Share Market Tips For June 2019

Parag Milk Foods Ltd (NSE: PARAGMILK) (Share Price: Rs.257 ): Potential Buy

Valuation:Fairly-Valued stock with TTM PE of 17x.

Reasons to Consider: Net Sales rose by a robust 30% YoY to Rs 660 crore. Revenue from VAPs (Value Added Products) rose 25% driven by a slew of new product launches and 75% growth in SMP (Skimmed Milk Powder) sales as company reduced inventory during the quarter. The recent acquisition of Danone's plant in Sonepat, Haryana contributed Rs 12 crore to top line in this quarter. The contribution of Health& Nutrition Products (part of VAPs) increased to 3.5% of revenue as compared to 2.5% in FY'18. In April'19 Company has taken price hike of 1%. EBITDAM (excluding other income) dropped by a substantial 419 bps YoY as Marketing & Logistics spend towards improving reach and range witnessed marked increase. There has been a marked improvement on the working capital front, with NWC days down to 68 in FY19 from 72 in FY18. It has developed a portfolio of dairy products under its kitty which includes four flagship brands Gowardhan, Go, Topp Up & Pride of Cows.

Key Drivers: There has been a substantial expansion of the company's distribution network with retail reach increasing to 3.8 lac outlets currently compared to 2.5 lac outlets at FY'18 end. In FY'19, company has incurred a capital expenditure to the tune of Rs 80 crore and has guided for Rs 60-65 crore each for FY'20 and FY21. Debt on BS has reduced by Rs 50 crore to 215 crore over the last 12 months. It has launched the premium liquid milk under 'Pride of Cow' brand in Delhi, NCR region which was till now available in only 3 cities ( Mumbai, Pune & Surat ). Going forward, aggressive expansion of distribution network & inorganic growth is expected to aid revenue growth (acquisition of Danone India's dairy plant at Sonepat, Haryana in FY'18). The overall return profile will also likely improve as capex requirement will largely pertain to maintenance over the next two years.

Financial: Total revenue Rs 660 cr in Q4FY19 vs Rs 509 cr in Q4FY18 up 30%. PAT at Rs. 28.5 cr in Q4FY19 vs Rs 22 cr in Q4FY18 up 29%. Ebitda stands at Rs.46 cr in Q4FY19 down 13% vs Rs. 52.5 cr in Q4FY18.

Apollo Tyres Ltd (NSE: APOLLOTYRE) (Share Price: Rs.202): Potential Buy

Valuation: Fairly-Valued stock with TTM PE of 17x.

Reasons to consider: Apollo Tyres (ATL) posted a weak set of numbers for Q4FY19. Consolidated revenues came in at Rs 4,274 crore, up 6.0% YoY (Asia Pacific Middle East and Africa i.e. APMEA up 7.9% YoY, Europe flat YoY). Domestically ATL realises 60% sales from replacement market, with sizeable 30% exposure to the OEM market and the remainder 10% from exports. However, strong volume growth registered by OEMs in the past few years would percolate into a ready aftermarket base over the medium term going forward. We feel the replacement market would continue providing steady volume support in the ancillary space including at ATL. Further, H2FY20E may also see some revival in the OEM segment ahead of the new emission standards rollout from April 2020. In this quarter it has written off fully IL&FS deposit exposure which has again dented its profitability.

Key Drivers: ATL is witnessing strong demand in truck replacement segment which accounts for 70% of demand in Indian operations. Replacement growth is more than offsetting the slowdown in OEM demand. ATL has guided for double-digit growth in the standalone business for FY2020. The European operations are also set to report healthy double-digit growth in the next 1-2 years as ATL enters new geographies with the rampup in its Hungary plants capacity. The OEM segment would be an additional growth driver with ATL targeting 20% of revenues from OEMs in the next 2-3 years. For Q4FY19 steady raw material prices which realised 4% QoQ improvement in raw material cost largely on the back of softer natural rubber prices, which declined from Rs 126/kg to Rs 120/kg and Brent crude prices currently hovering at US$ 60-65/barrel will help in margins improvement and profitability. It would take 5% price hike in Europe truck/bus radial segment in June as a product positioning exercise. It has also maintained healthy Debt:Equity of 0.3x

Financial: Total revenue Rs 4274 cr in Q4FY19 vs Rs 4031 cr in Q4FY18 up 6%. PAT at Rs. 84 cr in Q4FY19 vs Rs 250 cr in Q4FY18 down 66%. Ebitda stands at Rs 425 cr in Q4FY19 down 17% vs Rs. 515 cr in Q4FY18.

