muhurat picks 2018-19 - icici...
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Muhurat Picks2018-19
Muhurat Picks2018-19
Muhurat Pick – 2018October 31, 2018
Indian equity markets have corrected in the recent past, in tandem with the fall in other emerging markets that are net crude
importers. Crude has been trading at ~$75-80 per barrel (highest level in the last four years) due to supply issues on the
back of Iran sanctions. Adding to the woes is the sharp rupee depreciation amid escalating trade tensions between the US
and China, which has the potential to lower global GDP growth rates. Moreover, in time to come, the focus would also shift
to general elections, which could lead to volatility as investors prefer stable regime. Despite the recent correction, Indian
equities have outperformed other key emerging markets in CY18 YTD. A closer inspection of the same, however, throws up
an interesting insight wherein majority of the returns have been driven by defensives like IT, FMCG and pharma.
Domestic market outperformance also stems from improving macroeconomic indicators as well as robust urban and rural
demand prospects. On the macro economy front, domestic GDP growth rate in Q1FY19 came in at 8.2%, reinforcing India’s
position as the fastest growing large economy. Moreover, structurally consumption demand continues to move northwards.
Thus, with a structural uptick in place, notwithstanding minor hiccups, we expect corporate earnings to stage an impressive
recovery, growing in excess of 20% CAGR over FY18-20E and support the markets, going forward. Hence, in this Muhurat
2018, we are concentrating our bets on stocks that command consistent RoCE (retail/consumer) along with companies
wherein RoCEs/RoE (pharma and corporate banks) are expected to exhibit turnarounds.
Dear Customers,
Wishing you all a Happy and Prosperous Diwali !
Company Stock Code CMP Target Price Potential UpsideMarket Cap
| | % | crore FY19E FY20E FY19E FY20E FY19E FY20E
Aurobindo Pharma AURPHA 770 915 19 45144 15.6 12.9 2.7 2.3 17.3 17.5
Divis Lab DIVLAB 1,486 1,700 14 39442 27.0 22.7 5.6 4.6 20.7 20.5
SBI STABAN 270 340 26 241000 42.0 16.1 1.1 1.0 2.6 6.5
Axis Bank AXIBAN 560 725 26 144000 26.1 15.2 2.7 2.2 8.6 13.2
Titan TITIND 825 950 15 73242 51.1 40.6 12 10.1 23.5 24.8
Trent TRENT 322 410 27 10700 62.8 44.7 6.3 5.8 10 13
EIH EIHLIM 163 205 26 9,317 40.4 36.5 3.2 3.1 8 8.4
ROE (%)P/BV (x)P/E (x)
Muhurat Pick 2018
Aurobindo Pharma (AURPHA) Buying Range (| 750-780)
• Aurobindo possesses one of the best enduring ecosystems among large
cap Indian pharma peers to withstand the volatility in the US generics
space because of its vertically integrated model and lower product
concentration. This is why, despite having higher exposure to oral solids
in the US, it has been an outlier in the US vis-à-vis peers over the last few
quarters. With the expectation of an improvement in US generics
scenario from H2FY19, we believe the company can maintain the tempo
• Another USP of the company is huge capacity. The company owns 22
manufacturing facilities, including eight key formulation facilities in India
and abroad. These can be optimised by 1) continuous US filings and
launches, 2) incremental launches and filings in the RoW markets and 3)
site transfers and supplies for products covered under various
acquisitions. Higher capacity utilisation is likely to improve the operating
leverage thereby maintaining the margin improvement trend. It also has
a better compliance track record in the recent past
• Over the last few years, the company has successfully managed high
debt scenario and acquisitions by consistently generating free cash
flows. The company has developed a knack of making the acquisitions
profitable by leveraging on its vertically integrated model (Actavis
acquisition in the EU). We expect the company to replicate a similar
success in the recent Sandoz acquisition in the US, gradually. The
company is also one of the better plays on currency tailwinds with ~60%
net forex exposure. We expect sales, EBITDA and PAT to grow at a
CAGR of 28%, 23% and 19%, respectively, in FY19E-21E
(Year End March) FY18 FY19E FY20E FY21E
Revenues (| crore) 16499.8 18699.2 27767.7 30702.0
EBITDA (| crore) 3771.8 3893.6 5118.2 5919.2
Adj. Net Profit (| crore) 2423.2 2481.9 2881.4 3485.9
Adj. EPS (|) 41.6 42.6 49.5 59.9
PE (x) 18.3 17.8 15.3 12.7
P/BV (x) 3.8 3.2 2.7 2.2
ROE (%) 20.7 17.8 17.3 17.5
ROCE (%) 20.0 18.1 15.7 17.7
Divi’s Laboratories (DIVLAB) Buying Range (| 1450-1510)
(Year End March) FY17 FY18 FY19E FY20E
Revenues (| crore) 4064.3 3912.8 5044.0 6075.3
EBITDA (| crore) 1446.0 1268.4 1916.2 2308.6
