BP wealth diwali picks samvat 2076

Diwali Picks 2019 Samvat 2076 BP WEALTH INDEX Samvat 2076 - Diwali Picks 2019 Company Sector CMP (Rs) Target Price (Rs) Page No Bajaj Finance NBFC 4025 4750 Granules India Pharmaceuticals 97 156 Hindustan Unilever Ltd FMCG 2071 2381 HDFC life Insurance Ltd Insurance 610 722 Ratnamani Metas and Tubes Ltd Pipes 915 1280 NALCO Metals 41 51 M&M Financial Services NBFC 304 360 Research Team research@bpwealth.com 022-61596406 17th October, 2019 BP Equities Private Limited (www.bpwealth.com) BP WEALTH Performance Tracker Diwali Picks 2018 Performance Tracker Company Recommendation Buying Price (Rs) Target Price (Rs) Target Achieved Aarti Industries Ltd Buy 1,285 1,562 Yes Accelya Kale Solutions Ltd Buy 950 1,150 No Ashok Leyland Ltd Buy 113 133 No GMM Pfaudler Ltd Buy 945 1,212 Yes MOIL Buy 163 235 No Suvenlife Sciences Ltd Buy 227 298 Yes Voltas Ltd Buy 527 622 Yes Diwali Picks 2017 Performance Tracker Company Recommendation Buying Price (Rs) Target Price (Rs) Target Achieved BEML LTD Buy 1,708 2,061 No CDSL LTD Buy 373 458 No Granules India LTD Buy 129 173 No Indusind Bank Ltd Buy 1,716 2,033 Yes Motherson Sumi Systems LTD Buy 351 423 No Sundaram Finance LTD Buy 1,644 2,106 Yes Yes Bank LTD Buy 363 451 No BP Equities Private Limited (www.bpwealth.com) BP WEALTH Performance Tracker Diwali Picks 2016 Performance Tracker Company Recommendation Buying Price (Rs) Target Price (Rs) Target Achieved E.I.D-Parry (India) Ltd Buy 258 335 Yes Equitas Holdings Ltd Buy 180 227 No Great Eastern Shipping Company Ltd Buy 374 463 Yes HCL Technologies Ltd Buy 811 969 No Indian Oil Corporation Ltd Buy 327 400 Yes Lupin Ltd Buy 1530 1972 No Super Spinning Mills Ltd Buy 18 28 No Tata Motors Ltd - DVR Buy 360 455 No Trident Ltd Buy 61 75 Yes Diwali Picks 2015 Performance Tracker Company Recommendation Buying Price (Rs) Target Price (Rs) Target Achieved Allcargo Logistics Ltd Buy 318 387 Yes Ambuja Cements Ltd Buy 210 282 Yes Bharti Airtel Ltd Buy 349 430 No Enkei Wheels (India) Ltd Buy 182 248 No Hexaware Technologies Ltd Buy 235 279 Yes ICICI Bank Ltd Buy 280 357 No Infosys Ltd Buy 1,146 1,325 No State Bank of India Ltd Buy 236 303 No The Ramco Cement Ltd Buy 370 427 Yes BP Equities Private Limited (www.bpwealth.com) 2nd Feb , Bajaj Finance Ltd Buy BP WEALTH NBFC Sector Outlook Company Overview Bajaj Finance Limited (BFL) incorporated in 1987 is a subsidiary of Bajaj Finserv limited and one of the leading NBFCs in India BFL operates with two subsidiaries namely Bajaj Housing Finance Limited and Bajaj Financial Securities Limited The company has a diversified loan book spanning various segments such as consumer finance, commercial finance, rural finance and SME finance The services offered under these segments comprise of home loan, loan against property, consumer durable loans, personal loans etc The company is present across 944 urban locations and 951 rural locations covering 1,895 locations in India with over 97,000+ distribution points BFL’s customer franchise consists of 36.94 MM with loans cross sell franchise of 21.85 MM The consolidated AUM as of Q1FY20 stood at INR 1.29 Trillion Bloomberg Investment Rationale Reuters Large NBFC underpinned by a cross selling customer platform that remains strong on acquisition Key Data Bajaj Finance is a diversified NBFC that is supported by a lending fintech platform The Company has created a strategic merchant network platform across 1.5k locations and ~70k merchants The company offers a point of sale solution across all its merchant networks, which enables the company to acquire more customers for evaluation of instant credit dependent upon the individual’s credit worthiness BFL’s credit platform has been benefitting 29.1 mn customers of which 21.85 mn customers are considered part of a cross sellable base This base has been used by company to cross sell multiple loan products such as home loans, personal loans etc which comprise 54% of the total book Decreased cost of funds and robust asset quality accorded though proactive risk management framework Neutral Stock CMP (Rs) 4025 Target Price (Rs) 4750 BSE code 500034 NSE Symbol BAJFINANCE BAF:IN BJFN.NS Nifty 11,464, 52WeekH/L(Rs) 4111 / 1997 O/s Shares (Rs mn) 579.9 Market Cap (Rs bn) 2330 Face Value (Rs) Average volume BFL’s