Market Updates 09 Jun11
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Market Outlook
Nifty first and major support 5,502
Nifty, the critical level is seen at 5,528 below which selling pressure may continue. Nifty might consolidate between critical and first resistance 5,562. If it manages to trade above 5,562, further upmove is expected wherein which, the index will try to target higher resistance at 5,596. If negative sentiments push Nifty below critical, it may drift to its first and major support 5,502,
Technical Calls
Buy B. F. Utilities 754.40 target 765
Buy HSIL 172.00 target 180
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Momentum Calls
Buy Steel Strips Wheels 287.75 target 295
Buy EID Parrry 226.00 target 235
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Investment
Microsec Research has recommended `Buy` on BATA India with a price target of Rs 670
Continuous and ongoing process of restructuring adopted in all areas of operation: There has been an improvement in manufacturing, changes in sourcing, credit management, retail restructuring, labour union & management relationship, retail expansion programs, internal controls, working capital management and corporate governance to restructure the operation process of Bata.
Brand repositioning with operational efficiency, stylish layout and trendy shoe design seems to the latest `mantra`: With sylish layout and trendy shoe design Bata is repositioning its brand. The company introduced and expanded high-margin premium brands such as Hush Puppies, North Star and Weinbrenner. Soothing music, colorful ambience, contemporary styling and excellent staff at exclusive Bata stores are the latest strategies adopted to provide the best retail environment to its customers.
Opening large format stores in Tier 2 & Tier 3 cities: It plans to open large format 50-60 stores in tier-2 and tier-3 cities annually of atleast an area of 4,000 sq.ft to increase its market penetration from the current store of 1,200 in CY10. It is also closing down unviable old stores. Making shoes for industrial uses and armed forces to add value: The company has recently launched shoes in the range of Rs 500-3000 for industrial uses in the domestic market. It is also planning to become an approved supplier of armed forces of which demand is 1.2 mn pairs a year. Developing 260 acre land in Batanagar in JV with Calcutta Metropolitan to unlock value: The township project in JV with Calcutta Metropolitan where Bata has deployed around Rs 730 million in 2007 is expected to be competed by 2013 and would further unlock value of Bata
Valuation: The stock is currently trading at Rs 509 at a P/E of 37x. It discounts its CY11E EPS of Rs.18.4 by 27.6x and it`s CY12E EPS of Rs 22.3 by 22.8x. Its 5 year consolidated Average P/E works out to be 38x as per Bloomberg. Bata
transformed itself from being a shoe player to India`s growing Retailer and hence is looking set to trade at higher multiples commanded by other retail players. With strong brand value, mass appeal, new strategies, strong management, valuefor money products and neglible Debt, Bata
Investment
Networth Capital has recommended `Buy` on Techno Electric & Engineering with a price target of Rs 297.
Wind energy`s share in the profit to rise: From current 95.45 MW of wind capacity, TEEC will have 200MW of capacity by end of FY12. The company plans to have 1250 MW of capacity by end of XIth Five year plan. TEEC has PPA for its existing capacity
while the new capacity is under the REC scheme of CERC wherein the REC`s are tradable on the power exchange at a floor price of Rs. 1.5/kwh and ceiling of Rs.3.9/kwh. Besides, the existing capacity is registered with UNFCC for 125000 carbon credits.
All this is estimated to add to the bottom-line of the company. The share of wind energy in the total revenue is set to rise from current 10% to 16% by FY13E while the share in profits is set to rise to 58% by FY13E.
EPC continues to be cash cow: TEEC has been in the EPC business for more than 30 years now and has a strong clientele. It clocks EBIDTA margins close to 15% (highest amongst the peers) in this segment while it has one of the lowest working capital cycles in the industry. Before acquiring wind assets TEEC had close to Rs.1.9 bn of cash on their total balance sheet of Rs. 2.6 bn. With growing competition, the return ratios in this segment are likely to be subdued and hence this diversification into wind energy. EPC is estimated to do well growing at a CAGR of 14% in FY11â€FY13E period with EBIDTA margins at 13.5% as competition impacts margins. Consequently, EPC is likely to generate free cash flows which will aid expansion of wind business.
SOTP TP of Rs. 297 a share, `Buy`: Besides EPC and wind business, TEEC recently won transmission BOT project along with Kalpataru Power for setting up the transmission lines in Jhajjar, Haryana. It`s a JV with TEEC`s share at 49%. The same is reflected as an investment for TEEC. Given its diversified business we have valued TEEC on SOTP basis. We have valued the EPC business at a target P/E multiple of 10 on FY13E EPS arriving at a value of Rs. 164/share. The wind business has been valued on FCFE basis with CoE of 17.4%, growth rate of 3% deriving value of Rs. 126/share. Transmission business has been valued at cost at Rs. 7/share. The SOTP TP is thus Rs. 297/share. At the target price the company will trade at a P/E multiple of 13x on FY13E EPS and at 8x FY13E EV/EBIDTA.
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