India nivesh diwali picks 2019

INDIANIVESH Diwali Picks 2019 Oct 14, 2019 FROM OUR FUNDAMENTAL RESEARCH DESK Diwali Picks 2019 – Top Investment Ideas In the present environment of global trade wars, macro-economic uncertainty, and slowing domestic economy, we tried to discover investment ideas that can not only withstand this turbulence but will also likely be first movers when the tide turns A stable government, aggressive policy reforms of far-reaching consequences, lower interest rate trajectory, good monsoons, stable rupee and range-bound crude oil prices are seeds for economic revival We expect the economy to be back on track from FY21 onwards as benefits of the recent tax reforms will play out in full throttle While identifying investment picks, we followed under mentioned rationales:  Emphasis on steady businesses  Top & bottom line compounding in excess of 10% for the last years  Healthy return ratios (ROE over 10%), low or negligible debt, and insignificant promoters’ pledge  Valuation comfort with respect to fair value Performance Highlights of ‘Diwali Picks’ 2018 We are pleased to highlight the performance of our Diwali picks in 2018 As on 14th October, the portfolio has returned 16.58% on equal weight basis, while Nifty50 and Nifty500 clocked 7.42% and 3.20%, respectively We recommend to book Diwali 2018 recommendations and accumulate Diwali 2019 picks Stock Recommendation Initiating price CMP Profit/Loss Gain Status Target Hindustan Lever BUY 1,613 2,005 391.65 24.28% Closed 2,100 RBL Bank BUY 527 690 163.00 30.93% Bharat Electronics BUY 94 105 11.05 11.76% Closed 130 Coal India BUY 264 189 -75.00 -28.41% Closed 360 CanFin Homes BUY 266 384 118.00 44.36% Closed 480 Average profit/loss per stock Nifty 50 Nifty 500 Read on for details HAPPY INVESTING! - 10,524.00 8,877.00 11,305.00 9,161.00 781.00 284.00 TGT achieved 690 16.58% 7.42% 3.20% Dharmesh Kant Head - Retail Research +91 22 6240 6402 dharmesh.kant@indianivesh.in www.indianivesh.in Hero MotoCorp Limited RESEARCH CMP 2,600 Investment rationale TGT 3,376 STOCK INFO BSE 500182 NSE HEROMOTOCO CMP Shares O/S Hero MotoCorp is the largest two-wheeler maker in the country and has maintained its leadership position over last several years < Its ability of adapt and quickly sense customer preferences has been instrumental in its holding on to the leadership position irrespective of economic cycles From selling 33 lakh in FY08 to 78 lakh units in FY19, it has come a long way < Its foray into scooters, overseas markets, premium segment, and e-vehicles is not only helping it to negotiate the present automobile downturn, but is also preparing it to capitalize on the future turnaround better than its peers < Strong financials, high return ratios, stable operating margins, steady cash flows, capacity enhancement, and a line-up of new product offerings makes the company better placed to tackle industry cycle changes < The company stands to gain from corporate tax cuts announced by the Government of India The company stands increase its net profit by ~8% on availing the revised tax structure 2,600 19,97,26,884 Face Value (Rs) Market Cap (Cr) 53,304 52wk High/Low 3382.70/2228.25 SHAREHOLDING PATTERN (%) Promoters Public < 34.63 65.37 (as on June 2019) STOCK PERFORMANCE (%) 3m 6m 12m HEROMOTOCO 1.05 NIFTY (2.14) (9.86) 7.95 (1.63) (2.90) < 17.29 The valuation looks attractive, as the stock has corrected almost 30% from peak levels Historically, it trades at a PER of 18x (TTM basis) while it is now available at a PER of ~14x (TTM) Risk-reward ratio appears favourable from hereon Source: Company filings, IndiaNivesh Research < The monetary policy has been accommodative RBI has cut interest rates by 135 basis points so far The prevailing repo rate is 5.15%, just shy of the 10year low of 4.75% Good monsoons and favourable government policies are laying