SMART PROFIT LATEST PICK
SELL BAJAJ AUTO (532977)
CMP: 1450
Target: 1100 in 3 months
Bajaj Auto Ltd, the 2nd largest manufacturer of two-wheelers in India,
reported less growth compared to its peers and its production
constrains, decreasing brand image, market acceptance detoriating
quality & inability to achieve target sale stock looks struggling.
For the next two years in the domestic market, Two-Wheelers segment
average growth may be 8% to 10% as compared to previous two years
where average growth has been 20%. While Bajaj Auto growth will be
negative as compared to Honda, Hero MotoCrop, Yamaha & Suzuki.
September to December M-o-M Sales Reports in India:-
Comparing sales growth from month of December to September. Bajaj Auto
sales have decrease to 33.78% as compared to its peers like Honda
sales has increased by 14.10 % and Hero MotoCorp by 0.87%.
Months Bajaj Auto Ltd Growth
(%) Hero MotoCorp Growth
(%) Honda Motors Growth
(%)
September 255786 1.91% 535636 6.35% 167914 4.51%
October 244503 -4.41% 497105 -7.19% 171814 2.32%
November 228407 -6.58% 520957 4.80% 189970 10.57%
December 169391 -25.84% 540276 3.71% 191584 0.85%
FIERCE COMPETITION:
Bajaj Auto's are facing constraints to sell off their current capacity
to the fullest. Currently their total production capacity is 4.5 lacs
units while the sales for the December has been 3.05 lacs units
which is only 68% of utilization of its capacity and within a couple
of months we assume that their sales will be 2.5 lac units which will
be only 56% of utilization of the capacity. Whereas Hero MotoCorp is
increasing its production capacity to 10 million units while Honda is
emerging in a very big way and it is doubling its production capacity
to 4 million units within a year. Suzuki is also doubling its
production capacity and Yamaha is on a verge of tripling its
production capacity. Italian based Piaggio is also penetrating in the
two-wheeler segments with attractive variations of bikes by 2nd
quarter of 2012.
Good news for Bajaj is they are concentrating more on an export front
and sale has been 1 lac units / month , but bad news is that it will
get a hit in a very big way by its competitors Hero MotoCorp and
Honda and its export sales may go down to 50000 units / month. Hero
MotoCorp has set up 1.2 lacs units /month production capacity plant in
Sanand (Gujarat project near Ahmedabad) dedicated 100% export whereas
Honda, through its China plant has introduced its new variant (pricing
31,000 INR) in Nigerian and South African market (Nigeria and South
Africa contribute 50% export sales of Bajaj Auto). Hero MotoCorp has
initiated its distribution network in all the 11 countries where Bajaj
is exporting
In three-wheeler segment, Bajaj Auto growth has been negative while
Piaggio is increasing its capacity along with TVS and Mahindra
decreasing the market share of Bajaj.
This fierce competition in two and three wheeler sector is affecting
Bajaj's survival in industry and it seems that it will not able to
stand the competition after 6 months.
MARKET RESEARCH ON TWO WHEELER SECTOR IN INDIA:-
According to market research performed on consumers the most preferred
brand of two-wheelers is Honda which has replaced Bajaj's 2nd position
on Dec 2011, and TVS which is aggressively marketing in Eastern India
will replace to 3rd position in 6 months downgrading Bajaj to 4th
position. And within 2 years it will further downgraded to 5th
position giving its way to Yamaha in Indian market.
We interacted with Bajaj Auto dealers as they said; Bajaj is
increasing inventory with their dealers and distributors. Thus the
sales recorded by Bajaj in last 5 months are not consumer sale but the
inventory sale of dealers and distributors. Hero MotoCorp & Honda has
waiting period ranging from 4 - 8 months whereas Bajaj's bikes are
overstocked with the dealers
CONCLUSION:
Indian player getting affected due to entry of Foreign player:-
Just like in Television segment, Onida, an Indian player got affected
due to entry of foreign player like LG, Sony and Samsung and in Fridge
segment, Godrej, Kelvinator and Voltas got affected because of
Whirlpool, Samsung and LG or in Air conditioner segment, Voltas and
Carrier got affected because of Hitachi, Daikin and OGENERAL and in 4
- Wheeler segment, Fiat and Ambassador got affected because of Suzuki,
Hyundai and Chevrolet. In the same way in 2 - Wheeler segment Bajaj
and TVS is getting affected due to entry of foreign player like
Honda,Yamaha, Suzuki and Piaggio.
