Share Market Tips For September 2018

Rites (NSE: RITES) (Share Price: Rs.234): Potential Buy

Valuation: The company is undervalued with TTM PE of 13.46x

Reasons to consider: RITES intend to increase the scale of operations in railway infrastructure sector by taking up turnkey projects and expansion of services for metro and airport projects too. Further, it also plans to increase the 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 lead to increased revenues.

Drivers: Right now company is having healthy orderbook of Rs 48 bn which provides three years of revenue visibility. Strong financials and expanding international foothold bodes well for the company in the longer run.

Financials: Revenue from operations has increased at a CAGR of 12% from Rs 10,12.68 cr in the FY15 to Rs 1663 cr in the FY18, and its PAT has increased from Rs 3,12.21 cr in FY15 to Rs 3,65 cr in the FY18.

JK Paper (NSE: JKPAPER) (Share Price: 164): Potential Buy

Valuation: Undervalued with trailing PE of 9.6x.

Reasons to consider: Company posted robust numbers in Q1FY19. Debt free company with healthy margins. Paper industry is doing well owing high demand. ROE improved to ~17%.

Drivers: Favourable demand-supply situation is likely to continue to benefit copier paper segment (CPM) over the medium term in uncoated W&P paper segment which accounts for ~62% of its sales volume. Higher realization fuels financial strength of the company.

Financial: In FY18, revenue grew to Rs 2844 crores from Rs 2628 crores in FY17. EBITDA margin improved to 22.5%. PAT margin improved to 9% . EPS stood at Rs 14.85/share.

Intrasoft Technologies (NSE: ISFT) (Share Price: Rs.191): Avoid (10 Steps To Pick The Best Stocks)

Valuation: Overvalued ,trailing PE of 27x which seems to be higher as compared to its close peers.

Reasons to avoid: The company has reported 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 USA. On account of this, higher receivables are eating out the current cash flow of the company.

Financial: On consolidated basis, net profit is stable at Rs 13.7 crores in FY18 vs FY17 but down as compare to FY16 . PAT margin compressed to 1.17% in FY18. ROE and ROCE stood at 10%/ 12% in FY18.

Zicom Electronic Security Systems Ltd(NSE: ZICOM) (Share Price: Rs.9.47): Avoid

Valuation: Poor valuation with negative earnings.

Reasons to avoid: The company has delivered poor growth of 8.06% in last five years. The company has delivered negative return ratios. Promoter's have stake has decreased. Promoter's have pledged more than 72.1% of their holdings. Promoter holding is 10.28%. Contingent liabilities of Rs. 724.14 Cr.

Financial: On YoY basis, company has delivered negative earnings since last couple of years. Splitting year in quarters, the scenario is the same as all quarters are in negative territory. Borrowings increased by more than double in last few years with low-interest coverage rati

RCON International Ltd (IPO) : Potential IPO

About Company: Incorporated in 1976, IRCON International Limited (IRCON) is four decade old government company (under the ministry of railways). It is engaged in the business of engineering and construction mainly specialising in major projects including railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangers, runways, EHV substations, electrical and mechanical works, commercial and residential properties, development of industrial areas and other infrastructure activities. IRCON provides EPC services on a fixed-sum turnkey basis as well as on an item-rate basis for various infrastructure projects. Presently it has 26 project offices and five regional offices to support and manage its business operations throughout India and five overseas project offices in Sri Lanka, Bangladesh, Malaysia, South Africa and Algeria to provide onsite support overseas

Object of the Issue: The object of the offer is to carry out the disinvestment of upto 99,05,157 equity shares by the promoter, and to achieve benefits of listing the equity shares on the Stock Exchanges. The public issue comprises an offer for sale of 99,05,157 equity shares by its promoter, The President of India, acting through the Ministry of Railways, Government of India. The company will not receive any proceeds from the offer and all proceeds will go to the selling shareholder.

Issue Date: Sept 17, 2018- Sept 19, 2018

Price Band: Rs 470-475 per share

Issue Size: Rs 462- 467 crore

Market Lot: 30

Valuation: On valuation front post-IPO IRCON is expecting PE of 11.28x on higher price band at FY18 EPS

Reasons to consider: Company has a strong credit profile that includes non-fund based standby bank limits of Rs 3,120 crore out of which Rs 1,664.77 crore has been utilised. As of March 2018, the financial profile of the company is characterised by healthy profit margins and a comfortable liquidity position. Healthy order book of Rs.22,406.79 crore with a book to bill ratio of ~5x gives healthy revenue visibility.

Financial: On a consolidated basis, over FY16-18, IRCON posted revenue and PAT CAGR of 27% and 2%, respectively. Average EBITDA margins stood at 10.8% and ROE at 10.3%.

Varroc Engineering Limited (NSE: VARROC) (Share Price: Rs.1017): Potential Buy

Valuation: Undervalued TTM PE 30.54x as compared to close peers.

Reasons to consider: The company is position among Indias top auto component groups, with a 4% share of global automobile lighting systems and top PV (passenger vehicle) makers as customers. The company also has a 6% share of the premium PV lighting market, which is growing fast. Operating margin and return ratios are lower than peers.

Drivers: As per management forecast that the company is increasing presence in the premium LED lighting segment which will lift realizations and margins. A low-cost manufacturing base and focus on driving up margins, lift the growth prospectus of the company. Presence in the domestic and international market, strong relationship with clients, expansion plans in the process would aid topline.

Financial: Revenue grew from Rs 6951 cr in FY15 to Rs 10378 cr in FY18. PAT rose up to Rs 451 cr in FY18 from Rs 17 cr in FY15. EPS increased to Rs 33.4 per share in FY18 from Rs 1.35 per share in FY15.

Uflex (NSE: UFLEX) (Share Price: Rs.305): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Undervalued with TTM PE of 7.09x.Reasons to consider: The company posted healthy numbers in FY18 and Q1FY19 as well. High margin Aseptic's margins would benefit company at margin front.

Drivers: Uflexs Aseptic revenues are expected to start from H2FY19. Uflex will be the second player in the segment in India after Tetra Pack. The company expects to garner market share of 23-24%. Capex, continuous innovation and product portfolio expansion poised well for growth.

Financial: For year FY12, the company posted revenues of Rs 4515 crores and since then it has given steady growth and have managed to reach revenue size Rs 6697 crores in FY18 . The EBITDA of the company in FY12 was Rs 636 crores which have increased to Rs 902 crores in FY18. The net profit has grown from Rs 252 crores in FY12 to Rs 312 crores in FY18.

Sanco Trans Ltd (BSE: 523116) (Share Price: Rs.225): Avoid

Valuation: Overvalued with trailing PE of 450.28x.

Reasons to avoid: The market cap of the company is very low. On a consolidated basis, the company has posted negative earnings since last two years. Lack of operational efficiency hitting the company's earnings.

Drivers: Shipping and logistics industry is pacing up which can reflect in peers' financials. Company still posted poor earnings. The company delivered flat growth of 1.3% since last five years.

Financials:Net sales stood at Rs.82 crores in FY17 vs Rs.76 crores in FY13. EBITDA stood at Rs.9.6 crores in FY17 vs Rs.15 crores in FY13. EPS stood at Rs.1.81 per share in FY17 vs Rs.35.37 per share in FY13.