Adj. Net Profit (| crore) 1060.4 883.7 1459.7 1732.3
Adj. EPS (|) 39.9 33.3 55.0 65.3
PE (x) 36.1 43.3 26.2 22.1
P/BV (x) 7.1 6.5 5.4 4.5
ROE (%) 19.8 14.9 20.7 20.4
ROCE (%) 25.3 20.0 27.0 26.6
• The company has two segments - generics (~56% of FY18 revenues) and
custom synthesis (CRAMS; 44% of FY18 revenues). The custom synthesis
(CS) business is a margin accretive one but at times lumpy as it depends
on offtake from customers. Strong R&D capabilities and India cost
arbitrage along with IP adherence are some legacy strengths, which are
likely to drive incremental assignments from MNCs. The recent lifting of
import alert has led to improved sentiments in the near future. We expect
CS to grow at a CAGR of ~25% to | 2643 crore in FY18-20E
• In APIs, the company remains committed to only a few research driven
niche opportunities. Two generics, Naproxen (pain management) and
Dextromethorphan (cough suppressant) account for ~25% of overall
revenues. Divi’s enjoys ~70% global market share in these two products.
It is also increasing its presence in another niche area of carotenoids after
acquiring requisite capabilities. With focus on brownfield expansion, the
management is committed to addressing the capacity constraints. We
expect sales from generics (includes Carotenoids) segment to grow at a
CAGR of ~26% to | 3007 crore in FY18-20E
• Besides currency tailwinds, the strong Q2 performance was attributable to
higher capacity utilisation in the wake of Chinese supply constraints. To
overcome the capacity constraints and prepare for growing opportunities
arising due to China factor, the company has earmarked an aggressive
capex of ~| 1500 crore (including maintenance capex), over and above
~| 1000 crore spent in the last three years. Margins are also likely to get
support from currency tailwinds and operating leverage. We ascribe a
target price of | 1700 based on 26x FY20E EPS of | 65.3
Muhurat Pick 2018
Axis Bank (AXIBAN) Buying Range (|535-570)
• Axis Bank is the third largest private bank in terms of loans. There was a
recent change in top management with Amitabh Choudhary being
appointed the new MD and CEO with effect from January 1, 2019
• Advances as on Q1FY19 was at | 441074 crore. Due to its network &
strong corporate relationships, loan book grew at 30% CAGR earlier,
higher than 19% CAGR in industry. It has largely been a corporate lender
though the trend has been changing over the years. One of the biggest
strengths of the bank is its strong liability franchise. CASA deposits
account for ~47% of deposits as on June 2018. CASA ratio has been at
~45% for almost a decade. This has been due to constant investment in
branches & ATMs, strong brand recognition & quality services. This has
enabled it to maintain healthy NIM of >3% since FY08
• GNPA ratio has been in range of 1-1.3% till Q3FY16. However, it rose to
6.9% by FY18, led by incremental slippages from corporate. Currently,
the bank has vulnerable exposure of | 12236 crore; | 2847 crore in
restructured bucket and | 10396 crore to BB and below rated borrower
• Dismal asset quality in the past has been a show spoiler for the bank.
With bulk of the pain recognised, anticipated recovery of large stressed
cases referred to NCLT, expect GNPA ratio to improve at 5.2% by FY20E
• Retail has put up a good show. Now, the corporate segment is expected
to witness healthy traction & quality ahead. PAT trajectory in FY18-20E
would be higher on improving operating earnings & lower base in FY18
State Bank of India (STABAN) Buying Range (| 245-275)
• SBI being the largest bank in India by asset size (| 34 lakh crore) has
played a lead role in the banking industry. Post merger of banking
associates and subsidiaries and passing through a difficult NPA cycle, it is
coming out strong with top management guiding for rise in RoA
• Credit grew strongly in the past at 17.4% CAGR in FY09-14 while deposit
has grown at 13.4% CAGR. It has been moderating since FY15. Going
ahead, with retail & focused corporate exposure, credit growth is seen
staying moderate at 11% CAGR in FY18-20E to | 23.8 lakh crore. Watchlist
is at | 24633 crore with GNPA, NNPA ratio at 10.69%, 5.3%, respectively
• SBI has managed CASA ratio of >45% & retail deposit >80% of deposit,
which is stable in nature led by its strong reach & liability franchise. SBI
has seen NIM moderation from 3% earlier due to interest income write-
back in NPA. Hence, we expect calculated global NIM at ~2.6-2.7% in
FY19-20E. Cost to Income ratio may stay at ~46%
• SBI’s management has guided a strong recovery path led by moderation
in slippages, resolution of stressed assets and strong growth in advances.