Thus studying the fundamental and technical aspect of Bajaj Auto, it
is trading at its highest level and we recommend a STRONG SELL on
Bajaj Auto at CMP 1418 with target of Rs.1100 in 3 months and further
going down to Rs.700 within a year.
BUY NATIONAL HYDRO POWER CORPORATION (533098)
CMP: 21
Target: 40 in 6 months
National Hydro Power Corporation, an entity of Government of India, is
country's largest hydro power producer.
NHPC is currently having an installed capacity of more than 5,300 MW
with 14 operational power stations and has a cash surplus of over Rs.
4,000 crore.
National Hydroelectric Power Corporation (NHPC) has reported a net
profit of Rs 966 crore in the second quarter of FY12, a growth of 40%
as compared to Rs 690 crore in the corresponding quarter of last
fiscal.
Net sales jumped 47.66% to Rs 1,831 crore in the July-September period
of 2011 versus Rs 1,240 crore in same quarter the previous year.
The second quarter is a seasonally favorable quarter which contributes
bulk of full-year earnings.
Total revenue shot up 54% to Rs 1,981.5 crore from Rs 1,282.6 crore Y-
o-Y.
Earnings before interest, tax, depreciation and amortization (EBITDA)
rose 35% to Rs 1,416 crore from Rs 1,049 crore during the same period.
The state-run major is engaged in the construction of 10 projects at
various locations in the country, going to have an additional capacity
of 4,502 MW. It is planning to develop two hydro projects in Myanmar.
It plans to increase the capacity to over 10,000 MW by end of 2012.
The coal price has raised, which will forced to increase in power
price by 20%. This will further boost the profit margin of NHPC to a
large extent.
Spanning on Government's increasing emphasis on hydro power and NHPC's
strong hold, we recommend a BUY on NHPC at CMP of Rs 21, with a target
of Rs.40 in 6 months.
BUY TATA COMMUNICATION (500483)
CMP: 222
Target: 250 in 4 months
Tata Communications Limited along with its global subsidiaries (Tata
Communications) is a leading global provider of the new world of
communications. The Tata Global Network encompasses one of the most
advanced and largest submarine cable networks, a Tier-1 IP network,
connectivity to more than 200 countries across 400 PoPs and more than
10 lac square feet data center space. Tata Communications serves its
customers from its offices in 80 cities in 40 countries worldwide.
The number one global international wholesale voice operator and
number one provider of International Long Distance, Enterprise Data
and Internet Services in India (famously known as TATA PHOTON+), the
company was named "Best Wholesale Carrier" at the World Communications
Awards and was named the "Best Pan-Asian Wholesale Provider"
Tata Communications and Essar Telecom Kenya (yuMobile), a unit of
Essar Group, announced the signing of a mutually beneficial strategic
sourcing agreement, Tata Communications will benefit from the
increasing demand for high quality voice services in Africa generated
by a rapid rise in the number of mobile subscribers on the continent
Tata Communications Ltd. is a part of the $6740 Crore Tata Companies;
it is listed on the Bombay Stock Exchange and the National Stock
Exchange of India and its ADRs are listed on the New York Stock
Exchange (NYSE: TCL).
Total income rose to Rs.3294.33 Crore during the April-June quarter of
2011, compared to Rs.2900.44 crore in the same period last year.
Tata communication has made conscious efforts to diversify from its
core wholesale voice business and tap the higher margin managed
services and cloud business.
We believe the stock is a good opportunity point as long term drivers
are intact as addressable market opportunity leaves tremendous scope
for expansion stock may go up by 40%.
