Share Market Tips For June 2018

Rites IPO : Potential Buy

About the company: RITES is a leading player in the transport consultancy and engineering sector in India. The company provides diversified and comprehensive solutions in all facets of transport infrastructure and related technologies. It has significant presence as a transport infrastructure consultancy organization in the railway sector. It also provides consultancy services across other infrastructure and energy market sectors including urban transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy. The company has experience spanning 44 years and has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions.

Objective of issue: IPO is an offer for sale through which company is going to divest 2,52,00,000 equity shares or 12.60% stake by the Government of India worth Rs 466.20 crores for face value of Rs 10. The company intends to use the proceeds from the IPO to finance projects like leasing of locomotives, rolling stock and other equipments, investment in BOT and BOOT projects, maintenance facilities, to build training centre at Gurgaon etc.

Listing details:

Issue Date- June 20, 2018 June 22, 2018
Issue Price- Rs 180-185 per share
Lot Size- 80 shares
Valuation: The company is undervalued with upper price band PE of 11x for 9MFY18 (EPS Rs 12.14) and 10x for FY17 (EPS- Rs 17.63) with no close peers.

Reasons to consider: RITES intends to increase scale of operations in railway infrastructure sector by taking up turnkey projects and expansion of services for metro and airport projects. Further, it also plans to increase share of business in renewable energy generation and power procurement for Indian Railways, manufacturing of wagons and joining upcoming opportunities like station development. This could meaningfully improve its order book and thereby the revenues. Right now company is having healthy orderbook of Rs 48 bn which provides three years of revenue visibility. Expanding international foothold and strong financials plays well for the company.

Financial: Revenue from operations has increased at a CAGR of 15.60% from Rs 10,12.68 cr in the FY15 to Rs 1353.35 cr in the FY17, and its PAT has increased at a CAGR of 7.63% from Rs 3,12.21 cr in FY15 to Rs 3,61.66 cr in the FY17.

Pitti Engineering (NSE: PITTIENG) (Share Price: Rs.88): Potential Buy

Valuation: Overvalued as compared to close peers with trailing PE of 23.53x.

Reasons to consider: The company posted healthy numbers in Q4FY18. Equity of company is Rs 14.92 cr with huge reserves of Rs 134 cr. The company reduced debt to 0.57x as of no from 1.72x in FY17.

Drivers: The company is manufacturer of stator & rotor core assemblies, die cast rotors, high precision machine components, pole assemblies, specialized electrical steel lamination, etc. It also manufactures special lamination and stamping for all kind of machines. Stable industrial growth provides good demand for the company.

Financials: In Q4FY18, net sales grew by 40% YoY to Rs 127 cr. EBITDA margin rose to 14.65% vs 8.39 in Q4FY17. PAT increased by whopping 1993% YoY to Rs 2.7 cr.

Jamna Auto Industries Ltd (NSE: JAMNAAUTO) (Share Price: Rs.89): Potential Buy

Valuation: Overvalued with trailing PE of 28.43x as compared to close peers (less than last few weeks trailing PE of 31x).

Reasons to consider: The company posted strong Q4FY18 numbers. The company enjoys healthy leverage status with D/E of 0.3x. The company maintains ROE of 33%.

Drivers: The company placed well to ride commercial vehicle sales cycle. The company has strategical location advantage with facility at close proximity to OEM players which saves logistic cost and also keep market share intact with high entry barrier to new players.

Financials: In Q4FY18, net sales grew by 26.7% to Rs 596 cr YoY. EBITDA margin stood at 15.01%. PAT up by 47.27% to Rs 46.72 cr.

Bata India (NSE: BATAINDIA) (Share Price: Rs.825): Avoid

Valuation: Overvalued as compared to close peers with trailing PE of 48.11x

Reasons to avoid: Revenue growth will be lower than peers due to increased competition. Currently stock will is trading at all time high levels.

Drivers: New brand "Hush Puppies" are loosing market share on account of unavailability of stock due to poor inventory management at store level. In such case other organised players might gain market share than Bata.

Financials: In Q4FY18, net sales down by 602% QoQ to Rs 632.3 cr. EBITDA margin compressed to 13% QoQ from 16.5% in Q3FY18. PAT doen by 23.6% QoQ to Rs 52.1 cr.

TCS (NSE: TCS) (Share Price: Rs.1841): Potential Buy

Valuation: Overvalued as compared to close peers with trailing PE of 27.3x.

Reasons to consider: The company posted healthy numbers in FY18 led by double digit growth in cloud and cyber security services. Low attrition rate of average 11% and healthy utilization rate plays well for the company.

Drivers: Stable currency led to currency growth in coming times. Retail vertical to drive growth in CY18. Tepid headcount addition would keep margin healthy. The board of directors of the company has approved a proposal to buyback up to 7,61,90,476 equity shares of the company for an aggregate amount not exceeding Rs 16,000 crore , at Rs 2,100 per equity share.