prudent risk management framework ensures that it is able to proactively monitor its customer months base of 36.94 million customers and 21.85 million core customers Additionally, the company also months has the largest proprietary database of credit-tested consumers rivaling many of the larger banks across the country Interest rates on bonds issued at 8.5% three years ago are now down to 8% year while CPs issued three years ago at 7% interest rate are now down to 6.4% largely benefitting from Share Holding Pattern (%) an easing interest rate scenario and improved credit metrics (reduced risk perception) making it possible for BFL to tap market borrowing at lower spreads with a Provision coverage ratio of 61% The Company also monitors ageing of portfolio by product and high levels of disclosures further provide confidence in the asset quality 2,386,260 1,981,980 1,947,810 Valuation and Outlook Over the years, Bajaj finance has built a diversified NBFC that remains driven by its strong fintech platform, which not only helps in acquiring new customers but also simultaneously aids in cross selling to them, helping in lowering customer acquisition costs The company’s technology platform is scalable, which provides room for capturing future growth opportunities This coupled with the strong brand franchise and execution ensures that profitability would also sustain going ahead BFL’s asset quality is also strong providing further comfort For these reasons we recommend the stock with a target price of INR 4750(8.4X FY21E P/B) Key Financials YE March (Rs mn) Relative Price Chart FY17 FY18 FY19 FY20E FY21E NII 61,737 81,264 113,770 153,589 202,737 Growth (Y-oY) 55.3% 31.6% 40.0% 35.0% 32.0% Operating profit 28,174 38,434 58,804 78,797 102,437 Growth (Y-o-Y) 12.3% 36.4% 53.0% 34.0% 30.0% 1800 Net Profit 18,364 24,963 39,192 54,477 73,544 1300 Net Profit Growth (Y-o-Y) 43.6% 35.9% 57.0% 39.0% 35.0% Diluted EPS 31.8 43.2 67.8 94.1 127.0 Diluted EPS Growth (Y-o-Y) 43.6% 35.9% 57.0% 38.8% 35.0% NIM (%) 10.9% 12.0% 12.2% 12.0% 11.5% ROA (%) 3.2% 3.7% 4.2% 4.3% 4.2% RoE (%) 19.1% 19.6% 22.0% 24.2% 25.5% 3800 3300 2800 2300 800 16-Oct-18 16-Jan-19 16-Apr-19 Bajaj Finance 16-Jul-19 16-Oct-19 Nifty Key Ratios Valuation Ratios P/E (x) 94.7x 69.7x 44.4x 42.5x 37.6x P/BV (x) 18.11 10.97 8.80 9.19 8.44 Source: Company, BP Equities Research 2nd Feb , Granules India Ltd Buy BP WEALTH Pharmaceutical Company Background Sector Outlook Granules India Limited (GIL) is a Hyderabad based company established in 1984 by Mr C Krishna Stock Prasad having four USFDA approved facilities in and around Hyderabad and one in China GIL’s base business (~88% of total turnover) is mainly from five molecules – Paracetamol, Metformin, Ibuprofen, Guaifenesin and Methacarbamol The base business has shown a robust CAGR of ~26% to Rs12.1bn in FY15 over past years The strong growth has been on account of volume expansion as well as increase in prices GIL supplies these molecules in the form of API, Pharmaceutical formulation intermediates (PFI) or Formulation depending on requirement of customers Largely an export-oriented company (around 80% of revenues), Granules exports to more than 300 customers in 60 countries The company derives 63% of its revenues from regulated markets of North America (32%) and EU (31%) and balance from LATAM (11%), ROW (10%) and India (16%) CMP (Rs) Neutral 97 Target Price (Rs) 156 BSE code 532482 NSE Symbol GRANULES Bloomberg GRAN IN Reuters GRAN.BO Investment Rationale Key Data Formulation contribution to increase on the back of acceleration in product approvals and launches Nifty 11,464 52WeekH/L(Rs) 141/72 O/s Shares (mn) 254 Market Cap (Rs bn) 24.6 Formulation segment contribution accelerated from 40% to 48% (YoY) in Q1FY20 APIs and PFIs contributed 36% and 16% respectively vs 40% and 20% a year ago Geography-wise the regulated market contributed 72% to the revenue The management maintains its revenue guidance of 18-20% growth for next three years We believe FY20/21 to be much better on revenue front, on the back of commissioning and ramping up of fresh capacities and expected 3-5 products launch in next 12 months We modeled ~19.7% top-line growth for GIL over FY19-21E as we believe most of the benefits from capacity addition and ANDA approval would be seen