We recommend 'BUY' on the stock at CMP Rs.222 with a target price of
Rs. 250 in 4 months
BUY RURAL ELECTRIFICATION CORPORATION LIMITED (REC) (532955)
CMP: 169
Target: 300
REC, under Ministry of Power, was incorporated on July 25, 1969 under
the Companies Act 1956. REC a listed Public Sector Enterprise
Government of India with a net worth of Rs. 12,784 Crore as on
31.03.11.
REC provides loan assistance to SEBs/State Power Utilities for
investments in rural electrification schemes through its Corporate
Office located at New Delhi and 17 field units (Project Offices),
which are located in most of the States.
The company has been rated among the top 500 Global Financial Services
brands for 2010 by UK-based plc Brand Finance. REC is also among the
Forbes Global 2000 companies for 2010.
The total income of the company rose by 23.02% in the quarter under
review at Rs.2,372.88 crore ended June 30, 2011 as compared to Rs.
1,928.77 crore in the first quarter of the last fiscal.
With a strong sanctions pipeline (INR1.6 trillion), loan growth is
likely to be healthy at 22% CAGR over FY11-13. Loan book grew 24% Y-o-
Y and 5% Q-o-Q to INR858 billion.
We have a 'BUY' rating on the stock at CMP of Rs.169 due to REC's
robust long-term business outlook and valuations considering
compounded earnings growth of 25% and average return on equity (RoE)
of 22% over 2011-12.
BUY FIRSTSOURCE SOLUTION (532809)
CMP: 8
Target: 25
Formerly known as ICICI OneSource, incorporated in 2001, Firstsource
Solutions Limited provides a range of business process outsourcing
services.
It offers business process management services to the banking,
financial services and insurance (BFSI); telecommunications and media;
and healthcare industries. Firstsource has a "rightshore" delivery
model with operations in India, U.S., UK and Philippines.
INVESTMENT VIEW:-
Firstsource Recognized with Top Honors at the International Quality
and Productivity Council (IQPC) Conference
Leadership position in the healthcare industry
About 40% of the revenue comes from its healthcare vertical catering
mainly to US markets
Divestment of Stake
Stable relationships with existing clients
The Company works with more than 1000 clients. 7 of the top 10 clients
have grown during the quarter.
Foreign Exchange Hedges
Outstanding FX hedge at $ 31million and £ 35million for USD and GBP
respectively.
Employee Strength
29,664 (as of 30th, June 2011) added 1,759 employees in this quarter.
Firstsource Solutions has reported a sales turnover of Rs 182.84 crore
and a net profit of Rs 7.17 crore for the quarter ended Jun '11.
For the quarter ended Mar 2011 the sales turnover was Rs 182.96 crore
and net profit was Rs 14.61 crore.
In spite of Q1 being a seasonally weaker Quarter, but considering the
strong performance both on revenues and profitability. We recommend a
Buy on FSL at CMP Rs.8 with a target price of Rs.25 within 9 months.
BUY AREVA T&D (522275)
CMP: 187
Target: 300
India Ltd, the Indian subsidiary of AREVA France SA, engages in the
design and manufacture of equipment, systems, and services for
transmission and distribution of electricity in India.
Areva managed to retain its leadership position for the third year has
reported a sales turnover of Rs 998.86 crore and a net profit of Rs
26.26 crore for the quarter ended Jun '11.
Eight new factories were built at three locations: Vadodora in
Gujarat, Hosur and Padappai in Tamilnadu.
The comply of Areva T&D India's business at global level by the
Consortium of Alstom-Schneider continues to fortify on the stock.
Although the signs of recovery are emerging Areva T&D India wins
contract for 765 kV Extra High Voltage Substation from Rajasthan Raja
Vidyut Prasaran Nigam Ltd (RRVPNL) worth close to 4000 MINR, the stock
is currently trading at lower valuations that contradict the
fundamental.
On 4th Oct, 2011, Government has enforce 14% Import duty on Power
Generation & Distribution Equipment which will directly benefit to
Areva T&D
Building on the strong operating performance with relatively low
interest and depreciation cost as proportion to sales and lower tax
incidence, we expect company to register CAGR of 13.5% respectively.
