Dealmoney diwali picks 2019

Samvat 2076 17th Oct 2019 CMP 1221 HDFC BANK LTD Target 1650 • HDFC Bank Limited incorporated on August 30, 1994, is a holding company The Bank offers a range of banking services covering commercial and investment banking on the wholesale side and transactional/branch banking on the retail side It also offers financial services The Bank's segments include Treasury, Retail banking, Wholesale banking and Other banking business • We believe structural drivers are in place for HDFC Bank, which augur well for its long-term growth and profitability We expect its market share gains trajectory to continue, aided by operational efficiencies and best-in-class asset quality, helped by the weakened competitive environment HDFC Bank’s operating performance remains strong, and we expect growth to pick up in the second half of FY20e as the bank sees demand improvement due to better monsoons, stimulus measures benefits and its own efforts Central Government slashed effective corporate tax rates to 25.17% for domestic companies • It is well positioned in urban and rural markets and a Leading player across retail loan categories Its focus on working capital finance and trade services also provide good base to the company to tackle risks and threats • The private sector lenders advances aggregated to approximately Rs 8,97,000 crore as of September 2019, around 19 percent more compared to Rs 7,50,800 crore during the same period last year On the sequential basis, the bank reported 8.1 percent growth compared to Rs 8,29,700 crore advances in June 2019 • Valuations: Superior loan profile has enabled HDFCB to consistently gain market share across retail segments (personal loans, business banking, credit cards and auto loans), while strong capitalization and liquidity levels should sustain this growth momentum over the next few years Margin expansion, robust fee income profile and strong control on operating leverage were likely to drive an improvement in return ratios It is trading at a P/E of 24.5x of FY20e, we recommend BUY for target of Rs 1650 CMP 1221 Target 1650 HDFC BANK LTD (In Rs Cr.) FY16 FY17 FY18 FY19 FY20 NII 63,162 73,271 85,288 105,161 127,680 Other Income 11,212 12,878 16,057 18,947 22,358 Interest Expended 34,070 38,042 42,381 53,713 68,215 Operating Expenses 19,511 23,366 28,464 34,318 41,525 PAT 12,817 15,287 18,561 22,446 27,159 25.3 29.8 35.7 41.0 49.6 FY16 FY17 FY18 FY19 FY20 P/E (x) 21.2 24.2 26.5 28.3 24.5 P/B (x) 3.6 4.0 4.5 4.1 3.7 NIM (%) 4.0 4.2 4.0 4.2 4.9 ROA (%) 1.9 1.9 1.9 1.9 2.1 ROE (%) 18.7 18.4 18.4 17.1 17.0 EPS (Rs.) CMP 496 RELAXO FOOTWEARS LTD Target 810 • Relaxo Footwears Limited is engaged in the manufacturing and trading of footwear & related products The principal activity of the Company is the manufacture of footwear made primarily of vulcanized or molded rubber and plastic Its brands include Hawaii, Flite, Sparx, Schoolmate, Elena, Casualz & Bahamas • In FY20e, Rs 90 crore will be incurred to set up a new footwear manufacturing facility at Bhiwadi, Rajasthan, with a capacity of lakh pairs per day Relaxo may benefit from lower tax rate if this unit is added in a Special Economic Zone • Given the strong cash flow generation capacity of the company, such capital expenditure is likely to be funded through internal accruals The amount will be spent over three financial years Post this, the company's total manufacturing capacity will be 8.5 lakh footwear pairs per day Usually, utilization level at factories is 75 percent During the peak season, it goes up to 90 percent • Top line growth was predominantly driven by higher volumes An improved mix in favor of higher realization products, coupled with lower operational costs as a percentage of sales, caused EBITDA margin to move up • Presently, it has more than 300 exclusive outlets spread across India It plans to add 30 exclusive stores on a year-on-year basis It is bullish on all possible channels as far as distribution expansion is concerned In terms of regions, it is expanding in the southern & western markets where they were not present earlier Its multi-brand outlets are present in over 50,000 touch-points and growing • Valuations: We continue to believe that the company would maintain its double digit revenue growth over year period It possesses the ability to gain market share even though the industry is dominated by unorganized player We recommend BUY on Relaxo Footwear Ltd with a price target of Rs 810 CMP 496 Target 810 RELAXO FOOTWEARS LTD (In Rs Cr.) FY16 FY17 FY18 FY19 FY20E Net Sales 1,712 1,631 1,941 2,292 2,670 Sales Growth 15.6% -4.7% 19.0% 18.1% 16.5% 240 231 302 324 481 14.0% 14.8% 15.7% 14.7% 18.0% PAT 120 120 161 175 240 NPM% 6.9% 7.3% 8.3% 7.7% 9.0% 5.0 5.0 6.7 7.1 9.7 FY16 FY17 FY18 FY19 FY20E P/E (x) 36 50 49 55 52 P/B (x) 10 10 ROCE 30.3% 25.7% 29.7% 25.8% 29.0% ROE 28.4% 22.1% 23.6% 18.9% 21.7% EBITDA EBITDA Margin Adj EPS (`) CMP 718 POLYCAB INDIA LTD Target 1080 • Polycab is engaged in the business of manufacturing and selling wires & cables and fast moving electrical goods ("FMEG") under the "POLYCAB" brand Apart from wires and cables, it manufactures and sells FMEG (Fast-moving Electronic Goods) such as electric fans, LED lighting & luminaires, switches and switchgears, solar products and conduits and accessories The company has 25 manufacturing