in FY20-21E The company plans to file 20-22 ANDA filings from India and Virginia facility put together over the next two years Face Value (Rs) months 22,19,297 Capex largely over, debt to moderate with strong cash flow generation months 35,05,782 Average volume FY20 should mark the end of GRAN’s capex program, with the last of the spends targeted at the on- year 33,70,529 cology block (which should cost ~Rs1.5bn) Other than that, capex will be mainly targeted towards maintenance We believe that the spare capacities will be enough for growth till mid-FY21, beyond Share Holding Pattern (%) which the next round of capex funding will need to be seeded Therefore, we expect INR 25bn/30bn operating cash flow generation in FY20 and 21E respectively Valuation & Outlook 40.1% For FY19-21E we expect the company’s earnings deliver CAGR of 29% with 200bps improvement in EBITDA margin over FY19-21E Improvement in EBITDA margins to be led by operational efficiency, moving up the value chain towards high margin business, improved capacity utilization, commitment to reduction in debt and gaining traction in JVs At CMP of INR 97 stock trades at 8.4x FY20E and 6.2x FY21E EPS We give a Buy rating with target price of INR156@10x (10% discount to yr average P/E) FY21E EPS YE March (Rs mn) Key Financials FY17 FY18 Promoter 32,673 Relative Price Chart 20.7% 140 16,846 22,792 27,075 (1.4%) 19.4% 35.3% 18.8% EBIDTA 2,988 2,784 3,840 4,785 6,129 EBIDTA Growth (Y-o-Y) 7.4% (6.8%) 37.9% 24.6% 28.1% 1,645 38.9% 6.5 38.9% 1,326 (19.4%) 5.2 -19.4% 2,364 78.3% 9.3 78.0% 2,953 24.9% 11.6 24.9% 3,962 34.2% 15.6 34.2% 16.8% 10.4% 16.7% 12.6% 32.2% 60.2 17.7% 10.9% 17.8% 15.7% 33.0% 70.3 18.8% 12.1% 20.2% 19.2% 33.0% 84.1 P/E (x) EV/EBITDA P/BV (x) Market Cap / Sales (x) FII FY21E 14,106 Key Ratios 21.2% 16.5% 11.7% 7.9% 21.0% 12.0% 17.9% 11.4% 31.8% 35.2% 35.6 51.4 Valuation Ratios 15.0x 18.6x 3.1% FY20E Revenue Growth (Y-oY) EBIDTA (%) NPM (%) RoE (%) RoCE (%) Tax Rate % Book Value Per share (Rs.) 13.9% FY19 Revenue Net Profit Net Profit Growth (Y-o-Y) Diluted EPS Diluted EPS Growth (Y-o-Y) 42.9% 10.4x 8.4x 6.2x 10.1x 11.9x 8.6x 6.8x 4.9x 2.7x 1.7x 1.9x 1.5x 1.6x 1.1x 1.4x 0.9x 1.2x 0.8x DII Others 110 80 50 16-Oct-18 16-Jan-19 16-Apr-19 Granules 16-Jul-19 16-Oct-19 Nifty Source: Company, BP Equities Research 2nd Feb , Hindustan Unilever Ltd Buy BP WEALTH FMCG Company Background Sector Outlook Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods company With over Stock 35 brands spread across 20 categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers,Its portfolio brands includes Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit It has one of the largest direct touch points serviced by 3500 distributors CMP (Rs) 2071 Target Price (Rs) 2381 NSE Symbol Investment Rationale Bloomberg Personal and Home care segments to augur well in long run Reuters HUL being a prominent player in FMCG sector, plays a vital role in personal and Home care (household and water purifiers) segments over the years, it has gained peculiar traction in personal and Home care segments through new innovations and premiumization in its poroducts However, Despite of slowdown, home care segment continued to deliver a healthy performance led by its recently launched premium product “Love and care’’ fabric wash which focuses on silks, fine cottons and woolen fabrics With an optimistic response from the recent price cut in sops (Lux and Lifebuoy) company has managed to gain its lost market share Going further, company has been growing its core categories at a gradual space led by upgradation in urban and increasing penetration in rural geographies New Acquisition to strengthen its product portfolio Positive BSE code 500031 HINDUNILVR HUVR IN HLL.BO Key Data Nifty 11,464 52WeekH/L(Rs) 2101/1522 O/s Shares (mn) 2164.8 Market Cap (Rs bn) 4483 Face Value (Rs) Average volume months 16,25,940 Post the acquisition of Indulekha in personal care segment, HUL acquired Adityaa Milk (brand from months Karnataka) for INR 83 cr Going ahead, Glaxosmithkline Consumer Healthcare (GSK Consumer) is year under process as per the schedule The management stated that it will take two to three months as NCLT approval from Chandigarh will take some time This acquisition will enable to raise presence in Share Holding