Medium Term Investment Portfolio June 2010

Medium Term Investment Portfolio Picks June 15, 2010
We give here below three portfolios for different categories of investors – conservative, medium risk and high risk.
• These portfolios also provide two ideal entry levels.
• These portfolios are intended/designed to beat the frontline indices over a period of 2-4 quarters and could even provide
absolute returns of 15-25% from their entry levels. In case these returns are achieved earlier, appropriate decision on exit may
be taken, in time.
• The markets may not have so far formed a sustainable long term bottom due to various uncertainties like global financial crisis,
volatile global risk appetite, valuation concerns, volatile commodity prices, monsoon concerns etc.
• Investments may be staggered and sharp down days may be used to deploy funds gradually.
Conservative Portfolio
1. Bank of Baroda
Face Book D/E Last Div Rs Sales Sales OPM NPM EPS P/
Industry CMP Ideal Entry Level Value Value Ratio /Share Rs.Cr. Growth % % EPS growth P/E BV
Level I Level II Latest FY10 FY10 FY10 FY10 FY 09
Banks 730.75 715-730 649-670 10 363.3 NA 15.0 20,243 9.7% NA 15.7 85.4 63.5 34.5% 8.6 2.0
• Triggers: Robust domestic and overseas growth, consistent fee income growth, healthy asset quality, Investment book largely
insulated from rising interest rate risk, FY11 P/ABV less than 1.5, guidance of 25% loan book growth in FY11, Healthy RoE of
22%
• Concerns: Risk of asset quality deterioration, slower than expected credit growth, pressure on NIMs
2. Blue Dart Express

Logistics 916.4 877- 916 740-774 10 189.3 0.0 1.0 908 -7.1% 12.3 6.7 25.7 32.8 -21.5% 35.5 4.8
• Triggers: Offers one-stop courier & express package distribution solutions for domestic and international trade, 43% local
market share, foreign ownership, debtfree, leveraged to economic growth
• Concerns: Slowdown in economy, changes in Govt Regulations, increased competition, higher fuel/ATF costs
3. Cadila Healthcare
Pharma 610.2 575-610 490-514 5 90.5 0.9 5.0 3,574 24.9% 22.2 14.1 37.3 23.6 57.7% 16.4 6.7
• Triggers: New launches in Japan and Europe to drive growth, improving product and geographical mix to help margins,
addition of sales force in India to help increase market share, recent strategic licensing agreement with Abbott Laboratories for
its 24 branded generics (for 15 key emerging markets) is unique and lucrative
• Concerns: Rupee appreciation, increased competition, price control, litigation risk, R&D outcome risk
4. Dabur India
FMCG 192.2 185-191 171-177 1 9.4 0.2 1.7 3,366 20.0% 19.7 14.9 5.8 4.5 28.3% 33.1 20.3
• Triggers: Encouraging domestic rural demand, expectation of normal monsoon, growing international business, inorganic
growth opportunities
• Concerns: Commodity price increase, forex risk, deficient monsoon and its impact on rural spending, increased competition
5. HSIL
Sanitaryware/
88.4 86-89 75-79 2 43.4 1.4 2.0 804 30.6% 17.8 5.2 7.9 7.3 7.7% 11.2 2.0
Glass
• Triggers: Sanitaryware industry on a growth path, increasing product portfolio, capacity expansion in container glass to aid
growth, availability of natural gas in future to aid margins
• Concerns: Increasing competition, high D/E ratio, high interest and depreciation costs, retail initiative to affect margins, high
working capital requirements
Retail Research 1
6. IOCL
Face Book D/E Last Div Sales Sales OPM NPM EPS P/
Industry CMP Ideal Entry Level Value Value Ratio Rs /Share Rs.Cr. Growth % % EPS growth P/E BV
Refineries 347.9 321-337 303-312 10 381.4 0.9 13.0 250,105 -12.6% 8.1 4.2 44.1 21.8 102.4% 7.9 0.9
• Triggers: Possible fuel price reforms, transparent fuel subsidy regime