the foundation for an economic revival We are optimistic of an economic turnaround happening sooner rather than later Valuation Financial Summary Rs Cr NET SALES EBIDTA EBIDTA Margin (%) PAT PAT Margin (%) EPS (Rs) ROE (%) P/E P/BV Debt/Equity We believe the management conviction of growth picking up from H2FY20 will hold Lower interest rate scenario, good monsoons and stable input prices augur well The entry into e-vehicle and premium segment will be a blended realization accretive Conservatively valuing the company at a PER of 16x FY21e, we arrive at a target price of Rs3,376, implying an upside of around 27% from current levels We recommend ‘Accumulate’ on HeroMotoCorp FY 17 FY18 FY19 FY20E FY21E 28,610 4,576 15.99% 3,546 12.40% 178 34.16% 17.20 5.87 0.03 32,458 5,325 16.41% 3,722 11.47% 186 30.85% 18.45 5.69 0.02 33,971 5,018 14.77% 3,466 10.20% 174 26.19% 14.71 3.85 0.02 30,574 4,280 14.00% 3,363.11 11.00% 168 20.26% 15.44 3.13 0.02 35,160 5,274 15.00% 4,219.18 12.00% 211 20.27% 12.31 2.49 0.02 www.indianivesh.in Source: Company filing, IndiaNivesh research Rs Cr FY 17 FY18 Rs In Cr FY19 Non-Current Assets 7,741 8,395 10,091 Current Assets 7,571 9,002 8,413 Total Assets 15,312 17,397 18,504 Equity 10,383 12,065 13,237 752 851 859 4,177 4,481 4,409 15,312 17,397 18,504 Balance Sheet Non-Current Liabilities Current Liabilities Total Liabilities Source: Company filing, IndiaNivesh research Exhibit 1: Sales & Sales Growth 40000 32458.37 30000 27538.03 28457.12 28610.43 33,971 13% 10% 9% 20000 Sales (Crs) 10000 5% 3% 1% 2015 15% 2016 2017 5% Sales(%Gr) 0% 2018 2019 Source: Company, IndiaNivesh research Exhibit 2: EBITDA & EBITDA Margin 6000 5000 4000 3000 4877.4 3879.88 17% 5325.05 4575.97 16% 16% 5,018 15% 14% 20% 15% EBIDTA ( Absolute) 10% 2000 5% 1000 EBITDA Margin 0% 2015 2016 2017 2018 3546.3 3722.17 2019 Source: Company, IndiaNivesh research Exhibit 3: PAT & PAT Margin 4000 3000 2000 2385.64 3160.19 32% 3,466 30% 20% 13% 12% 10% 5% 1000 0% -7% 2015 40% 2016 2017 2018 PAT (Crs) PAT(% Gr) PAT(M argin) -10% 2019 Source: Company, IndiaNivesh research www.indianivesh.in Exhibit 4: PE Band 30 25 PER 20 Mean + SD 15 Mean + SD Mean 10 Mean - SD Mean - SD 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research- About the company Overview Hero MotoCorp has been at the forefront of designing and developing technologically advanced motorcycles and scooters for customers around the world It became the world’s largest two-wheeler manufacturer in 2001, in terms of unit volume sales in a calendar year, and has maintained the coveted title for the past 18 years Manufacturing facilities The company has manufacturing facilities in India and two overseas (Colombia and Bangladesh) The company has commenced construction of a new manufacturing facility at Chittoor, which once operational, will take the overall installed capacity to about 11 million units In addition, the company has an R&D centre at Jaipur with key focus on building a premium portfolio, enhancing scooter offerings, addressing regulatory changes (viz BS VI), and preparing for EVs www.indianivesh.in JK Paper Limited RESEARCH CMP 116 TGT 174 Investment rationale < The paper industry is undergoing a paradigm shift on usage as volume growth shifts from printing and writing copiers to packaging and boards < E-commerce has been the chief consumption driver aided by environmental concerns over single-use plastics as packaging material < The company has been a turnaround story from reporting losses in FY14 and FY15 to a profit of around Rs425 crore in FY19 < Paper industry in India is poised for significant growth as annual paper consumption per capita is merely ~13kg in comparison to ~200kg in North America and global average of ~58kg < Acquisition of Sirpur Paper Mills will significantly enhance its capacity from ~4,55,000 tonnes per annum (TPA) to 