Financials: In FY18, revenue has grown by 4.4% to Rs 1,23,104 cr. Operating income stood at Rs 30,502 cr with margin of 24.8%. Net income stood at Rs 25,826 cr with margin of 21%. EPS is Rs 134.19/share.

Ashok Leyland (NSE: ASHOKLEY) (Share Price: Rs.142): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Fairly valued with trailing PE of 23.79x as compared to close peers.

Reasons to consider: The company posted healthy numbers in FY18. The management expects to continue its strong growth over FY19, on the back of domestic infra-led M&HCV demand, hub & spoke model doing well and international markets performing well. Overloading restrictions seem to have eased only in UP and Rajasthan, where Ashok Leyland has relatively lower presence. Hence, overloading ease can have only ~1-2% impact on the company.

Drivers: Scrappage policy expected to come in by Apr-20 will be a major growth driver for the CV industry. Increased government focus on infrastructure spend, pre-buying ahead of BS VI implementation, scrappage policy, shift towards hub and spoke model and pickup in mining activities would led the growth momentum to continue for the M&HCV segment. Order from defense sector fuels topline of the company.

Financial: Net revenue increased by 30% to Rs 26,170.3 cr in FY18. EBITDA rose by 23.4% to Rs 2711.2 cr in FY18. PAT is up by 25.5% to Rs 1534.8 cr in FY18.

Fine Organics Industries Ltd (IPO) (Price band: Rs.780 to 783): Potential Buy

Valuation: Consolidated EPS for Dec 2017 is Rs 26.38/share and for FY17 is Rs 25.56/share which gives PE of 30.63x with upper price band of Rs 783 per share, which is slightly overvalued.

Reasons to consider: The company posted healthy numbers in last five years. The company is market leader and largest producer of oleochemical based additives in India and a stronger player globally. Strong R&D capability and strategically located manufacturing facility at Mumbai plays well for the company. These additives have application in consumer and processed food, cosmetics, plastics, and packaging material. Sectors like consumer goods and FMCG drives growth of the company. Rising rural income and increasing demand for FMCG goods augurs well for the company.

Financial: Revenue increased to Rs 789.2 cr in FY17 from Rs 497.5 cr in FY13. Total assets build up to Rs 457.6 cr in FY17 from Rs 255.3 cr in FY13. PAT rose to Rs 79.4 cr in FY17 from Rs 20.8 cr in FY13. ROE for FY17 is 24.65%.

Uttam Galva Steels (NSE: UTTAMSTL) (Share Price: Rs.11.65): Avoid

Valuation: Poor valuation with negative earnings.

Reasons to avoid: The company has delivered poor growth of -3.4% in last five years. The company has delivered negative return ratios.

Drivers: High debt company with low interest coverage ratio. Lack of operational efficiency by the company dragged the company down. The headwind of the industry is also not in support in the current market.

Financials: On YoY basis, the company has delivered negative earnings since FY14. Splitting year in quarters, the scenario is same as all quarters are in negative territory.

JM Financial (NSE: JMFINANCIAL) (Share Price: Rs.132): Potential Buy

Valuation: Undervalued stock with trailing PE of 17.39x as compared to close peers.

Reasons to consider: The company registered 37% growth in revenue in FY18 and 25% growth in net profit. Also, it forayed into SME lending which has shown good performance. Strong profitability, adequate capitalization and comfortable asset quality shows financial strength of the company.

Drivers: The company having diversified financial service profile with strong brand image. Ramp up in fund based lending business in past three years augur well for company's growth.

Financial: In Q4FY18, revenue of the company increased to Rs.80 cr in Q4FY18 (vs Rs 11.4 cr in Q3FY18). Net profit increased to Rs 49 cr in Q4FY18 . EPS rose to Rs.0.61/share.

Kalpataru Power Transmission Ltd (NSE: KALPATPOWR) (Share Price: Rs.442): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation:Slightly overvalued as compared to close peers with trailing PE of 24.22x.

Reasons to consider: The company posted healthy numbers in last five years. Revenue grew at an approximate 10% CAGR in last five years. The company has a strong order book of Rs.12,404 crore in FY18. Significant improvement in utilization levels average utilization over 80% for FY18.

Drivers:Government thrust for electrification would boost company's growth. Healthy order inflow gives a long-term revenue visibility.

Financial:Revenue grew by 18% in FY18 to Rs.2,756 crore. EBITDA margin expanded to 11.5% by 300 bps. PAT is up by 110% to Rs.34 crore.

Parsvnath Developers Ltd (NSE: PARSVNATH) (Share Price: Rs.12.75): Avoid

Valuation: Company is posting losses since last three years. There's no sign of recovery yet.