Pattern (%) foods (malted foods) and would aid ~4-6% accretion to its revenue post merger Valuation and Outlook Key Financials YE March (Rs mn) Revenue Revenue Growth (Y-oY) EBITDA EBITDA Growth (Y-o-Y) FY18 FY19E FY20E FY21E 332,520 355,500 393,110 444,214 493,078 2.9% 6.9% 10.6% 13.0% 11.0% 63,270 75,010 88,800 111,942 130,666 5.2% 18.6% 18.4% 26.1% 16.7% 41,510 44,760 52,140 63,523 75,441 Net Profit Growth (Y-o-Y) (4.9%) 7.8% 16.5% 21.8% 18.8% 19.2 20.7 24.1 29.3 34.8 Diluted EPS Growth (Y-o-Y) (4.9%) 7.8% 16.5% 21.8% 18.8% EBIDTA (%) 19.0% 21.1% 22.6% 25.2% 26.5% NPM (%) RoE (%) RoCE (%) 12.5% 12.6% 61.6% 61.5% 90.1% 103.0% Valuation Ratios 108.0x 100.2x 70.6x 59.3x 66.5x 61.6x 13.5x 12.6x 13.3% 66.3% 111.5% 14.3% 67.2% 117.1% 15.3% 61.6% 105.9% 86.0x 50.1x 57.0x 11.4x 70.6x 39.7x 47.4x 10.1x 59.4x 34.0x 36.6x 9.1x Key Ratios P/E (x) EV/EBITDA P/BV (x) Market Cap / Sales (x) 12.1% 67.2% Promoters FII DII Others Relative Price Chart FY17 Net Profit Diluted EPS 15,31,390 13.8% 6.9% Despite of economic slowdown, Hul continued to deliver good performance by creating value propositions for the consumers Company’s premiumization across its products segment, new product launches, wimi strategy, adopting new technology and data analytics will enable to provide an edge over its competitors Owing to ample opportunities opening up in new market, it provides visibility and higher thrust for future growth On valuation front, we estimate Revenue and PAT to grow at 12% and 20% CAGR for FY19- FY21E respectively We have valued the company based on 68x PE of FY21E and assign a Buy rating on the stock with target price of INR 2381 14,22,010 2300 2000 1700 1400 1100 800 16-Oct-18 16-Jan-19 16-Apr-19 HUL 16-Jul-19 16-Oct-19 Nifty Source: Company, BP Equities Research 2nd Feb , HDFC Life Insurance Ltd Buy Insurance Company Overview HDFC Life insurance company limited, incorporated in 2000 is a joint venture entity between HDFC ltd and Standard Life Aberdeen The Company is an emerging life insurance solutions provider for both individual and group, offering a wide range of products such as Protection, savings, investment, Pension and health The company has a PAN India presence with 413 branches and 163 bancassurance partners which include NBFC’s, MFI’s and SFB’s Investment Rationale Launch of new and innovative products helping in gaining market share The Company has introduced various products in past couple of years such as HDFC life cancer care covering individuals from early stage, Click protect 3D plus an online protection product which covers death, diseases and disability Recently, company has launched HDFC Life Guaranteed Savings Plan that provides guaranteed return plans for sale through POS channel With 24 insurers present in the market, launching of new products plays a vital role in growth and profitability of the business Therefore, we feel that the company’s focus on launching new and innovative products is helping in consistently gaining market share (25.1% for total new business) in a highly competitive market Asset under management continued to grow at a healthy pace of 18% YoY and stood at Rs 129,581cr in Q1FY20 Strong distribution network that is well spread across channels with Bancassurance taking the lead HDFC life offers products through four major channels comprising of: Bancassurance, individual agents, direct sales and brokers Diversification, through use of multiple channels enables the company to adapt to regulatory changes by reducing risk of concentrating on any single channel Alongside, the company also has a robust Bancassurance channel that includes banks, corporate as well as individual agents The company has a well-diversified distribution mix with 412 offices, 230+ partners and ~40 new ecosystem partners Cross selling to group customers formed 9.6% of individual new business policies In line with management’s focus on developing proprietary channels, the direct channel proportion increased to 20% On an NBP basis, the proportion of proprietary channels increased from 20% in Q1FY19 to 24% in Q1FY20, while the mix of third party distributors has remained constant at 26% This is helping the company in strengthening its overall distribution network and reach, which remains well placed across channels and coupled with