time frame: 6 months gladiator stocks - icici...

ICICI Securities Ltd. | Retail Equity Research

Gladiator Stocks Asian Paints (ASIPAI) CMP- | 745.00 Buying range: | 730.00-745.00 Target: | 880.00 Stop loss: |670.00 Technical View

The share price of Asian Paints remains in a well established uptrend and has generated stable returns for long term investors on a consistent basis over the past many years. Within this secular bull trend the stock has undergone periodic phases of secondary corrections which have provided fresh entry opportunities for investors waiting on the sidelines to board the bus and ride the larger uptrend. After a decent correction over the last five months the stock has now approached a strong value area which provides a good entry opportunity with favourable reward/risk ratio for medium term players to ride the next up move

Correction approaches maturity as price approaches Value area The share price of Asian Paints entered a corrective phase after hitting a life high of |922 in late January 2015.

This correction is seen as a healthy phenomenon within a secular uptrend as the share price worked off the highly overstretched conditions developed after the stupendous rise of over 100% 2014 low of |460 levels to the life high of |922 in January 2015. At the June 2015 low of |693 the stock approached its key value area being the confluence of following technical parameters:

• The 52 week exponential moving average is currently placed at |722 levels. In the entire up move since mid 2009 the 52 week EMA has acted as key intermediate support as the stock has formed a higher bottom in the vicinity of the long term moving average on multiple occasions

• The 50% retracement of the entire up move from 2014 low of 460 to life high of |922 is placed at |690 levels

• The entire correction since February 2015 till date has occurred in a well structured falling channel as highlighted in the adjoining chart. The June 2015 low (|693) is placed precisely at the lower band of this channel

Behaviour of Volumes corroborates the overall positive stance The firm rebound in current week’s trade after hitting a low of |693 clearly suggests that value buying has

outstripped supply at the key support of |690 levels. Strong volumes accompanying the price up move also corroborates increased participation at the value area. Volumes in the current week (93 lakh shares) are more than 1.5x of the 52 week average volume of 62 lakh shares. Meanwhile the entire correction over last five months was on the back of lower than average volumes. As per Dow theory, volumes rising in the direction of primary trend and receding volumes during secondary corrections is the primary trait of an established uptrend

Gladiator StocksJune 19, 2015

Time frame: 6 months

Key Technical Data Recommended Price 730-745

Price Target 880.00

Stoploss 670.00

52 Week High 922.50

52 Week Low 551.20

50 days EMA 740.00

200 days EMA 738.00

52 Week EMA 722.00

*Recommendation given on i-click to gain on June 18, 2015 at 13:06 hrs

Stock price movement vs. CNX FMCG

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Asian Paint CNXFMCG Price performance over last five years

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Among oscillators, the 14 week RSI is seen rebounding after approaching its bull market support reading of 40 after the recent correction. Historically, the weekly RSI has tended to produce key reversals from the 38-40 zone. The current placement of RSI indicates strength in the current rebound and suggests continuation of upward momentum over the coming months

Conclusion: Based on the aforementioned technical arguments we believe that the five month correction off January 2015 highs approached maturity and the stock is poised at attractive value area which provides a good entry opportunity for medium term investors with a favourable reward/risk set-up to ride the next up move. We expect the stock to enter a sustainable up trend from here on and eventually challenge its February 2015 high of |888 over the medium term


Exhibit 1: Asian Paints – Weekly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

Research Analyst

Dharmesh Shah [email protected] Dipesh Dagha [email protected]

Receding volumes during correction and rising volumes along with price up move suggest an established uptrend

460

Weekly RSI is seen rebounding from the bull market support zone of 38-40 readings and signals positive momentum going forward

Asian Paints is poised at a key value area after a decent correction over the last 5 months and offers good entry opportunity for medium term investors to ride the larger degree uptrend

The 52 week average has acted as cushion over the past many years as value buying near the same has time and again produced a steady rebound on the price front