India Cements Ltd (NSE: INDIACEM) (Share Price: Rs.95 ): Avoid

Valuation:Over-Valued stock with TTM PE of 40x.

Reasons to Avoid: India Cement reported a mixed set of Q4FY19 numbers where revenues grew 11.9% YoY to Rs 1564 crore led by 7.8% YoY growth in volumes to 3.33 MT. Realisations were at Rs 4,700/t, up 3.8% YoY . Topline includes Rs 20.25 crore pertaining to subsidy receivable from Rajasthan government (sanctioned to Trinetra Cement that has been merged with India Cement). Thus, with no capacity expected to be added in the coming two years, India Cement would have low headroom for growth. Its realisations growth, EBITDA margin growth on a sequential basis vs. peers for the quarter was also on the lower side. Further, RoCE for FY19 was at 4.5%, which is again lower than peer companies Ramco Cements (8%), Sagar Cement (6.4%). If any additional capex is announced that would put further pressure on return ratios and with high debt levels it would also continue to stress on the balance sheet.

Financial: On the financial front in Q4FY19 Net Sales was Rs 1,564 crore vs Rs. 1,397 crore in Q4FY18 up 11.9%. Net profit at Rs. 44 crore in Q4FY19 vs Rs. 35 crore in Q4FY18 up 24% Whereas, EBITDA stands at Rs. 192 crore in March 2019 up 21% from Rs. 158 crore in March 2018.

Fortis Healthcare Ltd (NSE: FORTIS) (Share Price: Rs.130): Avoid

Valuation: Over-Valued stock with negative earnings.

Reasons to Avoid: Company has been in news from last year due to its corporate governance issue and Northern TK Venture Pte Ltd became the promoter of Fortis Healthcare with 31.17 percent stake (as of March 2019). Northern TK together with IHH Healthcare Berhad and Parkway Pantai Ltd had made an open offer to the equity shareholders of Fortis Healthcare to acquire up to 19.70 crore shares, representing 26 percent of the expanded voting share capital in December, but that is still stuck in the Supreme Court after a contempt plea filed by Japanese pharma company Daiichi Sankyo against the Singh brothers, who were former promoters of Fortis. Sebi has also in an ad interim ex-parte order of October 17, 2018, had directed that FHL take necessary steps to recover Rs 403 crore along with interest from the Singh brothers and various promoter companies within three months.

Financial: On the financial front in Q4FY19 Net Sales was Rs 1184 crore vs Rs. 1086 crore in Q4FY18 up 9%. Net profit at Rs. 135 crore in Q4FY19 vs Net loss of Rs. 914 crore in Q4FY18. Whereas, EBITDA stands at Rs. 125 crore in Mar 2019 vs Rs 31 crore in Mar 2018.

Graphite India Ltd (NSE: GRAPHITE) (Share Price: Rs. 365): Avoid

Valuation: Under-Valued stock with TTM PE of 2.5x.

Reasons to Avoid: Graphite India reported subdued results wherein topline, EBITDA and PAT came in below analyst estimate. The performance during the quarter was impacted by higher-than-expected operating costs (especially needle coke) and lower than expected volumes. The company reported a consolidated topline of Rs 1693 crore (up 28% YoY, down 9% QoQ) Consolidated EBITDA for the quarter was at Rs 934 crore (up 24% YoY, down 20% QoQ). Graphite electrodes are used in the EAF route of steel-making. Recently, the slowing down of the Chinese economy together with oversupply of Chinese steel has resulted in an ongoing correction of steel prices. This has had an adverse effect on graphite electrodes realisation. Graphite electrode prices have softened due to a combination of factors like weak global steel prices, increased Chinese imports into India and select trade restriction placed by the US. Needle coke is a key raw material used in manufacture of UHP grade graphite electrodes. As needle coke is scarce in supply, its prices are on a sustained uptrend. In a scenario of softening graphite electrode prices, an uptick in needle coke costs is likely to impact the margin profile of Graphite India. As company has shown strong margin performance in past, Going forward its unlikely to show the same performance in margins and EBITDA level due to decline on back of a steep rise in price of key raw material (needle coke) and the fall witnessed in price of graphite electrodes in both UHP grade (on account of recent weakness in steel prices) and HP grade (on account of removal of anti-dumping duty from China) electrodes.