We expect the stock perform dominant in earning at CMP Rs. 187 with a
target price of Rs. 300.
BUY HOTEL LEELA (500193)
CMP: 32
Target: 60
India's fifth-biggest luxury hotel chain founded in 1957. Leela Group
is engaged in the business of ready-made garments and luxury hotels
and resorts.
Hotel Leela venture, plans to raise funds through divest as much as
14.95% stake through a fresh issue of shares to unnamed investor(s)
and besides monetize its land bank by selling non-core assets
including a major portion of a commercial office space next to its
hotel in Chennai. It expects to generate about Rs 950 crore from such
sale of land and joint development, which would be used for reducing
its debt. The other decision to sell a stake will bring around Rs 270
crore ($60 million) additionally as cash into the firm, according to
estimates based on current market price. The strategic or financial
investor will pick just a tad less than 15% stake that would trigger
an open offer.
India is one of the fastest growing tourist markets in the world
inherently rooted concept of hospitality in form of "Ätithi Devo
bhava" . At present, this Company operates six hotels at the locations
viz. Mumbai, Bangalore, Goa, Kovalam, Udaipur and Gurgaon comprising
1523 guest rooms and 90 serviced apartments.
Hotel Leela venture has signed a pact with Travancore Enterprises to
transfer its hotel property in Kerala to a special purpose vehicle
(SPV), which would be overtaken by the latter for Rs 500 crore.
Hotel Leela adding 260 rooms in Delhi and 332 rooms in Chennai
properties.
With an ever increasing demand in tourism business synergizing with
growth plans of Leela, we recommend a BUY at current level of Rs.32
with target of Rs.60.
BUY TATA TELESERVICES (532371)
CMP: 14
Target: 30
Tata Teleservices Limited spearheads the Tata Group's presence in the
telecom sector. The Tata Group includes over 90 companies, over
395,000 employees worldwide and more than 3.5 million shareholders.
It launched mobile operations in January 2005 under the brand name
Tata Indicom and today enjoys a pan-India presence through existing
operations in all of India's 22 telecom Circles.
Tata Teleservices Limited also has a significant presence in the GSM
space, through its joint venture with NTT DOCOMO of Japan, and offers
differentiated products and services under the Tata DOCOMO brand name.
Today, Tata Teleservices Ltd, along with Tata Teleservices
(Maharashtra) Ltd, serves over 85 million customers in more than
450,000 towns and villages across the country.
The Company showed a 7% growth in year-on-year revenues at Rs 620
crore for the quarter ended September 30, 2011, compared to Rs 582
crore in the corresponding quarter of the previous year. Its posted
net profit of Rs 130.2 crore.
The Company maintained a strong focus on wireless broadband services,
and its VAS and data revenues accounted for 33.3 % of total wireless
revenues in Q2 of FY 11-12.
Going forward we expect the company to maintain quarterly addition of
0.5 million subscriber in FY12, which signifies an addition of 20
million subscribers in a year.
We expect the upgrade to 3G to boost average revenue per user, premium
services may take time to pick up in a price sensitive market such as
India. The overall performance of the company looks encouraging. At
CMP of Rs 14We have a BUY rating on the stock with the target price of
Rs 30.
BUY POWER GRID CORPORATION OF INDIA (532898)
CMP: 99
Target: 150 in 9 months
Power Grid Corporation of India, the Central Transmission Utility
(CTU) of the country under the Ministry of Power.
Central Transmission Utility - Navaratna PSU - Asset of Rs. 50352 Crs
as on March 31, 2011. World's Leading Power Transmission Utility -
82,354 Ckt.Km line-135 Substations . Technology Leader in EHVAC & HVDC
Transmission.
Carries 51% of Generated Power Across Country.
• 93,050 MVA Transformation Capacity
• 22400 MW (Approx) Interregional Capacity
Telecom NLD with 20733 Km Optical Fiber Network & Internet Service
Provider
Capital expenditure for FY12 is expected to be around Rs 16700 crore.