the company’s strong brand equity, ensures a strong franchise BP WEALTH Sector Outlook Positive Stock CMP (Rs) 610 Target Price (Rs) 722 BSE code 540777 NSE Symbol HDFCLIFE Bloomberg HDFCLIFE:IN Reuters HDFL:NS Key Data Nifty 11,464 52 Week H/L (Rs) 615 / 344 O/s Shares (Mn) 2017.5 Market Cap (Bn) 1232 Face Value (Rs) 10 Average volume months 7,536,040 months 5,046,280 year 3,315,470 Share Holding Pattern (%) Protection and Non par savings business to drive growth going ahead Term protection APE grew 63% YoY during the quarter Further, Annuities APE has grown at 69% YoY Consequently, new business margin has expanded to 29.8% in 1QFY20.The share of the nonpar savings business in individual APE increased sharply to 63% from 11% last year due to the success of the ‘Sanchay Plus’ product The share of the term protection business increased to 18% in total APE (5.5% on an individual APE basis), while the annuity business contributed 4% of total APE (1% in FY17) Going ahead, the management stated it expects to see robust growth in APE over the next months 5% 9% 12% 74.0% Business outlook and valuation HDFC Life’s focus on launching new and innovative products is helping in consistently gaining market Promoters FII share amid rising competition The company has a strong distribution network, which remains well placed across various channels with Bancasurance taking the lead At the same time the company is also strengthening other channels, when coupled with the company’s brand equity creates a solid Relative Price Chart franchise HDFC Life is the most profitable life insurance company with a RoEV of 22% as of FY18.The growth in APE expected to be contributed by protection and Non par savings which would ensure profitability For these reasons we recommend the stock with a BUY rating by assigning a 600 target price of INR 722(5.5x FY21E P/EV) DII Others 500 Key Financials YE March (Rs.Bn) APE Growth (Y-oY) VNB Growth (Y-o-Y) Opening EV Closing EV FY18 FY19 FY20E FY21E 55 64 76 89 32.0% 15.0% 19.0% 17.0% 13 16 18 22 39.0% 22.0% 17.0% 19.0% 125 151 183 219 152 182 220 263 400 300 200 16-Oct-18 16-Jan-19 16-Apr-19 HDFC life Insurance 16-Jul-19 16-Oct-19 Nifty Key Ratios VNB margins 23.1% 24.6% 24.1% 24.6% RoEV 22.0% 19.0% 20.4% 20.6% 4.5x 5.6x 5.5x Valuation Ratios P/EV (x) 5.4x Source: Company, BP Equities Research 2nd Feb , Ratnamani Metals and Tubes Ltd Buy BP WEALTH Pipes Company Overview Ratnamani Metals and Tubes was incorporated in 1983 It is the market leader in manufacturing Tubes & Pipes in Stainless Steel/Exotic and also a significant player in manufacturing Carbon Steel Welded Pipes The company’s product offerings consist of diverse grades with significant quantum of customisation, which is the USP of the company RMTL’s product portfolio distinguishes it from its peers both in stainless steel and carbon steel categories wherein the company’s products find application in critical areas and in diverse end-user industries like oil & gas, power, nuclear, refineries, etc Investment Rationale Established market dominance largely from customizable and distinguished product portfolio Ratnamani is significant player in both Stainless Steel and Carbon Steel pipes and tubes The Company’s production capacities are designed to be versatile and carry the ability to handle both large volume and small volume orders This helps Ratnamani to have presence from small diameter SS Seamless tubes to largest diameter CS pipes, smallest to largest thickness and low to high grade tubes and pipes Not stopping at ordinary SS, the company went on to cater high end nickel alloy, titanium and exotic alloy products Such niche capability is paying off in terms of prestigious clientele and repeat business Because of its substantial and effectual market presence with wide product portfolio driven by stringent quality control Ratnamani to continue to gain prominence and market dominance Sector Outlook Positive Stock CMP (Rs) 915 Target Price (Rs) 1280 BSE code 520111 NSE Symbol RATNAMANI Bloomberg RMT IN Reuters RMT.BO Key Data Nifty 11,464 52WeekH/L(Rs) 1035 / 805 O/s Shares (mn) 46.7 Market Cap (Rs bn) 43 New Capacity commissioning would aid to address more opportunities Ratnamani is currently in last leg of investment cycle, the completion of which will add 10,000 TPA