Financial: On the financial front in Q4FY19 Net Sales was Rs 1693 crore vs Rs. 1323 crore in Q4FY18 up 28%. Net profit at Rs. 562 crore in Q4FY19 vs Rs. 540 crore in Q4FY18 up 4% Whereas, EBITDA stands at Rs. 934 crore in March 2019 up 23.5% from Rs. 756 crore in March 2018.

Coromandel International Ltd (NSE: COROMANDEL) (Share Price: Rs.422 ): Potential Buy

Valuation:Fairly-Valued stock with TTM PE of 17x.

Reasons to Consider: Coromandel International Ltd reported Q4 FY19 net sales at Rs 2638 crore up 9% YoY. EBITDA reported by the company stood at Rs 259 crore up 40% YoY. EBITDA margin during the quarter was 9.8% as against 7.7% YoY. Sales were largely in line with analyst the bio-pesticides business reported a sales of Rs 167 crore in FY19. Bio-pesticides garner better margins than the conventional crop protection products and it is expected that volume growth could be in double digits. The management has guided for a better FY20 in terms of EBITDA/ton realizations to the tune of Rs 3,000-3,200/ton. We believe that key drivers will be backward integration (Phosphoric acid) and expansion (crop protection) which will drive earning from FY19-21E. In Q4FY19, subsidy: non-subsidy revenues break up was 80:20 (compared to 79:21 in Q4FY18) whereas, In Q4FY19, subsidy: non-subsidy EBITDA break up was 73:27 (compared to 65:35 inQ4FY18).

Key Drivers: Brownfield expansion of Phosphoric Acid plant at Vizag will increase backward integration of raw material by additional 20-25% to a total of 45-50% of requirement. Phos acid spreads are elevated led by, stable rock prices (input costs) on abundant supplies, while strong phosphates demand (& relatively low Chinese exports) has led to acid prices moving to $728/MT. We believe current spreads could remain elevated in the medium term and help for strong profitability and could offset the threat of margin erosion. The new capacity is expected to go live in October 2019. Specialty nutrients division sells micronutrients (Sulfur, Zinc, Boron, etc) and Water soluble fertilizers majorly through the retail and the trade segment. The segment is unregulated with free pricing CRIN has a 30% market share in organic fertilizers which includes compost and bio fertilizers. To propel volume in the segment, the company is partnering with city administration (like Visakhapatnam) for processing of waste into organic manure. The unit focuses on oil cakes, phosgold (compost + rock phosphate), molasses and other by-products. The Organic Bio-Agro Resources Dhan (GOBAR-DHAN) scheme also helped in spreading awareness.

Financial: Total revenue Rs 2639 cr in Q4FY19 vs Rs 2412 cr in Q4FY18 up 9%. PAT at Rs. 110 cr in Q4FY19 vs Rs 90 cr in Q4FY18 up 23%. Ebitda stands at Rs.259 cr in Q4FY19 up 40% vs Rs. 185 cr in Q4FY18.

Dabur India Ltd (NSE: DABUR) (Share Price: Rs.410 ): Potential Buy

Valuation:Over-Valued stock with TTM PE of 50x.

Reasons to Consider: For Q4FY2019, Domestic business grew slower by 5.9% with volume growth of 4.3% during the quarter. The international business reported growth of 1% in constant currency terms impacted by underperformance of MENA region and adverse currency movement. However, the company expects domestic business to grow faster than international business for the next two to three quarters. OTC category is expected to grow fastest in domestic business portfolio. Home and personal care, which contributes 50.5% to sales, posted 6.8% growth. Home care and Skin care segments grew by 16% and 11% respectively driven by strong growth in Odonil, Sanifresh, Gulabari and bleach portfolio. Odomos was impacted due to low incidence of mosquito-led diseases. Oral Care saw 8% revenue growth led by continued growth momentum in Red Toothpaste (17% growth) with Dabur increased its value market share by 45 bps while Meswak grew in low single-digits. Babool sales declined and the company plans to relaunch it in the coming quarter. The market share in juices increased by 540 bps YoY to 56% despite higher competitive intensity.