5,91,000 TPA Operating leverage and benefits of the same started accruing from Q1FY20 Before the acquisition of Sirpur Paper Mills, it was operating at 100% capacity utilisation < To capture growing demand for virgin fibre boards (VFB) the company is enhancing its capacity further to 2,70,000 TPA from 90,000 TPA, which is likely to be completed in the next years After this, it will become second-largest producer of VFB in the country < Online retail, FMCG, Food & Beverage, Pharmaceutical and Textile sectors are demanding packaging paper more than off-sets Also, due to the advent of the digital era, the usage of printing, writing, newsprint, and speciality papers has reduced STOCK INFO BSE 532162 NSE JKPAPER CMP 116 Shares O/S 17,82,43,585 Face Value (Rs) 10 Market Cap (Cr) 2029.30 52wk High/Low 189.70/93.10 SHAREHOLDING PATTERN (%) Promoters Public 48.40 51.60 (as on June 2019) STOCK PERFORMANCE (%) 3m 6m JKPAPER NIFTY (3.68) (2.14) (23.48) (2.90) 12m (26.89) 7.95 Source: Company filings, IndiaNivesh Research Valuation The company is trading at a PER of 4.30x on a TTM basis Healthy balance sheet, considerable reduction in debt along with improving operating margins makes the risk-reward ratio quite favourable Operating margins have improved to 27% (FY19) from 8% in FY14 Debt/equity ratio has reduced to 0.76x in FY19 from 2.42x in FY14 We expect revenue of 15% CAGR for the next couple of years Conservatively valuing the company at a PER of 6x FY21E, the target price is Rs174 per share, with an upside of around 50% from current levels The company has scope for potential re-rating We recommend ‘Accumulate’ on JK Paper Financial Summary Rs Cr NET SALES EBIDTA EBIDTA Margin (%) PAT PAT Margin (%) EPS (Rs) ROE (%) P/E P/BV Debt/Equity FY 17 FY18 FY19 FY20E FY21E 2,854 742 26.01% 174 6.11% 10 13.21% 9.65 1.27 1.48 2,867 641 22.35% 261 9.09% 15 15.86% 9.24 1.47 1.01 3,257 868 26.66% 425 13.05% 24 20.85% 5.08 1.06 0.76 3,745 936 25% 449 12% 25 18.07% 4.60 0.83 0.76 4,307 1,077 25% 517 12% 29 17.20% 4.00 0.69 0.76 Source : Company filing, IndiaNivesh research www.indianivesh.in Balance Sheet Rs Cr FY 17 FY18 FY19 Non-Current Assets Current Assets Total Assets 2,752 844 3,596 2,756 852 3,608 3,122 1,400 4,522 Equity 1,321 1,643 2,038 1,454 820 3,596 1,173 792 3,608 1,644 840 4,522 Non-Current Liabilities Current Liabilities Total Liabilities Source: Company filing, IndiaNivesh research Exhibit 5: Sales & Sales Growth 3,257 3500 3000 2500 24% 2770.36 2853.95 2866.78 30% 25% 2415.47 20% 2000 15% 1500 14% 1000 500 2015 2016 2017 Sales (Crs) 10% Sales(%Gr) 5% 3% 15% 0% 2018 0% 2019 Source: Company, IndiaNivesh research Exhibit 6: EBITDA & EBITDA Margin 1000 742.39 640.76 800 600 400 200 402.31 26% 868 27% 30% 25% 20% 22% EBIDTA ( Absolute) 15% 261.53 15% 10% 11% 5% EBITDA Margin 0% 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 7: PAT & PAT Margin 500 425 12% 400 10% 260.58 300 8% 174.49 200 6% 60.74 100 PAT(Margin) 2% -18.42 2015 PAT (Crs) 4% -100 14% 0% 2016 2017 2018 2019 www.indianivesh.in Source: Company, IndiaNivesh research Exhibit 8: PE Band 20 15 PER Mean + SD 10 Mean + SD Mean Mean - SD Mean - SD -5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research About the company JK Paper Ltd has two large integrated paper manufacturing units:  JK Paper Mills, Rayagada, Odisha  Central Pulp Mills, Songadh, Gujarat It is the market leader in branded copier paper segment and among the top two players in coated paper and high-end packaging boards Its products are sold through an extensive distribution network of 188 wholesalers, 10 depots and regional marketing offices, covering nearly 4,000 dealers It offers a wide product range and its brands are synonymous with premium quality paper JK Paper has a wide product portfolio:  Office papers - JK Cedar, JK Copier, JK Easy Copier, JK Sparkle, JK Copier Plus