• Concerns: Weak refining margins, continued losses in kerosene and LPG, unfavourable regulation, volatile crude and product
prices, forex risk
7. Jyothy Laboratories
FMCG 231.4 222-231 195-207 1 47.7 0.0 4.0 596 64.8% 18.3 12.4 10.2 5.2 93.8% 22.6 4.8
• Triggers: Benefit of nationwide launch of Exo to provide push for volume driven growth, repellents to see new product launch
under tech tieup with DRDO, laundry business to attain breakeven in FY11
• Concerns: Higher than expected adspend could affect margins, new launches/businesses could take time to breakeven or
achieve scale, dependence on Ujala for profits could take time to reduce.
8. Lupin
Pharma 1849.3 1780-1850 1605-1672 10 172.0 0.8 13.5 4,741 25.5% 20.9 14.3 76.6 60.5 26.6% 24.1 10.7
• Triggers: Continued earnings momentum (20%+ CAGR over FY10-12E), potential margin upsides, lower volatility of earnings,
and strong US pipeline warrant re-rating to larger peers
• Concerns: Key risk for FY11E is the US generics business, where the company is heavily dependent on generic Lotrel on the
back of only 6 approvals during the year. Also Rupee appreciation, increased competition, price control, litigation risk, R&D
outcome risk
9. M&M
Automobiles 612.7 587-604 535-552 5 70.9 1.2 9.5 31,172 18.0% 18.9 7.9 40.7 26.9 50.9% 15.1 8.6
• Triggers: Leader in UV segment, expanding capacity to drive volumes, Turnaround in subsidiaries, New products to be
launched, New acquisitions to add to product basket, leader in tractor segment
• Concerns: Increasing competition, Complex organisational structure, Lull in demand to affect volumes, Rising commodity
prices
10. RECL
Infra Finance 294.6 278-295 250-259 10 72.1 NA 6.5 6,431 37.9% NA 31.4 20.4 14.8 38.0% 14.4 4.1
• Triggers: Strong NIMs, expected growth in disbursements post FPO, Impressive Asset Quality, Growth in Power sector,
Nodal agency for various Govt projects
• Concerns: Forex fluctuations, High exposure of loans to SEBs, Possible inability to access cheaper borrowings, Possible
delay in power projects
Note: FY10 numbers wherever available, otherwise FY09 numbers

Source: Capitaline Database
Retail Research 2
Medium Risk
1. Ashok Leyland
Auto - LCVs /
62.9 59-63 53-57 1 15.9 0.6 1.5 7,245 21.1% 11.5 5.8 3.2 1.4 123.0% 19.8 4.0
HCVs
• Triggers: CV cycle gathering momentum, pre-buying before revised emission norms, increased capacity, cost savings
• Concerns: Raw material costs increase, increase in interest rates, stiffening competition, slowdown in industrial activity
2. BPCL
Refineries 561.8 519-538 489-510 10 368.2 1.44 14.0 123,817 -9.3% 4.3 1.3 45.2 17.5 157.6% 12.4 1.5
• Triggers: Possible fuel price reforms, transparent fuel subsidy regime, Kochi Refinery expansion 2mt going on stream in
Q3FY11, possible E&P triggers, 6 mt Bina refinery to go on stream in Q3FY11
• Concerns: Weak refining margins, continued losses in kerosene and LPG, unfavourable regulation, volatile crude and product
prices, forex risk
3. JSW Energy
Power
122.5 118-123 112-115 10 27.1 3.18 0.7 2,336 28.6% 55.1 31.9 4.5 1.7 169.0% 26.9 4.5
Generation
• Triggers: Superior capacity ramp up, high merchant sales possibility, attempt to ensure fuel linkages in India and abroad
• Concerns: Volatility in spot coal prices, forex fluctuations, soft merchant power tariffs, delay in ensuring linkages
4. Kabra Extrusion
Engineering 132.1 121-132 106-111 5 54.8 0.1 3.5 195 26.9% 17.9 11.0 13.5 7.3 83.4% 9.8 2.4
• Triggers: Undergoing capex of Rs.85 cr over the next few years to raise capacity, leader in plastic pipes machinery,
technological leadership, large exports
• Concerns: Risk of technological obsolescence, growing competition including from imports, slowdown in India/globally
5. LIC Housing Finance

Finance -
978.9 954-980 893-909 10 266.2 NA 15.0 3,283 19.5% NA 21.0 72.6 63.3 14.7% 13.5 3.7
Housing
• Triggers: Strong growth in sanctions & disbursements, Sharp improvement in asset quality, lower cost of borrowings &
increasing proportion of project loans could improve NIMs going forward
• Concerns: Interest Rate hike could impact the demand for fresh loans, increasing proportion of project loans also increases
the risk of rise in NPAs during the market downturn
6. Mangalore Chemicals
Fertilizers 31.3 29.5-31.5 25.5-27.2 10 25.2 1.3 0.7 2,083 -15.6% 6.1 2.7 4.7 2.4 97.6% 6.7 1.2
• Triggers: Strategic location of factory, consistent rise in profits, changes in fertiliser policy augurs well, retail foray could
provide upside to valuations, sell-off by promoters likely over medium term
• Concerns: Raw material price fluctuations, seasonality, changes in the Government policy, low growth in volumes, high
working capital requirements, no access to NG, deficient monsoon
Retail Research 3
7. Shoppers’ Stop
Retail 465.0 432-460 396-409 10 71.7 0.9 1.5 1,585 12.1% 6.9 2.3 10.3 NA NA 45.2 6.5
• Triggers: Favourable Indian Demographics, Rising per capita spending, pioneer in loyalty program, rationalization of costs
• Concerns: Store rollout delays, increase in competition, decrease in high margin private label sales, possible equity dilution
8. State Bank of India