922

50% @ 690


Fundamental view

• Asian Paint Ltd. is the industry leader in the decorative paint segment with ~57% market share and a dealer network of over 35,000 across India. It derives ~85% of its topline from the decorative segment while the rest comes from the industrial segment. With limited competition in the market, APL recorded revenue CAGR of 10% in FY11-15 driven by volume CAGR of ~8% (amid economic slowdown) during the same period. In spite of inflationary pressure in FY11-15, gross margins expanded ~110 bps clearly indicating APL’s pricing power. Slowing Indian GDP growth (paints volume growth is 1.5-1.7x real GDP growth) and a slowdown in discretionary expenditure (slight shift in repainting demand) took a toll on overall volume growth of the paint industry. We believe an economic recovery (albeit at a slow pace) and repainting demand coupled with the new government’s focus on increasing spending in infrastructure projects would lead to 11.5% volume growth (demand staying intact in tier II, tier III cities) and moderate revenue CAGR of 14% between FY15 and FY17E.

• To avoid inflationary pressure, APL has successfully passed on the price hike (~6-7%) to its customers. However, the EBITDA margin tapered off during FY12-13 as raw material prices moved up sharply (~40% of raw material are imported) hit by elevated dollar value against the rupee (up 19% between FY11 and FY13) and bottoming out titanium di-oxide (TiO2) prices. During FY15, the company passed on the benefit of lower material cost to its customer by taking a minute price hike of 0.4% YoY. We have modelled a margin improvement of ~80 bps in FY15-17E albeit at a slow pace supported by benign raw material prices. However, higher fixed cost (due to addition of new facility) will weigh on margin.

• We believe passing on benefits of lower raw material prices coupled with higher fixed cost (due to addition of

capacity) would restrict any sharp movement in EBITDA margin. We expect operating margins to inch up ~80 bps by FY17E. However, we believe the robust pace of growth in revenues and earnings would continue for a prolonged period with the economic recovery and with GDP growth coming back on track. Also, high cash on the books could lead to an increase in dividend payout and improvement in RoEs..

Stock Data Particular AmountMarket Capitalization (| Crore) 70,980.8Total Debt (FY15) (| Crore) 78.3Cash and Investments (FY15) (| Crore) 590.3EV (| Crore) 70,468.8 52 week H/L (|) 922/460Equity capital (| Crore) 95.9Face value (|) 1.0

Exhibit 1: Valuation metrics FY14 FY15E FY16E FY17E

P/E 58.2 50.9 42.3 35.9 Target P/E 57.4 50.1 41.6 35.4 EV / EBITDA 35.0 31.5 26.4 22.7 P/BV 17.6 15.0 13.5 11.6 RoNW (%) 34.0 32.5 34.3 35.5 RoCE (%) 47.4 44.9 47.2 48.9

Exhibit 2: Financial highlights FY14 FY15E FY16E FY17E

P/E 58.2 50.9 42.3 35.9 Target P/E 57.4 50.1 41.6 35.4 EV / EBITDA 35.0 31.5 26.4 22.7 P/BV 17.6 15.0 13.5 11.6 RoNW (%) 34.0 32.5 34.3 35.5 RoCE (%) 47.4 44.9 47.2 48.9

Source: Company, ICICIdirect.com Research


MRPL CMP- | 76.00 Buying range: | 76.00-73.00 Target: | 105.00 Stop loss: |60.00 Technical View

The Oil & Gas sector has emerged as a strong outperformer during the recent correction and exhibited resilience in turbulent market environment. The BSE oil & gas index has itself moved into the improving sphere in our relative strength and sector rotation monitor which highlights that after a prolonged phase of underperformance this sector is coming back on investors radar on the back of value buying. The share price of MRPL is at the cusp of a major turnaround on the larger degree price charts and offers a good buying opportunity for medium term investors

Breakout from 7 year consolidation

The share price of MRPL went out of favour after the market wide deluge in 2008 and gyrated between the broad range of 80 to 30 levels while forming lower peaks over the last seven years. During this seven year long hibernation phase the stock failed to breakout of the range even as markets surpassed their corresponding 2008 peaks and ventured into new life high territory. However, finally things are taking a turn for the good as the share price of MRPL is seen resolving past the major overhead trendline originating since April 2008 and connecting the yearly highs of 2009 and 2014 and had acted as a major supply point over the last seven years. The triumph of bulls over the major supply line signals a bullish trend reversal and opens further higher avenues for the stock over the medium term horizon