facilities, including two joint ventures with Techno & Trafigura, located across the states of Gujarat, Maharashtra and Uttarakhand and the union territory of Daman and Diu Three of these 25 manufacturing facilities are for the production of FMEG, including a 50:50 joint venture with Techno, a Gujarat-based manufacturer of LED products • Polycab had a market share of ~18% of the Indian organized wires & cables industry and ~ 12% of the Indian total wires & cables industry in FY18 Polycab also has one of the most extensive portfolios of wires & cables among peers • Polycab (founded in 1970s) is not only the largest manufacturer of cables & wires in India (18% market share in organized cable & wires industry) but has also emerged as a successful entrant into the FMEG space Polycab has a strong distribution network across India, comprising 3,400+ authorized dealers and distributors selling its products, as at Q1FY20e It supplies its products directly to its authorized dealers and distributors, who in turn sell its products to over ~115,000 retail outlets in India • Over the past few years, Polycab has made conscious efforts to transform itself into a more B2C-focused player by launching a wider bouquet of FMEG products and expanding the reach of its channels Polycab India Ltd is trading at the FY20e PE of 15x We recommend a BUY at CMP 700 with the price target of Rs 1080 CMP 718 Target 1080 POLYCAB INDIA LTD (In Rs Cr.) FY16 FY17 FY18 FY19 FY20E Net Sales 5,187 5,500 6,770 7,956 9,165 Sales Growth 10.2% 6.0% 23.1% 17.5% 15.2% 486 480 729 923 1,160 10.4% -1.2% 51.9% 26.7% 25.6% 188 233 358 503 694 -217.2% 24.0% 53.8% 40.2% 38.0% EPS (`) 12.6 15.7 24.1 33.8 46.7 O/S Share 14.9 14.9 14.9 14.9 14.9 FY16 FY17 FY18 FY19 FY20E P/E (x) 56 45 29 21 15 P/B (x) 4 ROCE 16.3% 15.7% 22.0% 27.9% 29.8% ROE 11.0% 12.3% 16.5% 19.2% 17.4% EBITDA EBITDA Margin PAT PAT Margin CMP 2259 INFO EDGE INDIA LTD.(NAUKRI) Target 3110 • Info Edge (India) Limited is a holding company, which provides information technology services The Company is involved in online classifieds business Its segments include Recruitment Solutions, 99acres, Online Restaurant Discovery and Others The Others segment includes Jeevansathi & Shiksha services The Company is engaged in the business of Internet-based service delivery operating in over four service verticals through Web portals Its service verticals include Naukri.com, Jeevansathi.com, 99acres.com, Shiksha.com, merination.com and zomato.com • IT sector, which is the largest contributor of revenues for Naukri continues to well, also evident from recent Naukri job-speak index reports (JunAug), which indicate IT software sector index growing at an average 24% in the last three months There are issues specific to some sectors (such as construction, banking, auto, etc.) that may marginally offset overall growth due to limited contribution in revenue Hiring remains robust in the IT sector, also evident from Naukri job-speak index We believe Naukri can grow in high teens in this scenario • Zomato to add value to its portfolio: Zomato reported strong revenue growth & improving profitability trends in 1HFY20e The company reported 225 per cent y-o-y revenue growth to $205 million in H1, driven by strong order volume growth of 290 per cent y-o-y in its delivery business, as it expanded operations to over 500 cities in India versus around 200, as of March 2019 Online food delivery and restaurant discovery platform Zomato is finalizing a fresh $600-million round of fundraising likely to be led by existing Chinese investor, Ant Financial Zomato’s valuation may cross $3 billion in the new funding round That would imply a hefty bump-up over the $2-billion valuation at which it raised funds earlier this year • Valuation: We remain positive on Info Edge, as the company continues to dominate the recruitment vertical & also has leadership in real estate vertical Investee companies, especially Zomato & Policybazaar continue to provide optional value to the company’s value creation efforts With FY20e EPS of Rs 99 we recommend a BUY for target of Rs 3,110 CMP 2259 INFO EDGE INDIA LTD.(NAUKRI) (In Rs Cr.) FY16 FY17 FY18 FY19 FY20E Net Sales 748 888 988 1,151 1,326 Sales Growth 2.1% 18.7% 11.3% 16.5% 15.2% 80 171 263 319 398 278.1% 113.8% 53.8% 21.2% 24.8% 419 147 545 902 1,218 2804.2% -65.0% 271.2% 65.5% 35.0% EPS (`) 34.3 12.0 44.6 73.8 99.6 O/S Share 12.2 12.2 12.2 12.2 12.2 FY16 FY17 FY18 FY19 FY20E P/E (x) 69 28 37 65 P/B (x) 6 10 ROCE 13.4% 17.7% 18.6% 19.1% 20.3% ROE 29.0% 8.9% 12.7% 15.8% 15.7% EBITDA EBITDA Margin PAT PAT Margin Target 3110 CMP 160 ADANI ENTERPRISE LTD Target 272 CMP 7500 GILLETTE INDIA LTD Target 18000 CMP 588 MAHINDRA & MAHINDRA Target 800 CMP 670 VOLTAS LTD Target 825 ... The private sector lenders advances aggregated to approximately Rs 8,97,000 crore as of September 2019, around 19 percent more compared to Rs 7,50,800 crore during the same period last year On the... sequential basis, the bank reported 8.1 percent growth compared to Rs 8,29,700 crore advances in June 2019 • Valuations: Superior loan profile has enabled HDFCB to consistently gain market share across... business, as it expanded operations to over 500 cities in India versus around 200, as of March 2019 Online food delivery and restaurant discovery platform Zomato is finalizing a fresh $600-million