to Face Value (Rs) existing 8,000 TPA capacity and 10,000 TPA of hot extrution facility of stainless steel seamless tubes and pipes This would further lead to strengthening of leadership position in stainless tubes and pipes Average volume segment Company will spend INR 3.5 bn capex plan to set up above expansion facility at Chhatral, months 484,000 Gujarat This facility will allow company to be only player in India to manufacture upto 10” diameter 3,541,000 versus current manufacturing capability of 2” diameter When the proposed capex would be opera- months tional it can target the vast import substitution opportunity in petrochemicals, aerospace and nuclear year 2,492,000 plants Ratnamani also has API grade carbon steel LSAW,HSAW and ERW facility of 3,50,000 tpa On witnessing strong demand in domestic and export markets, it is going to spend INR 1.7 bn for Share Holding Pattern (%) LSAW and INR 0.8 bn for ERW expansion Valuation and Outlook With new capacities and facilities, Ratnamani Metals and Tubes Ltd is fully equipped to exploit the upcoming prospects The company has able to make difference through delivering premium products, offering wide product portfolio and becoming preferred supplier This helps to maintain market leadership, higher margins and ability to afloat during turbulence times Considering its leadership position in the domestic stainless steel pipe segment, we believe Ratnamani is best suited to benefit from the impending revival in the domestic capex cycle in oil refinery, petrochemicals, power and fertilizer sectors We expect Revenue/EBITDA/PAT to grow at CAGR of 23.3%/33.4%/31.1% respectively from FY18-FY21 Thus, we recommend BUY rating for a target price of INR 1280 valuing at 18x PE to FY21E EPS YE March (Rs mn) Revenue Revenue Growth (Y-oY) EBITDA EBITDA Growth (Y-o-Y) Net Profit Net Profit Growth (Y-o-Y) Diluted EPS Diluted EPS Growth (Y-o-Y) No of Diluted shares (mn) EBITDA (%) NPM (%) RoE (%) RoCE (%) Tax Rate % Book Value Per share (Rs.) P/E (x) EV/EBITDA P/BV (x) Market Cap / Sales (x) Key Financials FY17 14,117 (17.8%) 2,572 (9.9%) 1,443 (12.7%) 30.9 -12.7% 47 Key Ratios 18.2% 10.2% 12.9% 19.5% 29.8% 254.0 Valuation Ratios 28.5x 15.9x 3.5x 2.9x FY18 17,898 26.8% 2,659 3.4% 1,518 5.2% 32.5 5.2% 47 FY19 27,549 53.9% 4,065 52.9% 2,530 66.7% 54.1 66.7% 47 FY20E 28,500 3.5% 4,753 16.9% 2,520 (0.4%) 53.9 -0.4% 47 FY21E 37,375 31.1% 7,366 55.0% 4,089 62.3% 87.5 62.3% 47 14.9% 8.5% 12.2% 16.3% 33.4% 279.9 14.8% 9.2% 17.9% 19.7% 31.7% 325.9 16.7% 8.8% 15.4% 23.5% 33.0% 374.3 19.7% 10.9% 21.1% 25.6% 33.0% 456.3 27.1x 15.7x 3.1x 2.3x 16.3x 9.9x 2.7x 1.5x 16.3x 8.7x 2.4x 1.4x 10.1x 5.3x 1.9x 1.1x 20% 9% 60.0% 11% Promoters FII DII Others Relative Price Chart 1300 1100 900 700 500 300 16-Oct-18 16-Jan-19 16-Apr-19 Ratnamani metals 16-Jul-19 16-Oct-19 Nifty Source: Company, BP Equities Research 2nd Feb , NALCO Ltd Buy Metals Company Overview National Aluminum Company Limited (NALCO) is a Navratna CPSE under Ministry of Mines It was established on 7th January, 1981 in the Public Sector, with its registered office at Bhubaneswar Presently, Government of India holds 60.2% equity of NALCO NALCO is one of the largest integrated Bauxite-Alumina-Aluminium Power Complex in the Country The Company has a 68.25 lakh TPA Bauxite Mine &21.00 lakh TPA (normative capacity) Alumina Refinery located at Damanjodi in Koraput dist of Odisha, and 4.60 lakh TPA Aluminium Smelter & 1200MW Captive Power Plant located at Angul, Odisha NALCO has bulk shipment facilities at Vizag port for export of Alumina/ Aluminium and import of caustic soda and also utilises the facilities at Kolkata and Paradeep ports The company has registered sales offices in Delhi, Kolkata, Mumbai, Chennai and Bangalore and 11 (eleven) stockyards at various locations in the Country to facilitate domestic marketing Investment Rationale Integrated operations provide cost advantage Nalco has fully integrated operations with captive bauxite mining and 1200MW power plant which are key raw materials for manufacturing Aluminum The present reserves for bauxite with 43% Alumina ore concentration is located at 12Km distance from Alumina beneficiation plant and have life of over 30 years Further the captive power plants have aided in containing the power cost which are significantly