After a prolonged period of underperformance from 2009 to 2013, the stock witnessed a strong rally from late 2013 and tested the over head trendline in May 2014. Profit bookings after testing the trendline saw the stock retrace its 2013-2014 up move by 61.8% at the December 2014 low of |45 levels. The stock once again tested the supply line in April 2015 and consolidated below the same over the last two months. The current rally after taking support at the 100 day EMA has propelled the stock past the overhead trendline thereby triggering a bullish reversal and signalling an end of the seven year consolidation phase

Strong volumes backing price breakout highlight the positive turnaround in sentiment

On the volumes front, over the last one year the monthly volumes have consistently surged above the 12 month average which is an indication of accumulation by stronger hands ahead of an impending breakout. The volume in current month so far (1.96 crore shares) have already surpassed the 12 month average of 1.33 crore shares highlighting larger participation during price breakout which augurs well for sustainability of the current up move

Time frame: 6 months

Key Technical Data Recommended Price 76-73

Price Target 105.00

Stoploss 60.00

52 Week High 77.85

52 Week Low 45.10

50 days EMA 68.00

200 days EMA 63.00

52 Week EMA 62.00

*Recommendation given on i-click to gain on June 18, 2015 at 13:06 hrs

Stock price movement vs. BSE 500

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MRPL BSE500

Price performance over last five years

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Among oscillators, the monthly MACD remains in rising trajectory above its trigger line and diverging away from its 9 period average highlighting the underlying strength in the trend and suggests continuation of the upward momentum over the coming months

Conclusion: The weight of the aforementioned technical observations leads us to firmly believe that the stock is set to enter a sustainable uptrend from here on and head towards |105 levels over the medium term. The minimum price objective of the current breakout i.e. the depth of the 2014-2015 correction which measured 30 points (|75 to |45) added to the breakout point of |75 projects an upside target of |105 levels over the medium term


Exhibit 2: MRPL – Weekly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

Over the past one year monthly volumes have consistently surged above the 12 month average suggesting increased participation ahead of the major turnaround on price front

45

Momentum oscillators on weekly and monthly time frame remain in rising trajectory and support the bullish price breakout

Overhead Trendline originating since April 2008 has posed as strong resistance over the last seven years The resolute breakout past the seven year

consolidation signals a major turnaround on the larger degree price scale

75


Fundamental view

• MRPL reported GRMs of $6.9/bbl in Q4FY15 vs our estimate of GRM of $5.2/bbl. This was on account of improvement in global GRM’s and better operational performance. The refinery units are running consistently on sustained basis and new polypropylene unit is expected to stabilise by Q2FY16E. Historically, MRPL has reported higher and more stable GRMs than other PSU refineries. FY15 was difficult for the company as the weak economic environment and reduced crude oil prices had an adverse impact on the GRMs of MRPL along with loss on part of commissioning of phase III. However, with most issues easing away and the secondary units getting stabilised, we believe the GRMs of MRPL will bounce back in the coming years. We have estimated GRMs of US$5.9/barrel and US$5.7/barrel for FY16E and FY17E, respectively. The throughput for Q4FY15 came in at 4.1 mmt vs. 3.9 mmt QoQ. We expect throughput of 14.9 mmt and 15.2 mmt for FY16E & FY17E, respectively.

• MRPL Phase III is complete with the commissioning of Petrochemical Fluidized Catalytic Cracking Unit (PFCCU). This refinery expansion and upgradation at Mangalore includes: - (1) capacity addition of 3 MMTPA and upgradation project (2) polypropylene unit and (3) single point mooring (SPM) facility. Higher complexity on commissioning of phase III project has lead to an increase in distillate yield from 76.5% to 80.1%, better capability to handle heavier & sourer crude and production of higher margin value-added products. The completion of phase III and expansion and up gradation project and units are running consistently on sustained basis. The company has guided that the polypropylene unit is expected to improve GRM’s by further $1/bbl on its stabilisation.