Banks -
2344.7 2259-2345 2151-2210 10 1309.5 NA 30.0 133,852 18.4% NA 8.8 184.8 172.6 7.1% 12.7 1.8
PSU
• Triggers: Strong Growth in Net Interest Income, Decent NIMs, Strong other Income growth, Stable growth in Advances,
Strong growth in CASA deposits
• Concerns: High Cost to Income ratio, Poor Asset Quality, Low Provision Coverage Ratio, Strong Competition
9. TCS
Computers
780.5 733-768 675-692 1 93.8 0.02 20.0 30,029 8.0% 29.9 23.3 35.8 26.9 33.2% 21.8 8.3
- Software
• Triggers: TCS is now witnessing discretionary spend revival in most verticals (with higher traction in North America), earnings
& margin visibility being higher than some peers
• Concerns: Sovereign debt issues in Europe and global banks’ exposure to troubled European countries
10. Godrej Consumer

FMCG 343.9 338-345 314-329 1.0 22.0 0.6 4.2 2,041 46.5% 22.2 16.6 11.0 6.7 83.4% 9.8 2.4
• Triggers: Recent spate of acquisitions to help boost topline and bottomline, increased distribution reach, launch of smaller
SKUs and relaunch of key brands to help boost sales of existing products, lower dependence on low margin soaps business
and higher dependence on high margin haircare and insecticids business to improve valuations
• Concerns: Integration issues/delays with respect to latest acquisitions, increased competition, slowdown in economy and
downtrading, commodity price risks, forex/translational risks

Retail Research 4
High Risk
1. Aarti Drugs
Pharma 135.4 126-135 111-118 10 120.9 1.7 5.0 4,78.5 25.2% 16.9 5.9 23.3 13.1 76.7% 5.8 1.1
• Triggers: Market leader in anti-diarrhoea, anti- inflammatory & anti- biotic therapeutic segment in India, exporter of Bulk
drugs/APIs in these categories, recent capacity expansion to drive volumes, eyeing contract manufacturing in a big way,
healthy OPMs
• Concerns: Rising competition, low ROCE, capex requirements, forex fluctuations, high interest costs
2. Adani Enterprises
Last Div
Face Book D/E Rs Sales Sales OPM NPM EPS P/
Level I Level II Latest FY10 FY10 FY10 FY10 FY09
Trading 541.7 527-545 482-508 1 61.1 3.0 1.0 25,874 -1.2% 6.6 3.5 18.4 10.2 80.4% 29.3 8.8
• Triggers: Power, port and coal conglomerate, transforming its business model to sustainable annuities with high-margin /
RoE and heavy capex from a volatile, low capex, and low margin / RoE trading business
• Concerns: Project execution risks, financial risks, global recession affecting port traffic, slow capex at SEZs, coal price
fluctuation and availability, forex risks, power tariff risks
3. Camson Bio Tech

Last Div
AgriBiotech
156.4 145-157 127-138 10 29.1 0.0 1.0 80.3 62.6% 20.9 18.6 9.3 5.9 57.9% 16.7 5.3
Products
• Triggers: Wholly integrated agriculture biotechnology company, first mover advantage in certain product categories, niche and
reputed manufacturer of nonpoisonous, eco-friendly, cost effective, zero residue, low weight, high margin Bio-technology
Products, Pioneering R&D efforts - set to be commercialised
• Concerns: Lack of patentability of hybrid seeds in India, capacity constraints, lack of awareness of farmers about hybrid
seeds, could take time to ramp up sales, monsoon deficiency
4. M&M Financial Services