Key Drivers: The rural market constitutes 45% of the companys sales vs 35% for the industry. Domestic FMCG sales growth moderated to 6% due to rural slowdown, liquidity crunch and prolonged winter, which impacted hair care and foods segments. We believe steady focus on expanding direct reach in rural areas would augment the volume growth in future. In rural, company has reach of 44,000 villages and is targeting to reach 51,000 villages out of 66,000 (total villages in country) by end of FY20. Dabur has guided for double-digit growth, driven by high single-digit volume growth with a focus on power brands and Low Unit Price products (LUPs) in FY20. Competitive intensity from Patanjali has subsided significantly resulting in high double digit growth of Dabur Red and Dabur Honey (that competes with Patanjali in the respective category) in H2FY19. We expect Dabur to generate revenue, PAT growth at low double digit CAGR, respectively, on the back of strong volume growth of 7% in FY19-21E.

Financial: Total revenue Rs 2128 cr in Q4FY19 vs Rs 2033 cr in Q4FY18 up 4.8%. PAT at Rs. 371 cr in Q4FY19 vs Rs 397 cr in Q4FY18 down 6.5%. Ebitda stands at Rs.457 cr in Q4FY19 down 5.8% vs Rs. 485 cr in Q4FY18.

Thermax Ltd(NSE: THERMAX) (Share Price: Rs.1126): Potential Buy

Valuation: Over-Valued stock with TTM PE of 48x.

Reasons to Consider: Thermax reported standalone revenues at Rs 1889.6 crore registering robust growth of 44.2% YoY while consolidated revenues grew 43.7% to Rs 2073.7 crore on a YoY basis. EBITDA came in at Rs 175.7 crore, up 17.2% while EBIDTA margins declined 215 bps to 9.3% on a YoY basis owing to more than expected increase in total operating expenses. PAT came in at Rs 112.9 crore, which grew 31.7% YoY while adjusted PAT grew 55.7% to Rs 133.5 crore. The consolidated order inflow for the quarter was at Rs 1157 crore (Rs 1599 crore in Q4FY18) on a YoY basis due to ongoing sluggishness in new investments in several sectors while standalone order inflow was at Rs 717 crore. Consolidated order book was at Rs 5370 crore, down 6.0% YoY.

Key Drivers: For Q4FY19, consolidated order inflows were at Rs 1157 crore, down 28% YoY owing to muted capex in several sectors. For FY19, order inflows comprise energy segment (RS 4476 crore), environment segment (Rs 741 crore) & chemicals segment (Rs 415 crore). For FY19, order inflows were dragged by a decline of 28% in international inflows while domestic order intake was up 1% YoY. Order book was at Rs 5370 crore, down 6.0% YoY. Going ahead, Thermax expects enquiries and order intakes in cement (waste heat recovery), food processing, Textiles, chemicals, paper, auto component OEMs, water treatment and FGD segments. For FY20, Thermax has guided for high single digit revenue growth, flat to marginal order inflow growth and margin to sustain at current level. Company guided Good order inquiries expected in Indonesia, Bangkok, Thailand, Egypt, Kenya, Turkey and few African markets. Also, opportunities exists in South East Asian markets for air cooling, air pollution control, water orders. Thermax holds 80% market share in cooling segment in India. With expected uptick in domestic order inflows and recovery in international order inflows through geographic diversification, order backlog is expected to improve further.
Financial: Total revenue Rs 1889 cr in Q4FY19 vs Rs 1310 cr in Q4FY18 up 44%. PAT at Rs. 113 cr in Q4FY19 vs Rs 86 cr in Q4FY18 up 32%. Ebitda stands at Rs 176 cr in Q4FY19 up 17% vs Rs. 150 cr in Q4FY18.

Sagar Cements Ltd(NSE: SAGCEM) (Share Price: Rs.645): Potential Buy

Valuation: Over-Valued stock with TTM PE of 50x.