high (around 30%) in manufacturing Aluminum Nalco has also developing coal mining at Utkal is expected to further lower the cost of fuel from 2020 when project becomes commercially operational The company has also planned to add capacity of 0.27MTPA in JV with GACL for captive manufacturing of caustic soda which accounts 52-56% of raw material cost through joint venture to protect margins against volatile soda price BP WEALTH Sector Outlook Neutral Stock CMP 41 Target 51 BSE code 532234 NSE Symbol NATIONALUM Bloomberg NACL IN Reuters NALU.BO Key Data Nifty 11,464 52WeekH/L(Rs) 72 / 37 O/s Shares (Rs mn) 1865 Market Cap (Rs bn) 77.7 Face Value (Rs) Average volume months 9,413,180 Strong balance sheet would support backward integration months Nalco remains one of strongest balance sheet companies in Indian aluminum sector with around INR year 38500 cores cash on its books as on March 2019 and having a track record of consistently positive operating cash flow Further it is virtually debt free company with a robust balance sheet and a healthy liquidity position The strong balance sheet, makes the company better placed to execute on vertical integration which could further improve operational margins and profitability in future Besides Share Holding Pattern (%) this, it is also one of few companies in India which has high dividend yield of more than 10% Higher liquidity and attractive dividend yield provides high margin of safety in this company 18% Valuation and Outlook To meet future demand NALCO is undertaking various projects to expand capacity and diversify its product portfolio We expect limited downside in aluminium LME prices from current level and even alumina prices have stabilized at levels of ~USD 300/t Moreover, raw materials like thermal coal, caustic soda, coal tar pitch etc prices have also declined which should aid profits going forward Considering its integrated business model, high cash levels (47% of current market capitalization) and attractive dividend yield, we recommend BUY rating for investment We value the stock at a target multiple of 4.5x FY21E EV/EBITDA to arrive at our target price of INR 51 52% 19% 11% Promoters Key Financials YE March (Rs mn) Revenue Revenue Growth (Y-oY) FY17 75,430 10.7% FY18 95,095 26.1% FY19 114,993 20.9% FY20E 94,294 (18.0%) FY21E 99,009 5.0% EBIDTA EBIDTA Growth (Y-o-Y) 10,797 12.5% 13,945 29.2% 28,869 107.0% 11,787 (59.2%) 13,366 13.4% Net Profit Net Profit Growth (Y-o-Y) 6,685 (15.1%) 13,424 100.8% 17,324 29.1% 6,129 (64.6%) 6,931 13.1% Diluted EPS Diluted EPS Growth (Y-o-Y) 3.6 (15.1%) 7.2 100.8% 9.3 29.1% 3.3 (64.6%) 3.7 13.1% Key Ratios EBIDTA (%) NPM (%) RoE (%) RoCE (%) 14.7% 14.1% 25.1% 15.1% 12.5% 6.5% 13.5% 7.0% 6.6% 12.8% 16.5% 5.8% 6.4% 11% 13% 27% 11% 12% FII DII Others Relative Price Chart 110 80 50 20 16-Oct-18 14.3% 8.9% 8,488,170 9,159,210 16-Jan-19 16-Apr-19 Nalco 16-Jul-19 16-Oct-19 Nifty Valuation Ratios P/E (x) EV/EBITDA P/BV (x) Source: Company, BP Equities Research Market Cap / Sales (x) 11.4x 5.0x 5.7x 3.5x 4.4x 1.5x 12.5x 3.6x 11.0x 3.1x 0.7x 1.0x 0.7x 0.8x 0.7x 0.7x 0.7x 0.8x 0.7x 0.8x 2nd Feb , M&M Financial Services Ltd Buy BP WEALTH NBFC Company Overview Sector Outlook Mahindra and Mahindra Financial Services Limited (MMFSL) is one of the leading Non-banking Finance Companies (NBFCs), with customers primarily in the rural and semi-urban markets of India It is part of the Mahindra Group, one of the largest business conglomerates in the country MMFSL is primarily engaged in providing financing for new and pre-owned auto and utility vehicles, tractors, cars and commercial vehicles It also provides housing finance, personal loans, financing to small and medium enterprises, insurance broking and mutual fund distribution services In addition, among other services, MMFSL offers wholesale inventory financing to dealers and retail financing to customers in the US for the purchase of tractor products through Mahindra Finance USA LLC, its joint venture with a subsidiary of the Rabobank Group Stock Investment Rationale Neutral CMP 304 Target 360 BSE code 532720 NSE Symbol M&MFIN Bloomberg MMFS In Reuters MMFS.BO Key Data Reduced Cost of funds in a tightened credit environment Bond market has again become active with higher participation from corporates and