Reasons to avoid: The company's promoters have pledged 89.5% of their holdings. The company is sitting on high debt with a debt to equity ratio of 1.58x. The company has delivered poor growth of -20.98% over past five years and its return on equity of 2.18% over the last three years to have been very low. The company has contingent liabilities of Rs.255.48 crore.

Financial:The company posted net sales of Rs.278.9 crore in FY17 vs Rs.405.94 crore in FY16 while PAT is at a loss of Rs.144 crore in FY17 vs Rs.37.16 crore in FY16.

Flexituff International (NSE: FLRXITUFF) (Share Price: Rs.38.6): Avoid

Valuation: Undervalued stock with trailing PE of 16.14x as compare to closed peers.

Reasons to avoid: The company's promoters have pledged 81.26% of their holdings. The company is sitting on high debt with a debt to equity ratio of 1.99x.

Drivers:High debt of the company is eating out the bottom line. Further, the pledged share percentage is much higher due to there's not a clear long-term picture of the company.

Financial: The company posted net sales of Rs.1,467 crores in FY17 vs Rs.1,325 crores in FY16. EBITDA margin stood at 12.59% in FY17 while PAT margin stood at 0.39% in FY17 which is very low.

Intrasoft Technologies (NSE: ISFT) (Share Price: Rs.471): Avoid

Valuation: Overvalued stock with trailing PE of 48.68x as compare to closed peers.

Reasons to avoid:The company posted negative sales growth in last two years. Its receivable has increased to 204 days in FY17 which is more than two quarters.

Drivers: The company's business model based on E-commerce retailing and it is majorly in the USA. On account of this, higher receivables are eating out the current cash flow of the company.

Financial:On consolidated basis, sales registered de-growth by 58% in FY17. PAT margin compressed to 33.5% in FY17 vs 142.8% in FY16. ROE and ROCE stood at 3.46%/ 4.07% in FY17 vs 41.4% / 42.6% in FY16.

Splendid Metal Products Ltd. (NSE: SMPL) (Share Price: Rs.0.90): Avoid

Valuation:Company is posting negative earnings since 2013.

Reasons to Avoid: The company's promoters have pledged 100% of their holdings. The company has low-interest coverage ratio. The company has delivered poor growth of -18.15% over past five years as well as has low returns on equity of -19.63% for last three years.

Financial: The company has been posting negative results since 2013. Operating margins have been continuously falling down and losses are increasing in folds now. Compared to FY17, in FY18 the company posted two-fold more losses. Interest expenses are increasing year after year.

Graphite India Ltd. (NSE: GRAPHITE) (Share Price: Rs.0.90): Avoid

Valuation: Stock is undervalued with training PE of 18.05x.

Reasons to avoid: The company has reduced its debt and now it can be considered as a virtually debt-free company. The company has been maintaining a healthy dividend payout ratio as well. The company has improved realization and higher capacity utilization. The stock is in circuit now but can be considered after it will start trading normally.

Financial:Numbers are improving with healthy profit margins. The company has outperformed the market by posting a seven-fold jump in its net profit. The growth is driven by a combination of higher volumes, price realization and capacity utilization which is increased from 74% to 85% y-o-y.

Refex Industries (NSE: REFEX) (Share Price: 13.8): Avoid (10 Steps To Pick The Best Stocks)

Valuation: Overvalued stock with PE multiple of 22x.

Reasons to consider: Promoter holding is low, I.i, 31.5% which is low as compared to closed industry peers. Promoter's stake has decreased. Promoters have pledged 27.69% of their holdings. The company has contingent liabilities of Rs.48 crore against earnings of 0.46 crore in FY18.

Financial: Numbers are uncertain for the company. Both quarter and annual numbers are way below expectations. Lack of operational efficiency is hammering the company down.

Flexituff International (NSE: FLRXITUFF) (Share Price: Rs.46.5): Avoid

Valuation: Undervalued stock with trailing PE of 16.14x as compare to closed peers.

Reasons to avoid: The company's promoters have pledged 81.26% of their holdings. The company is sitting on high debt with debt to equity ratio of 1.99x.

Drivers: High debt of the company is eating out the bottom line. It's very difficult to form a clear long-term picture of the company due to the high pledged share percentage.

Financial: The company posted net sales of Rs.1,467 crores in FY17 vs Rs.1,325 crores in FY16. EBITDA margin stood at 12.59% in FY17 while PAT margin stood at 0.39% in FY17 which is very low.

Axiscades Engineering Technologies (NSE: AXISCADES) (Share Price: Rs.139): Avoid

Valuation: Overvalued with trailing PE of 64.43x as compared to peers.

Reasons to avoid: Operating profit of the company has been impacted due to higher project costs from the US since last one year, which in turn is eating out its net profit.

Drivers: The company has a global presence in the aerospace engineering sector and one of the niche players.

Financial: In Q1FY18, net sales down by 16% Y-o-Y to Rs 53 crores. EBITDA margin stood at 6.2% vs 16.93% in Q1FY17. PAT is negative.