ltd. (NSE: KEI) (Share Price: Rs.380): Potential Buy

Valuation: Undervalued with TTM PE of 18.51x.

Reasons to consider: KEI is transforming its retail cable/house wire business, unlike the past three-four years, where in turnkey business was driving earnings growth. This, in our view, could be a game changer, especially with branding/distribution focus potentially improving overall growth and cash flows. KEI's superior returns28%/29% ROE/ROCEjustify our target multiple of 14x FY20E EPS, which yields TP of INR435.

Drivers: KEI's strategy of going slow on turnkey projects (INR910bn) along with focus on improving retail cable/EHV business in the long run will boost cash flowa key challenge historically. The B2C business now accounts for ~32% of revenue compared with 1516% five years ago. This is attributable to the company's focus on branding and distribution ramp up, which offers a re rating potential as the B2C pie grows to >50% of overall revenue.

Financial: Net Sales at Rs 996.79 crore in September 2018 up 33.11% from Rs. 748.83 crore in September 2017. Quarterly Net Profit at Rs. 41.37 crore in September 2018 up 45.15% from Rs. 28.50 crore in September 2017. EBITDA stands at Rs. 102.07 crore in September 2018 up 32.06% from Rs. 77.29 crore in September 2017. KEI Industries EPS has increased to Rs. 5.27 in September 2018 from Rs. 3.66 in September 2017.KEI Industries shares closed at 308.25 on October 31, 2018 (NSE) and has given -29.39% returns over the last 6 months and -7.90% over the last 12 months.

Sun Pharmaceuticals Industries Ltd. (NSE:SUNPHARMA) (Share Price: Rs.616): Avoid (10 Steps To Pick The Best Stocks)

Valuation: Overvalued with TTM PE of 41.30x.

Reasons to avoid: News grapples the company's credibility on corporate governance issue. The company is trying to restore investor confidence after note by Macquaire brokerage and investor complaint to SEBI last week regarding company's substantial increase in advances to employees accounting to Rs.2240 crore in FY17-18 vs Rs 69.8 crore year ago. The issue remains in dark cloud as there is less clarity on increase in advances.

Financial:In FY18, the company recorded revenue of Rs 26,416 crores vs Rs 31,308 crores in FY17. Operating margin stood at 24.41% vs 34.22% in FY17. Net profit down by 66.39% to Rs 2634 crores in FY18.

Bharat Forge (NSE: BHARATFORG) (Share Price: Rs.508): Avoid

Valuation: Overvalued with TTM PE of 30.07x.

Reasons to avoid: Order flow witnessed sharp fall of 35% for heavy duty class 8 trucks in North America for the month of November 2018 as compared to previous month. This fall have affected forging manufacturers. Bharat Forge has a significant exposure to manufacturers of Class 8 trucks, which are essentially heavy-duty vehicles. Nearly 20% of Bharat Forge's standalone revenue and about 12-15% of its consolidated revenue comes from sales to this segment. Apart from that, weak medium and heavy commercial vehicle (CV) sales growth has raised red flags in the domestic market too.

Financial: In Q2FY19, the company reported revenue of Rs 1679 crores vs Rs 1258 crores in Q2FY18. Operating margin compressed to 27.88%. The company recorded PAT of Rs 227 crores vs Rs 204 crores in Q2FY18.