Market Outlook
The daily candle chart of the Nifty shows a bullish "harami yose sen" (harami cross) formation, indicating a loss of selling momentum and the possibility of buying conviction if the bulls keep the spot prices largely above the closing levels. Traded volumes and open interest will assume significance on the way up as failure rates can be high in the coming days. The downward sloping trendline remains the nemesis of the bulls and as long as rallies occur below this trendline, they are corrective pullbacks alone. The Nifty (spot) must stay above the 5300 levels sustainably with volumes and open interest expansion to rally intraday on Wednesday. On the flip side, sustaining below the 5280 levels may trigger a fresh bout of declines.
Technical Calls
Buy Pantaloon Retail 286.00 target 295
Buy KEC Intl. 80.00 target 85
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Momentum Calls
Buy Mind Tree 355.00 target 360
Buy Hexaware 67.00 target 70
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Investment
Electrosteel Castings Price: Rs 30 Target Price: Rs 37 Angel
`We maintain our positive stance on ECL`s initiatives of gradually venturing into steel making through its associate EIL, which is setting up a 2.2 million tons steel plant expected to commence production by early FY2013. Furthermore, the company`s backward integration initiatives through allocation of coking coal mines are expected to result in cost savingsfrom FY2013. The stock is currently trading at 5.9x FY2012E and 5.7x FY2013E EV/EBITDA. On P/BV basis, it is tradingat 0.5x each for FY2012E and FY2013E. We maintain our Buy rating an SOTP target price of Rs 37.`
Investment
SKP Securities has recommended `Buy` on EleconEngineering Company with a price target of Rs 111 as against the current market price (CMP) of Rs 67 in its report dated June 21, 2011. The broking house gave the following rationale:
Topline to grow with a CAGR of 21%…
> Elecon`s top line grew by 12.4% to Rs 11,845.4 million during FY11 vis-Ã -vis Rs 10,543.1 million last year. MHE and transmission equipment division contributed Rs 6,745.8 million and Rs 5,246.4 million respectively.
> We expect the revenue to grow by CAGR of 21% during the next two financial years led by huge opportunities in the user sector.
EBIDTA Margins are expected to remain stable…
> EBIDTA of the company has increased by 16.7% during the year from Rs 1,575 million to Rs 1,838.4 million. EBIDTA margins also improved by 120 bps to 15.5% during the year. Raw Material to sales improved by 250 bps to 66.6%.We expect the EBIDTA margins to remain stable at the same levels for FY12 and FY13.
> PAT increased by 32.9% from Rs 661.8 million to Rs 879.2 million during the year.
> PAT margin improved by 110 bps to 7.4% from 6.3% last year. We further expect it to grow with the CAGR of 21% during next two years.
Brownfield capex of Rs 1.3 billion…
> Elecon has planned a capex of Rs 1.3 billion during FY12 at its existing facilities at Vallabh Vidyanagar.
> Around 60% of the total capex will be spent upon increasing capacity for MHE division and the rest for gears. We expect the expansion to be completed within FY12.
> The Company incurred capex of Rs 540 million during FY11 of which Rs 240
million were spent towards MHE division.
Healthy order book of Rs 13.8 billion …
> Elecon has the healthy order book position of Rs 13.8 billionas on Mar. 31, 2011 vis-a-vis Rs 9.2 billion last year. This order book excludes the orders from Brahamani Industries worth Rs 3.2 billion.
> MHE contributes orders worth Rs 10.6 billion and rest is from transmission equipment division.
> The Company booked orders worth Rs 1.5 billion during Q4FY11 of which MHE comprises Rs 2.9 billion and rest is from transmission equipment division.
Outlook & Recommendation
Elecon is expected to be the major beneficiary of theincremental focus of GOI on infrastructural sectors. At thecurrent market price of Rs 67, the stock is trading at a P/E of 6x and 4.8x of FY12 and FY13 earnings of Rs 11.2 and Rs 13.9. We recommend `Buy` rating onthe stock with a target price of Rs 111 (66% upside) in 15 months at the P/E of 8x on FY13 earnings.
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Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. And not soliciting any action based upon it. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. We or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report
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