and JK Excel Bond New brands 'JK CMax' and JK Max have established presence in the market  Packaging boards - JK TuffCote, JK Ultima, JK TuffPac, and JK IV Board  Printing & writing papers - JK Cote, JK Ledger, JK SHB, JK Evervite, JK Finesse, JK Elektra, JK Lumina, JK Ultraprint, and JK Esay Draw  Speciality papers - MICR cheque paper, parchment, and cedar digital www.indianivesh.in Escorts Limited RESEARCH CMP 598 GT 810 Investment rationale < The company staged a remarkable turnaround in the last 10 years and has been gaining market share since then < A focused product offering, high emphasis on cost control, better operating synergies, happy dealerships and enabling business policies are key factors for the turnaround < The management has been able to tackle the recent slowdown well It delivered 2.24% YoY growth in tractor sales for the month of September when competitors are seeing de-growth < It has strong positioning in north India where monsoons were good There are chances of a 7% hike in the minimum support price for the Rabi crop The recommendation for the same has been made by Ministry of Agriculture to the Cabinet < The company stands on strong financials The balance sheet is almost net-debt free, has healthy return ratios and operating margins, and ROE is in excess of 20% < Lower interest rate cycle, good monsoons and benign input prices augur well < Recent corporate tax rate cut by the Government of India is likely to benefit it by adding around 9% to net profits STOCK INFO BSE 500495 NSE ESCORTS CMP 598 Shares O/S 12,25,76,878 Face Value (Rs) 10 Market Cap (Cr) 7,327 52wk High/Low 833.50/423.30 SHAREHOLDING PATTERN (%) Promoters Public Non Promoter-Non Public 40.25 57.24 2.51 (as on June 2019) STOCK PERFORMANCE (%) 3m 6m 12m ESCORTS NIFTY (0.55) 7.95 10.37 (2.14) (24.05) (2.90) Source: Company filings, IndiaNivesh Research Valuation Escorts is trading at a PER of around 16x on TTM basis It usually trades at a higher multiple of 25-27x on TTM basis We believe the company will not gain market share from its competitors but is also well placed to capitalize on the future economic revival It appears poised for a re-rating Valuing the company at a PER of 18x FY21E, target price is Rs810 per share, implying an upside of around 35% from current levels We recommend ‘Accumulate’ on Escorts Financial Summary Rs Cr FY 17 FY18 FY19 FY20E FY21E NET SALES EBIDTA EBIDTA Margin (%) PAT PAT Margin (%) EPS (Rs) ROE (%) P/E P/BV Debt/Equity 4,145 310 7.47% 5,059 553 10.94% 6,262 725 11.57% 131 3.15% 11 8.06% 50.51 4.07 0.21 347 6.85% 28 15.65% 28.93 4.53 0.08 478 7.63% 39 17.84% 15.34 2.74 0.07 5,636 648 11.50% 479 8.50% 39 15.17% 15.35 2.33 0.07 6,481 745 11.50% 551 8.50% 45 14.85% 13.35 1.98 0.07 Source : Company filing, IndiaNivesh research www.indianivesh.in Balance Sheet Rs Cr FY 17 FY18 FY19 Non-Current Assets 1,754 1,829 1,952 Current Assets Total Assets 1,445 3,199 2,144 3,973 2,756 4,708 Equity 1,623 2,215 2,679 109 75 110 1,467 3,199 1,684 3,973 1,919 4,708 Non-Current Liabilities Current Liabilities Total Liabilities Source: Company filing, IndiaNivesh research Exhibit 9: Sales & Sales Growth 7000 21% 6000 5000 30% 6,262 24% 22% 20% 5059.34 10% 4145.33 4112.68 3431.99 4000 0% 3000 Sales (Crs) -10% -17% 2000 Sales(%Gr) -20% 1000 -30% -37% -40% 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 10: EBITDA & EBITDA Margin 800 700 600 500 400 300 200 100 14% 725 553.41 6% 197.32 12% 10% 11% 7% 309.55 12% 8% EBIDTA ( Absolute) 6% 191.61 EBITDA Margin 4% 5% 2% 0% 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 11: PAT & PAT Margin 600 200% 165% 500 400 86% 300 200 100 2% 2% 76.01 -69% -8% 70.15 2015 2016 3% 478 346.59 7% 150% 100% 38% 8% 130.75 50% 0% PAT (Crs) PAT(%Gr) PAT(Margin) -50% -100% 2017 2018 2019 www.indianivesh.in Source: Company, IndiaNivesh research Exhibit 12: PE Band 60 50 