Last Div
Finance &
461.8 434-458 401-419 10 182.7 NA 7.5 1,561 13.0% NA 22.7 37.0 22.9 61.5% 12.4 2.5
Investments
• Triggers: Strong NIMs, Increased presence in rural areas, High Provision Coverage Ratio, Healthy Capital Adequacy Ratio,
Applied for Banking license
• Concerns: Dependent on Parent company M&M sales, Seasonality due to rural presence, Competition from other banks,
possible deterioration in asset quality
5. National Fertilizer
Last Div
Fertilizers 107.9 100-108 87-98 10 32.2 0.2 1.0 5,091 -0.7% 7.1 3.3 3.5 1.9 75.9% 30.8 3.3
• Triggers: Divestment candidate, expansion in urea capacities, shift in feedstock from LSHS/FO to NG to benefit
• Concerns: Govt policy changes on divestment, overhang of supply of paper, availability of NG, delay in expansion /
modernisation plans, policy changes in fertiliser sector
Retail Research 5
6. Riddhi Siddhi Gluco Biols
Last Div
Cornstarch 267.2 255-269 236-246 10 171.7 1.59 5.0 745.6 39.6% 16.3 5.2 35.2 12.5 180.3% 7.5 1.5
• Triggers: Largest corn starch producer, healthy demand from user industries, will benefit from recent expansion, can pass
over rise in maize prices
• Concerns: Rise in raw material costs, user industry slowdown, high D/E
7. SRF
Last Div
Textiles -
226.0 220-227 196-206 10 192.1 0.9 14.0 2,499 23.5% 27.9 5.2 53.6 23.0 132.7% 4.2 1.1
Manmade
• Triggers: Stable revenue streams from its Nylon Tyre Cord Fabric business in which SRF dominates the market with about
48% market share, stable revenue growth in its chemical business due to robust demand for refrigerants and specialty
flurochemicals, carbon credits (CER) income of Rs.300 cr+ expected in FY11 and FY12, capacity expansion in packaging films
in March 2010, cheap valuation
• Concerns: Delay/ non-receipt of carbon credits, lower than expected CER prices and depreciating Euro, lower than expected
domestic demand for SRF’s core business segments of NTCF, chemicals, poly films etc
8. VST Tiller Tractors

Last Div
Auto -
387.5 368-385 310-338 10 109.1 0.09 7.5 344.5 25.7% 18.8 12.2 48.9 33.4 46.3% 7.91 3.5
Tractors
• Triggers: Direct play on agri/rural prosperity through tillers and tractors

• Concerns: Credit flow to rural areas, deficient monsoon, competition from imports and local players, higher raw material costs,
change in subsidy policies of state/Central Govt
9. Arshiya International
Last Div
Logistics 235.1 215-229 191-205 2 101.2 0.1 0.8 521 3.6% 24.6 18.8 16.7 11.2 49.3% 14.1 2.3
• Triggers: Fast emerging end-to-end service and solution provider in logistics and supply chain management, customized
solution provider, with launch of Mumbai FTWZ in Q1FY11, Delhi FTWZ in Q2FY11 and Nagpur FTWZ in Q3FY11, the
visibility of earnings will improve
• Concerns: Slowdown in economy, increased competition, large capex requirements over next two years, D/E ratio could
come under pressure
10. UCO Bank

Last Div
Banks -
82.4 79-82 71-75 10 65.7 NA 1.5 10,492 14.8% NA 9.6 18.4 10.2 81.5% 4.5 1.3
PSU
• Triggers: Infusion of Funds by Government for capitalisation, Focus on Personal Loans to improve margins, Follow on Offer to
bring stock in limelight
• Concerns: Possible deterioration of Asset Quality, Decline in CASA, Intense Competition

Retail Research 6
RETAIL RESEARCH Fax: (022) 3075 3435
Corporate Office: HDFC Securities Limited, I Think Techno Campus, Bulding –B. ”Alpha”, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton
Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com
Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This
document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy
any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be
relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time
solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients
only and not for any other category of clients, including, but not limited to, Institutional Clients
Retail Research 7

Medium Term Investment Portfolio June 2010

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Medium Term Investment Portfolio June 2010

Uploaded by

Copyright:

Available Formats

Medium Term Investment Portfolio Picks June 15, 2010

2. Blue Dart Express

• Triggers: Possible fuel price reforms, transparent fuel subsidy regime

Note: FY10 numbers wherever available, otherwise FY09 numbers

5. LIC Housing Finance

8. State Bank of India

10. Godrej Consumer

Note: FY10 numbers wherever available, otherwise FY09 numbers

3. Camson Bio Tech

4. M&M Financial Services

8. VST Tiller Tractors

• Triggers: Direct play on agri/rural prosperity through tillers and tractors

10. UCO Bank

Note: FY10 numbers wherever available, otherwise FY09 numbers

You might also like