Reasons to Consider: Sagar Cements reported a mixed set of Q4FY19 numbers, beating analyst expectation on volume and thereby revenue forecast. However, operating margins were a negative surprise. Revenues for Q4FY19 witnessed 24.1% growth to Rs 358.8 crore led by 23.5% growth in volumes to 0.95 MT. Realisations were broadly in line growing 1.3% YoY to Rs 3875/t. EBITDA margin for the quarter was at 16.9%, expanding 373 bps YoY and EBITDA/t increased 30% YoY to Rs 650/t. EBITDA, however, came in at Rs 61.7 crore and company reported a net profit of Rs 18.7 crore. Over four years i.e. FY16-19, Sagar Cements registered volume growth of 21% CAGR led by strong demand in its major markets and capacity addition. This was led by AP, Telangana region witnessing 40% growth in the recent times which however, is expected to slow down given the high base. The capacity expansion in Madhya Pradesh and Odisha of 2.5 MT, which the company has undertaken would add to volumes only from FY22E as they are expected to be commissioned by March 2021.

Key Drivers: With the current pricing environment in the south improving, the management is also hinting at a shift in focus towards better realisations. Additionally, the company also expects savings 45 cr per year on account of Capitve power plant in Matampally and WHRMS. Along with better capacity utilisation and price hikes taken over February-May increasing price from Rs 245/bag in January to Rs 320/bag in May we expect EBITDA margins to gradually expand from 13.1% in FY19E to 15.2% by FY21E. With limited clinker based additions expected to come up in the southern region in relation to the strong traction of cement consumption backed by IHB segment, real estate and infrastructure spends, increasing presence in the east led by ramping up of the Vizag unit, we believe the company would be able to grow at a healthy pace. It has also Completed acquiring 65% stake in Satguru Cement and 100% stake in Jajpur cement.

Financial: Total revenue Rs 366 cr in Q4FY19 vs Rs 295 cr in Q4FY18 up 24%. PAT at Rs. 18 cr in Q4FY19 vs Rs 4 cr in Q4FY18 up 300%. Ebitda stands at Rs.62 cr in Q4FY19 up 59% vs Rs. 38 cr in Q4FY18.

Nestle India Ltd(NSE: NESTLEIND) (Share Price: Rs.11400): Potential Buy

Valuation: Over-Valued stock with TTM PE of 68x.

Reasons to Consider: Net sales for the quarter increased 8.9% YoY to Rs 3,003 crore led by robust domestic volume growth driven by aggressive new launches last year. Operating profit increased 5.9% to Rs 737.7 crore while margins declined 71 bps to 24.6% on a high base. Volume growth in CY18 was 11.1% YoY, led by strong growth in confectionery business at 15% YoY, beverages at 11% YoY and prepared dishes at 14% YoY. Milk products posted a 4.8% YoY volume growth. Given aggressive A&P done by the company behind new launches, we expect lower double-digit volume growth whereas Kit Kat, Milkmaid and Nescafe have been relaunched while more brands are likely to be remodeled, pushing volume growth upwards. It has new offerings in below Rs 10 price point which will help in gaining market share. NIL has announced plans to launch organic food products in the milk products & nutrition segment.

Key Drivers: The out-of-home (OOH) business registered volume and value growth in FY18, led by an increase in reach and distribution of KitKat, Maggi & Nescafe across key out-of-home channels, such as educational institutes, airlines, railways, offices, and food service channels like hotels and restaurants. Nescafe Classic, Maggi Coconut Milk Powder and Milk Maid performed well driven by new customer acquisitions and increased penetration through stronger customer engagement. NIL has launched 39 products in the past two years and it has launched 13 new products in FY18 which increased its ad spend up 44.4% YoY across all categories. NIL is targeting the youth segment, which has high disposable income, by leveraging the health and wellness platform as it complements their changing and upwardly lifestyle. It has plans to accelerate innovations centered on superior health, nutrition and wellness at appropriate price points which will drive the growth in the future.

Financial: Total revenue Rs 3002 cr in Q4FY19 vs Rs 2757 cr in Q4FY18 up 9%. PAT at Rs. 465 cr in Q4FY19 vs Rs 424 cr in Q4FY18 up 9%. Ebitda stands at Rs.738 cr in Q4FY19 up 6% vs Rs. 697 cr in Q4FY18.