40 PER 30 Mean + SD 20 Mean + SD 10 Mean Mean - SD -10 Mean - SD -20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research About the company Escorts Limited is one of India’s leading engineering companies for farming and construction equipment in the country For seven decades, Escorts has had presence three segments:  Agri machinery Escorts Agri Machinery has, in the last seven decades, committed itself to enhancing India’s agricultural productivity and adding value to the farmer’s life Escorts currently provides technologically superior range of 22 HP to 80 HP tractors under two brands: Farmtrac and Powertrac  Construction equipment Escorts provides equipment for material handling, road building, earth moving and other services, addressing the large national opportunity with a comprehensive basket of products  Material handling equipment and railway equipment Escorts Railway Equipment Division (RED) possesses rich, multi-decade experience in the manufacturing of critical railway components The division (operationalised in 1962) is one of the oldest such units in the country, partnering with the Indian Railways in its modernization journey www.indianivesh.in Godrej Consumer Products Ltd RESEARCH CMP 692 TGT 875 Investment rationale < Godrej Consumer Products is a niche play on consumption Its products like Good Night, Hit, Cinthol, and Godrej Expert have been household names for decades < Household insecticides, hair colour, personal care (soaps) have been the mainstay of its product stable A concentrated product portfolio and strong brand equity and recall have been the mantra of its remarkable journey of over 100 years The top 10 brands contribute 70% of the revenue < Geographical diversification has delivered healthy dividends to business Around 46% of the top line contribution comes from rest of the world, primarily from African countries, Indonesia, Latin America and the Middle East, which serves as a natural hedge against slowdown in the domestic economy < In the last 10 years, revenue has grown at 25% CAGR and net profit at 31% Equitable distribution of revenue comes from personal care, home care and household insecticides Air fresheners and incense sticks are gaining traction < Wet hair products have been hugely successful in African countries < Healthy balance sheet, high return ratios, robust cash flows, and high operating margin provide much needed margin of safety in times of economic slowdown STOCK INFO BSE 532424 NSE GODREJCP CMP 671.55 Shares O/S 1,02,21,66,096 Face Value (Rs) Market Cap (Cr) 68,673 52wk High/Low 848.30/577.00 SHAREHOLDING PATTERN (%) Promoters Public 63.23 36.75 (as on June 2019) STOCK PERFORMANCE (%) 3m 6m 12m GODREJCP NIFTY (0.79) 7.95 1.89 (2.14) 0.13 (2.90) Source: Company filings, IndiaNivesh Research Valuation The stock is presently trading at a PER of 30x on TTM basis Usually, it trades at a PER of 40-45x (TTM basis) during the last years We expect FY20 to end with de-growth of around 3-5% on top and bottom line However, a pick up in revenue and profitability is expected from the onset of FY21 Conservatively valuing the company at a PER of 35xFY21E, we arrive at a target price is Rs875 per share, implying an upside of around 26% from current levels Financial Summary Rs Cr NET SALES EBIDTA EBIDTA Margin (%) PAT PAT Margin (%) EPS (Rs) ROE (%) P/E P/BV Debt/Equity FY 17 FY18 FY19 FY20E FY21E 9,609 1,898 19.75% 9,847 2,067 20.99% 10,314 2,118 20.53% 1,308 13.61% 13 24.67% 43.54 10.74 0.72 1,634 16.59% 16 26.11% 45.60 11.91 0.65 2,342 22.70% 23 32.22% 29.16 9.40 0.51 9,799 2,009 20.50% 2,205 22.50% 22 23.28% 32.08 7.47 0.51 11,268 2,310 20.50% 2,535 22.50% 25 21.12% 27.90 5.89 0.51 Source : Company filing, IndiaNivesh research www.indianivesh.in Balance Sheet Rs Cr FY 17 FY18 FY19 Non-Current Assets 8,814 8,795 9,482 Current Assets 4,217 5,169 4,688 13,031 