Divestment of non-core assets and stake sale in subsidiaries is on the list.
For FY20E, credit growth is pegged by SBI at 12% CAGR (our estimate
11% CAGR) and RoA at 0.9-1% (our estimate- 0.4-0.5%). Even if the bank
is able to achieve reasonable growth maintaining credit cost at ~2-2.5%
(incorporating Ind-As provisions), earning trajectory should remain
healthy. Adequate provision in lieu of cases referred to NCLT provides
comfort. Overall, long term structural value remains intact
Key Financials FY17 FY18 FY19E FY20E
NII (| crore) 75,199.0 74,853.6 86,112.6 101379.0
PBT (| crore) -1,258.5 -15,528.4 8,318.7 23002.1
Adj. Net Profit (| crore) -1,803.5 -6,548.4 5,906.3 15411.4
Adj. EPS (|) -2.2 -7.3 6.6 17.3
PE (x) -125.0 -37.9 42.0 16.1
P/BV (x) 1.1 1.1 1.1 1.0
ROA (%) -0.1 -0.2 0.2 0.4
ROE (%) -0.9 -3.0 2.6 6.5
Key Financials FY17 FY18 FY19E FY20E
Net Profit (| crore) 3679 276 5807 9978
P/E (x) 37.8 NA 26.1 15.2
ABV (|) 196.8 182.5 211.6 265.3
P/ABV (x) 2.9 3.2 2.7 2.2
GNPA (%) 5.0 6.9 5.9 4.8
RoNA (%) 0.6 0.0 0.8 1.2
RoE (%) 6.8 0.5 8.6 13.2
Muhurat Pick 2018
Titan Company (TITIND) Buying Range (| 775-830 )
• Titan Company is a major player in the organised jewellery market with a
share of ~ 5%. Tanishq’s penetration is still at a nascent stage in the
Indian jewellery market. This provides an immense opportunity for Titan
to enhance its market share. Recent regulatory changes such as gold
hallmarking & GST have been highly favourable for organised players like
Titan, leading to market share gains from unorganised players
• The wedding segment accounts for ~ 60% of the jewellery market in
India (| 150,000 crore of total | 2,50,000 crore), of which Tanishq’s
market share is ~ 3%. Titan is targeting increasing its wedding jewellery
share in total revenues from 35% in FY18 to 50% by FY23. Its sustained
efforts towards enhancing its share in the wedding jewellery space is
proving to be fruitful as it is growing at a much faster pace compared to
the non-bridal jewellery. Since average ticket size for wedding jewellery
is higher than the adornment jewellery, Titan’s aggressive foray in the
wedding space is expected to enhance asset turnover and return ratios,
going forward
• Despite headwinds like fewer wedding dates in H1FY19, surge in gold
prices & tightening of regulatory policy, Titan continued to gain market
share. The management remains upbeat on growth outlook with the aim
to grow jewellery segment revenue at a CAGR of 20% till FY23E. High
asset turnover with positive operating leverage are expected to translate
into 33% RoCE by FY20E from 29% in FY18. We believe Titan’s growth
story will remain multi-pronged and drawn over a longer time frame
Key Financials FY17 FY18 FY19E FY20E
Net sales (| crore) 13,260.8 16,119.8 19,413.4 23,128.3
EBITDA (| crore) 1,155.5 1,644.7 2,096.6 2,613.5
PAT (| crore) 711.5 1,130.1 1,442.5 1,816.0
EPS (|) 8.0 12.7 16.2 20.5
P/E (x) 103.6 65.2 51.1 40.6
EV/Sales (x) 5.5 4.5 3.8 3.1
RoCE (%) 24.7 29.3 31.4 33.1
RoNW (%) 16.8 22.2 23.5 24.8
Trent Ltd (TRENT) Buying Range (| 310-325)
• Trent, a leading retailer with a presence across various consumer
categories, is gearing up for rapid growth driven by aggressive store
addition. Accelerated store addition in the Westside format, rightsizing of
Star Bazaar stores coupled with consistent growth in Zara are further
expected to accelerate Trent’s financial performance
• Westside has proven to have one of the most profitable business models
as it primarily focuses on selling private label brands (96% of revenues)
Higher share of private label brands has led to industry best gross
margins (~60%) for Westside. It has a pan-India presence with 131 stores
across 70 cities and online reach across India with exclusive listing
through Tata CLiQ. The management has chalked out aggressive store
expansion plans for FY19E and is planning to open ~30 additional
Westside stores. Healthy store addition, coupled with steady same store
sales growth (~8%) is expected to drive revenues, going forward
• We believe the recently acquired value fashion business, Zudio, would
add to incremental revenue growth. Trent sees value fashion as one of the
growth drivers and intends to scale up the brand significantly in coming
years. We expect consolidated revenues to grow at 25% CAGR in FY18-
20E with EBITDA margin expansion of 120 bps to 10.5% by FY20E. We
value the stock on SOTP basis assigning 3.2x, 3.0x, 1.5x FY20E EV/sales
to the standalone business, Inditex (Zara), Star Bazar, respectively.