• Overall, MRPL has the lower policy leverage and lowest gearing on the balance sheet among PSU refineries. With

the improvement in operational performance, we expect the company to deliver profits and thus creating value for shareholders in the coming years. The company has recently increased its holding from 3% to 46% in ONGC Mangalore Petrochemicals Limited (OMPL). OMPL is situated adjacent to MRPL phase III and it can receive feed stocks directly from MRPL. This acquisition is positive for company’s diversification. We expect the company to report a net profit of | 1703.7 crore in FY17E vs. loss of | 1712.2 crore in FY15. The stock is trading at 1.5x FY17E book value against a historical six year average of 1.7x.

Stock Data Particular AmountMarket Capitalization (| Crore) 13,320.2 Total Debt (FY14) (| Crore) 8,853.6 Cash and Investments (FY14) (| Crore) 10,672.7 EV (| Crore) 11,501.1 52 week H/L 76/45Equity capital (| Crore) 1,752.7 Face value (|) 10.0

Exhibit 3: Valuation metrics FY14 FY15E FY16E FY17E

P/E NA (7.8) 7.9 7.8 Target P/E NA (8.3) 8.4 8.3 EV / EBITDA 11.3 (10.2) 5.8 5.2 P/BV 1.9 2.6 2.0 1.7 RoNW (%) 8.5 (33.5) 25.7 21.8 RoCE (%) 2.0 (18.6) 19.3 19.4

Exhibit 4: Financial highlights | Crore FY14 FY15 FY16E FY17ERevenues 72,590.6 57,645.4 49,542.9 50,249.6EBITDA 1,017.2 (2,074.1) 3,332.0 3,287.4 Net Profit 601.2 (1,712.2) 1,680.8 1,703.7 EPS (|) 3.4 (9.8) 9.6 9.7

Source: Company, ICICIdirect.com Research


Strategy Follow up Date Scrip Product Strategy RP Target SL Gain/Loss % Comment27-Jan-15 Cummins Cash Buy 880.00 1070.00 795.00 -3.00 Exit at 851.004-Mar-15 Cox & Kings Cash Buy 322.00 418.00 285.0 -11.5 Stoploss triggered4-Mar-15 Page Industries Cash Buy 12400.00 15800.00 11100.00 33.00 Booked profit at 1640017-Mar-15 Torrent pharma Cash Buy 1,135.00 1,340.00 1,020.0 17.0 Target almost achieved9-Apr-15 Hindustan Unilever Cash Buy 916.00 1095.00 838.00 -2.00 Exit at 8949-Apr-15 Concor Cash Buy 1,685.00 2,070.00 1,510.0 11.0 Booked 50% profit at 18659-Apr-15 Kansai Nerolac Cash Buy 233.50 275.00 213.00 -9.00 Stoploss triggered15-Apr-15 Britannia Industries Cash Buy 2,300.00 2,840.00 2,135.0 -7.0 Stoploss triggered15-Apr-15 Atul Auto Cash Buy 580.00 710.00 525.00 9.00 Booked profit at 63311-May-15 Eicher Motors Cash Buy 16,100.00 19,100.00 14,500.0 19.0 Target Achieved14-May-15 TCS Cash Buy 2482.00 2880.00 2295.00 Open18-May-15 Infosys Cash Buy 990.75 1,164.81 915.3 Open


NOTES:

• It is recommended to enter in a staggered manner within the prescribed range provided in the report

• Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis

• The recommendations are valid for three to six months and in case we intend to carry forward the position,

it will be communicated through separate mail. Trading Portfolio allocation

• It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products

• Please avoid allocating the entire trading corpus to a single stock or a single product segment

• Within each product segment it is advisable to allocate equal amount to each recommendation

• For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate

equal amount to each recommendation


Recommended product wise trading portfolio allocation

Allocations Return Objective

Products Product wise allocation

Max allocation in 1 stock

Number of Calls Frontline Stocks Mid-cap stocks

Duration

Daily Calls 8% 2-3% 3-4 Stocks 0.50-1% 2-3% Intraday Short term Delivery 6% 3-5% 7-10 p.m 4-5% 7-10% Opportunity based Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technical 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Technical Breakout 15% 5-10% 1-2 Stocks 10% and above 15% and above 3-6 Months Cash in Hand 10% - - - - -

100%


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 [email protected]


Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

time frame: 6 months gladiator stocks - icici...

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