13,964 14,170 Equity 5,302 6,258 7,267 Non-Current Liabilities 4,346 3,530 3,011 Current Liabilities 3,383 4,176 3,892 13,031 13,964 14,170 Total Assets Total Liabilities Source : Company filing, IndiaNivesh research Exhibit 13: Sales & Sales Growth 12,000 10,000 8,424 8,276 10,314 9,847 9,609 10% 9% 6,000 14% 12% 14% 8,000 16% 4,000 5% 2,000 2% 2% 8% Sales (Crs) 6% Sales(%Gr) 4% 2% 0% 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 14: EBITDA & EBITDA Margin 2,500 2,000 1,500 18% 1,452 1,898 17% 20% 25% 2,118 21% 2,067 21% 20% 15% 1,395 1,000 EBIDTA ( Absolute) 10% 500 EBITDA Margin 5% 0% 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 15: PAT & PAT Margin 2,342 2,500 2,000 1,500 1,000 57% 1,308 976 19% 60% 1,634 43% 25% 831 500 -15% 2015 2016 80% 40% PAT (Crs) 20% PAT(%Gr) 0% PAT(Margin) -20% 2017 2018 2019 Source: Company, IndiaNivesh research www.indianivesh.in Exhibit 16: PE Band 60 50 PER 40 Mean + SD 30 Mean + SD Mean 20 Mean - SD 10 Mean - SD 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh research About the company Godrej Consumer Products is a leading emerging markets company As part of the over 122-year old Godrej Group, the company has a proud legacy built on the strong values of trust, integrity and respect for others Godrej ranks among the largest household insecticide and hair care players in emerging markets In household insecticides, Godrej is the leader in India, the second-largest player in Indonesia and is now expanding its footprint in Africa Godrej is the leader in hair extensions in Africa, the number player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America Godrej rank number in soaps in India and is the number one player in air fresheners and wet tissues in Indonesia www.indianivesh.in LIC Housing Finance RESEARCH CMP 370 Investment rationale TGT 681 STOCK INFO BSE 500253 NSE LICHSGFIN CMP < A strong HFC player, promoted by LIC of India, has been in business for over 30 years < Primarily, it is a provider of housing loans to individuals Its loan portfolio is in excess of Rs1.94 lakh crore Having pan-India presence, it employs over 2,300 people, who have serviced over 26 lakh customers till date < The company has strong financials and return ratios It has ROA of ~1.34, ROE of ~16, CAR of ~16%, and impeccable asset quality GNPA at 1.54% and NNPA at 1.08% as at 31 March 2019 in a tough economic environment speak volumes about the strong fundamentals of the company < Lower interest-rate cycle and easing liquidity measures are likely to be margin accretive for the company During CY19, liquidity for NBFCs was a concern which resulted in lower NIMs However, now the environment is more stable and most of the concerns have been addressed by the RBI < In the last years, PAT has grown at over 15% CAGR while the loan portfolio is around 16% Affordable housing loans constitute major part of the loan book 370.25 Shares O/S 50,46,63,000 Face Value (Rs) Market Cap (Cr) 18,685 52wk High/Low 586.80/363 SHAREHOLDING PATTERN (%) Promoters Public 40.31 59.69 (as on June 2019) STOCK PERFORMANCE (%) 3m 6m 12m LICHSGFIN NIFTY (9.68) 7.95 (30.96) (2.14) (30.03) (2.90) Source: Company filings, IndiaNivesh Research < The present market capitalization is at Rs18,700 crore, BV is at Rs322, FY19 stood at Rs2,430 crore, while that of Q1FY20 was at Rs610 crore The 0.13 PAT (0.79) stock had hit an all-time high of Rs765 and is now trading at Rs370, down almost 50% from the peak < Given the thrust on ‘Housing for all’ by the Government of India and the management’s focus, we expect the company to regain its earnings momentum Valuation The stock is presently available at a P/BV ~1.15x on TTM basis Usually, it has traded at a P/BV 1.5 to 1.75x (TTM basis) during the last years We expect a profit CAGR of over 20% for the next couple of years Conservatively valuing the company at P/BV