Key Financials FY17 FY18 FY19E FY20E
Revenue (| crore) 1,833.9 2,157.5 2,790.6 3,386.2
EBITDA (| crore) 125.7 201.2 281.2 355.7
Net Profit (| crore) 84.9 87.0 170.3 239.5
EPS (|) 2.6 2.6 5.1 7.2
EV/Sales (x) 6.1 5.2 4.0 3.3
Debt/Equity (x) 0.3 0.2 0.2 0.2
ROE (%) 3.8 5.5 10.0 13.0
ROCE (%) 7.4 10.0 12.7 15.4
Muhurat Pick 2018
East India Hotels (EIHLIM) Buying Range (| 145-165)
• East India Hotels (EIH) is one of the premium hotel operators having a
presence across leisure & business destination and a total room capacity
of 4,834 rooms (of which EIH owns around 45% of rooms). The company
is expected to be a key beneficiary of a revival in the economic
environment
• In the past few years, the industry has been witnessing some green
shoots mainly led by a decline in room supply and increase in demand.
The proposed supply of rooms has significantly reduced from 1,14,446 in
FY08 to 47,067 in FY18. This is further validated by the fact that demand
growth (7.8% YoY) has outpaced supply growth (4.6% YoY) in FY18.
Overall occupancy has also improved 2.8% YoY to 68% while the
average room rate (ARR) improved 2% YoY in FY18. With slowing down
of capacity additions coupled with a rise in spending by domestic
travellers, we expect the sector to see a better growth trajectory and
healthy pricing in the next three to four years
• Apart from an improving environment, the reopening of the Delhi
property (opened in Q3FY18) and launch of six new hotels is expected to
drive topline (CAGR of 15.7% in FY18-20E) and bottomline growth
(19.3% CAGR in FY18-20E)
• The stock is trading at attractive valuation of 19.8x FY20E EV/EBITDA
against industry average of 28.0x. Hence, we have a BUY rating on the
stock with a target price of | 205 (i.e. valuing at two year forward
EV/EBITDA of 25.0x, EV/room of | 3.8 crore)
| Crore FY17 FY18 FY19E FY20E
Net Sales 1,528.7 1,598.8 1,982.5 2,141.1
EBITDA 261.1 298.9 426.2 471.0
Net Profit 103.1 179.2 230.3 255.2
EPS (Rs) 1.8 3.1 4.0 4.5
EV/EBITDA (x) 36.5 31.8 22.2 19.8
P/BV (x) 3.3 3.4 3.2 3.1
RoNW (%) 4.6 6.6 8.0 8.4
RoCE (%) 6.5 8.7 11.2 11.6
Muhurat Pick 2018
Performance of 2017 Muhurat Picks
Company Reco Price Target Price Return (%) Status
HDFC 1745 2056 -3.7 Call Closed at | 1680
Sagar Cements 820 1025 25.0 Target Achieved
Ineos Styrolution 1025 1250 -34.9 Call Closed at | 667
NRB Bearing 128 160 25.0 Target Achieved
Mayur Uniquoters 394 450 14.2 Target Achieved
Prabhat Dairy 136 165 21.3 Target Achieved
MM Forgings 786 1020 29.8 Target Achieved
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
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