For the 12th plan, company's capital expenditure is expected to be
around Rs 100,000-120,000 crore in which about 52,000 km of
transmission lines, 70 sub-stations and transmission capacity of
1,36,000 MVA are to be added. The management has guided for
capitalization of Rs 10,000 crore in FY12. Higher capitalization
should aid top line growth. Company has more than 50% of the market
share of the transmission sector and this is expected to increase.
Power Grid Corporation of India has reported a net profit of Rs 709
crore for the Q2 of FY12, a growth of 8.9% as compared to Rs 651 crore
in the corresponding quarter of last fiscal.
Revenue from operations increased 6.44% to Rs 2,264 crore from Rs
2,127 crore Y-oY.
Due to Power Grid's robust long-term business outlook, valuations and
on a strong fundamental basis, we have a 'BUY' rating on the stock at
CMP of Rs 99 with target price of Rs.150 in 9 months.
BUY NEYVELI LIGNITE CORPORATION LIMITED (513683)
CMP: 82
Target: 150 in 9 months
NLC is a government-owned lignite mining Indian company, which is
wholly owned by the Union Government (49%) and administered via coal
ministry. It is recently announced as "Navratna" by Government of
India in April 2011. NLC Neyveli spreads over an area of around 54
square km, comprising Neyveli Township and temporary colonies around
32 blocks. The company runs the biggest open-pit lignite mines in
India and mines around 2.4 Crore tonnes of lignite annually for fuel,
with an installed capacity of 2490 MW of electricity per annum.
NLC now elaborated its project to Rajasthan also in mining as well as
thermal stations, 3 big mines also supplies a huge amount of sweet
water to Chennai. The Tamil Nadu electricity board has a JV with the
Neyveli Lignite Corporation Ltd (NLC) for two projects – A 1000-MW
coal-based project at Tuticorin in southy Tamil Nadu at the cost of Rs.
4000 crore and the Jayamkondam lignite power project at a cost of Rs.
5000 crore for 1000 – MW power plant. The company has also planned to
develop clean coal technologies like extraction of coal bed methane
(CBM) and Underground coal gasification for which several steps have
been taken. The coal priced has raised, due to which Central Govt. has
forced SEB to increase Electricity Power tariff by 20%, which will
directly benefit NLC for ownership of their mines.
Neyveli Lignite Corporation has posted a net profit of Rs 3.43 billion
for the quarter ended June 30, 2011 as compared to Rs 3.42 billion for
the quarter ended June 30, 2010 representing marginal increase of
0.29%.
Total income has increased from Rs 12.58 billion for the quarter ended
June 30, 2010 to Rs 14.25 billion for the quarter ended June 30, 2011,
representing increase of 13.28%.
Neyveli Lignite is an open-cast mechanized lignite mine. The Company
has 50 % joint venture with Tamil Nadu Electricity Board and its
announced its plans to invest about Rs.36,900 crore on power
generation and mining capacity augmentation by 2017. The plan also
includes development of power projects using other fuel feed. The
company is also planning to invest Rs.40,200 crore to build power
plants in Tamil Nadu, Rajasthan and Uttar Pradesh.
Strong expansion & diversification plans to explore coal-based, wind
and solar power generation projects will add on strength to the
cashbook.
We recommend 'BUY' on the stock at CMP Rs. 82 with a target price of
Rs. 150 in 9 months
DISCLAIMER:- Smart Profit has taken due care and caution in
compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
from the use of such information. CEO, Directors and staff may have a
position in the recommended stock.
FOR FUTHER DETAILS CONTACT:-
SUMAN JAIN
(CEO)
+919820041126
Email: sumanjain@smartprofit.in
DIPAK MANGELA
(Research Analyst)
+919820260291
Email: dipak.mangela@smartprofit.in
MANSINGH RAI
(Sr. Executive)
+919320907684
Email: mansingh.rai@smartprofit.in
SHAILESH GOWDA
(Sr. Executive)
+919967394114
Email: shailesh.gowda@smartprofit.in
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