of 1.5x on FY21E, we arrive at a target price of Rs 681 per share, implying an upside of around 84% from current levels Financial Summary Rs Cr FY 17 FY18 FY19 FY20E FY21E Interest Earned 14,007 14,876 17,393 19,132 22,002 Interest Expended 10,231 11,144 12,891 13,793 15,173 Net Interest Income 3,776 3,733 4,502 5,338 6,829 Operating Profit 2,889 2,792 3,401 4,004 5,122 PAT 1,942 2,008 2,434 2,883 3,688 EPS (Rs) 38.49 39.79 48.24 57.12 73.07 ROA (%) 1.29% 1.17% 1.21% 1.31% 1.45% NIM 2.70% 2.25% 2.36% 2.40% 2.50% 2.46 1.88 1.14 0.97 0.82 P/BV Source : Company filing, IndiaNivesh research www.indianivesh.in Balance Sheet Rs Cr FY 17 FY18 FY19 Financial Assets Non-Financial Assets Total Assets 1,50,018 597 1,50,615 1,70,411 818 1,71,228 1,99,716 991 2,00,707 Financial Liabilities Non-Financial Liabilities Equity Total Liabilities & Equity 1,37,824 115 12,676 1,50,615 1,56,791 125 14,313 1,71,228 1,84,256 119 16,333 2,00,707 Source : Company filing, IndiaNivesh research Exhibit 17: Sales & Sales Growth 5000 4000 25% 4,502 3775.54 21% 3732.62 20% 15% 3000 2000 1000 0% 10% Sales (Crs) 5% Sales(%Gr) 0% -1% -5% 2017 2018 2019 Source: Company, IndiaNivesh research Exhibit 18: Operating Profit and Growth 4000 3000 2888.9 25% 20% 15% 10% 5% 0% -5% 3,401 22% 2792.19 2000 1000 0% 2017 -3% 2018 Operating Profit Operating Profit (%Gr) 2019 Source: Company, IndiaNivesh research Exhibit 19: PAT & PAT Growth 3000 2500 2000 1942.27 2008.16 2,434 21% 20% 15% 1500 10% 1000 500 25% PAT(%Gr) 5% 3% 0% 2017 PAT (Crs) 0% 2018 2019 Source: Company, IndiaNivesh research www.indianivesh.in Exhibit 20: Price to Book Band 3.5 0.73 2.5 Mean + SD Mean + SD 1.5 Mean Mean - SD 0.5 Mean - SD 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company, IndiaNivesh Research- About the company Incorporated in 1989, LIC Housing Finance Ltd (LICHFL) is one of the largest housing finance companies in India having the key objective of providing long-term finance to individuals for the purchase or construction of house/flat for residential purposes It is being promoted by LIC of India LICHFL also provides finance on existing property for business/personal needs and gives loans to professionals/builders for purchase/construction of clinics/nursing homes/diagnostic centres/office space and equipment The company provides finance to builders and developers engaged in the business of construction of houses or flats for residential purpose and to be sold by them www.indianivesh.in Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014 This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down The suitability or otherwise of any investments will depend upon the recipients particular circumstances INSL does not take responsibility thereof The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014 This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document Opinions expressed are our current opinions as of the date appearing on this document only The opinions are subject to change without any notice INSL directors/employees and its clients may have holdings in the stocks mentioned in the document This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis report Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Dharmesh Kant Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter: Disclosure of Interest Statement Details of business activity of IndiaNivesh Securities Limited (INSL) Details of Disciplinary History of INSL Details of Associates of INSL Research analyst or INSL or its relatives'/associates' financial interest in the subject company and nature of such financial interest Research analyst or INSL or its relatives'/associates' actual/beneficial ownership of 1% or more in securities of the subject company, at the end of the month immediately preceding the date of publication of the document Research analyst or INSL or its