insurance companies The company is currently borrowing at 8.2-8.3% for 3yr paper, which is 40-50 basis points lower than months back and down 120 basis points from peak Incrementally it is also focusing on ECBs/offshore funds to diversify its borrowing mix MMFSL raised $200m through ECB last quarter, and will likely raise $150m next quarter The management reiterated that they are seeing the reducing trend in the cost of money as well And they guided that with the current mix, they not see that they will miss out on the gross spread levels Disbursement and Collection efficiency paint a positive picture Nifty 11,464 52WeekH/L(Rs) 285/155 O/s Shares (Rs mn) 257 Market Cap (Rs bn) 188 Face Value (Rs) Average volume months 2,682,880 Disbursements in Q1FY20 were up 3% on a YoY basis which is attributed to a general demand slow- months down However, the company clocked a loan growth of 22% on a YoY basis which continued to be driven mainly by strong growth in CV/CE (+65% on a YoY basis) and pre-owned vehicles segment year (+37% on a YoY basis) while SME book declined 19% on a YoY basis As per the company, it is not Share Holding Pattern (%) seeing any significant stress in the rural economy, as customers are prioritizing repayment of liabilities instead of asset acquisition The company’s collection efficiency for the quarter stayed flat at 92% which confirms the statement 8% Valuation and Outlook 15% Despite the given slowdown in auto sector and the liquidity tightening scenario, we remain positive on the company due to widespread presence in the rural region, healthy AUM growth, strong management and adequate risk management However, on the back of management guidance of better recovery in H2FY20 due to expectation of improving scenario in rural India, we maintain our BUY recommendations valuing the business at 2.16x FY21E ABV 26% Promoters FY17 FY18 FY19 FY20E FY21E 31,563 35,140 46,033 58,462 68,986 4.9% 11.3% 31.0% 27.0% 18.0% Operating profit 19,307 22,300 30,997 34,407 39,224 Growth (Y-o-Y) (7.5%) 15.5% 39.0% 11.0% 14.0% Net Profit 4,011 10,210 16,030 16,831 18,009 (40.4%) 154.5% 57.0% 5.0% 7.0% 6.5 16.5 26.0 27.3 29.2 (45.4%) 154.5% 57.0% 5.0% 7.0% 8.4% 8.9% 9.3% NII Growth (Y-oY) Net Profit Growth (Y-o-Y) Diluted EPS Diluted EPS Growth (Y-o-Y) Key Ratios NIM (%) 7.8% 7.9% ROA (%) 1.0% 2.3% 2.9% 2.6% 2.4% RoE (%) 6.1% 12.8% 16.2% 15.2% 14.6% P/E (x) 46.9x 18.4x 11.7x 11.2x 12.3x AP/BV (x) 4.62 2.68 2.33 2.02 2.16 2,120,010 51.2% Key Financials YE March (Rs mn) 2,415,990 FII DII Others Relative Price Chart 700 500 300 100 16-Oct-18 16-Jan-19 16-Apr-19 M&M financial services 16-Jul-19 16-Oct-19 Nifty Valuation Ratios Source: Company, BP Equities Research BP WEALTH Research Desk Tel: +91 22 61596406 Institutional Sales Desk Tel: +91 22 61596403/04/05 Disclaimer Appendix Analyst (s) holding in the Stock : Nil Analyst (s) Certification: We analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of 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 Analysts aren't registered as research analysts by FINRA and might not be an associated person of the BP 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report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by any person in any locality, state and country or other jurisdiction where such distribution, publication or use would be contrary to the law or regulation or would subject to BP EQUITIES Pvt Ltd or any of its affiliates to any registration or licensing requirement within such jurisdiction Corporate Office: Registered Office: 4th floor, 24/26, 1st Floor, Cama Building, Rustom Bldg, Dalal street, Fort, 29, Veer Nariman Road, Fort, Mumbai-400001 Mumbai-400001 Phone- +91 22 6159 6464 Fax-+91 22 6159 6160 Website- www.bpwealth.com BP Equities Pvt Ltd CIN No: U67120MH1997PTC107392 ... 304 360 Research Team research@bpwealth.com 022-61596406 17th October, 2019 BP Equities Private Limited (www.bpwealth.com) BP WEALTH Performance Tracker Diwali Picks 2018 Performance Tracker... Finance LTD Buy 1,644 2,106 Yes Yes Bank LTD Buy 363 451 No BP Equities Private Limited (www.bpwealth.com) BP WEALTH Performance Tracker Diwali Picks 2016 Performance Tracker Company Recommendation.. .BP WEALTH INDEX Samvat 2076 - Diwali Picks 2019 Company Sector CMP (Rs) Target Price (Rs) Page No Bajaj Finance NBFC