relatives'/associates' any other material conflict of interest at the time of publication of the document Has research analyst or INSL or its associates received any compensation from the subject company in the past 12 months Has research analyst or INSL or its associates managed or co-managed public offering of securities for the subject company in the past 12 months Has research analyst or INSL or its associates received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months Has research analyst or INSL or its associates received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months Has research analyst or INSL or its associates received any compensation or other benefits from the subject company or third party in connection with the document Has research analyst served as an officer, director or employee of the subject company Has research analyst or INSL engaged in market making activity for the subject company Other disclosures 10 11 12 13 14 INSL is a Stock Broker registered with BSE, NSE and MCX - SX in all the major segments viz Cash, F & O and CDS segments INSL is also a Depository Participant and registered with both Depository viz CDSL and NSDL Further, INSL is a Registered Portfolio Manager and is registered with SEBI No disciplinary action is / was running / initiated against INSL Please refer to the important 'Stock Holding Disclosure' report on the IndiaNivesh website (investment Research Section -http://www.indianivesh.in/Research/Holding_Disclosure.aspx?id=10 link) Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks INSL and its affiliates may have investment positions in the stocks recommended in this report No (except to the extent of shares held by Research analyst or INSL or its relatives'/associates') Please refer to the important 'Stock Holding Disclosure' report on the IndiaNivesh website (investment Research Section - http://www.indianivesh.in/Research/Holding_Disclosure.aspx?id=10 link) Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks INSL and its affiliates may have investment positions in the stocks recommended in this report No No No No No No No No No INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within This information is subject to change, as per applicable law, without any prior notice INSL reserves the right to make modifications and alternations to this statement, as may be required, from time to time Research Analyst has not served as an officer, director or employee of Subject Company One year Price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.economictimes.indiatimes.com/markets/stocks/stock-quotes (Choose name of company in the list browse companies and select year in icon YTD in the price chart) IndiaNivesh Securities Limited Research Analyst SEBI Registration No INH000000511 Corporate Office: Lodha Supremus, 17th Floor, Senapati Bapat Marg, Lower Parel (West), Mumbai - 400 013 Registered Office: 601 & 602, Sukh Sagar, N S Patkar Marg, Girgaum Chowpatty, Mumbai - 400 007 Tel (Board): 022 6240 6240 | Fax: 022 6240 6241 e-mail: research@indianivesh.in | Website: www.indianivesh.in www.indianivesh.in Wishing you a very happy and prosperous Diwali Thank You!! /indianiveshofficial /indianivesh /indianivesh-securities-ltd /india_nivesh ... research@indianivesh.in | Website: www.indianivesh.in www.indianivesh.in Wishing you a very happy and prosperous Diwali Thank You!! /indianiveshofficial /indianivesh /indianivesh-securities-ltd /india_ nivesh. .. 2018 2019 www.indianivesh.in Source: Company, IndiaNivesh research Exhibit 8: PE Band 20 15 PER Mean + SD 10 Mean + SD Mean Mean - SD Mean - SD -5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019. .. 38% 8% 130.75 50% 0% PAT (Crs) PAT(%Gr) PAT(Margin) -50% -100% 2017 2018 2019 www.indianivesh.in Source: Company, IndiaNivesh research Exhibit 12: PE Band 60 50 40 PER 30 Mean + SD 20 Mean + SD