Share Market Tips For March 2019

POWERGRID (NSE: POWERGRID) (Share Price : Rs.197.50): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Fairly-Valued stock with TTM PE of 12x.

Reasons to consider: Power Grid Corporation of India Limited is a transmission company engaged in the power transmission business with responsibility for planning, implementation, operation and maintenance of Inter-State Transmission System and operation of National and Regional Load Dispatch Centers. The Company's segments include Transmission, Telecom and Consultancy. Currently, company standalone capitalization stood at Rs 127b in 9MFY19 (Rs 68.6b in Q3), as against Rs 195b in 9MFY18. The company also capitalized Rs 39b of TBCB projects during the year. Telecom revenue/EBIT increased 13%/38% YoY to Rs 2.0b/Rs 1.1b in Q3FY19. Consultancy revenue increased 9% YoY to Rs 1.6b, but EBIT declined 15% YoY to Rs 0.7b in Q3FY19.

Key Drivers: Management highlighted that the government has envisaged transmission projects of Rs 433b. Of these, Rs 160b are to be bid out in the next one year. Considering with all these receivables have nearly doubled in nine months to Rs 70.6b as beneficiaries are delaying payments. Whereas, rising capitalisation of TBCB projects and higher share of the same in the upcoming projects will lead to a decline in the return profile of the company. At CMP, the stock trades at 1.5x FY20E P/BV for RoE of 16% and CoE of 10-11%. One can buy stock at current levels.

Financial: The company had reported a Revenue of Rs 8472 cr in Q3FY19 Vs Rs 7507 cr in Q3FY18 up 12.8%, Net profit of Rs 2331 cr in Q3FY19 vs Rs 2032 cr in Q3FY18 up 14.7%, whereas EBITDA stands at Rs 7988 cr in Q3FY19 vs Rs 6914 cr in Q3FY18 up 15% and EBITDA margin up 219bps to 94.3% in Q3FY19 vs 92.1% in Q3FY18.

HDFC BANK Ltd. (NSE: HDFC BANK) (Share Price : Rs.2280): Potential Buy

Valuation: Over-Valued stock with TTM P/BV of 5.85x.

Reasons to consider: HDFC Bank Limited is India's largest private sector bank. 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. HDFC Bank PAT growth has been consistent at 20% since FY16 vs. 30% in the past and grew to Rs 17457 crore in FY18. In Q3FY19, 54% was retail (Rs 420900 crore) & 46% corporate book of Rs 360051 crore. In Q3FY19, personal loans & credit cards continued their strong growth trajectory. It enjoys the largest market share in credit cards, which fetches higher margins and returns.

Key Drivers: The bank is well placed to harness both retail & expected corporate pick-up. The bank has a strong liability franchise with CASA of 48% and retail term deposit comprises more than 80% of deposit of Rs 788770 crore as on FY18. Compare to others banks, it has maintained stable asset quality where its GNPAs & NNPAs remain in range of 1-1.5% from past 20 quarters. Considering, the healthy balance sheet growth, superior asset quality & management, the bank is well poised to deliver consistently with superior margin & robust return ratios. However, the bank has always trades with premium valuation. One can buy the stock at correction.

Financial: Its annouces Q3 result where, Net interest income stood at Rs 12576 cr in Q3FY19 vs Rs 10314 cr in Q3FY18. Net advances grew by 24% YoY to Rs 780951 cr. CASA de-grown by 320bps to 40.7% YoY. Net profit up 20% to Rs 5585 cr Vs Rs 4642 cr YoY. NIM remain stable at 4.3% YoY.

PHOENIX MILLS (NSE: PHOENIXLTD) (Share Price: Rs.655): Avoid

Valuation: Fairly-Valued stock with TTM PE of 35x.

Reasons to avoid: The Phoenix Mills Limited is an India-based company engaged in the construction of buildings carried out on own-account basis or on a fee or contract basis. The Company is engaged in the development and operation of malls and other real estate properties. It operates mainly in two segments: Property & Related Services, and Hospitality Services. Sailing on its retail-led mixed-use development model, the company has an operational asset portfolio of eight operational retail assets aggregating 5.9 million square feet (msf) and four operational commercial assets aggregating 1.16 million square feet.

Key Drivers: Focusing on completing its existing/upcoming projects by FY22/23 and de-leveraging its balance sheet will be a key driver for growth. The company plans to almost double its retail portfolio and triple its commercial asset portfolio. Phoenix has two under construction assets at Pune, Chennai with GLA of 1.12 msf and plans to develop commercial asset at PMC Hebbal with GLA of 0.65 msf. Once it is operational these expansions would augment PML's commercial portfolio to around 3 msf in next three to four years. Phoenix Mills Ltd provides a unique way to play Indias real-estate & retail growth story. It will be the prefer bet in real-estate sector due to its strong operational performance,scalability (through the CPPIB deal),robust cash generation and no issue in corporate governance. We will be positive on stock considering the decent valuation one can add the stock on dips

Financial: Total revenue Rs 440.4 cr in Q3FY19 vs Rs 416.6 cr in Q3FY18 up 6%. Net Profit at Rs. 70.8 cr in Q3FY19 vs Rs 65.2 cr in Q3FY18 up 9%. Ebitda stands at Rs.222.5 cr in Q3FY19 up 8% vs Rs. 206.7 cr in Q3FY18. PML Diluted EPS has increased to Rs. 4.61 in Q3FY19 vs Rs. 4.25 in Q3FY18 and Ebitda margins were 51% in Q3FY19 vs 50% in Q3FY18 up 2%.

Cyient Ltd. (NSE: CYIENT) (Share Price: Rs.660) (Share Market tips): Potential Buy

Valuation: Under-Valued stock with TTM PE of 18x.

Reasons to consider: Cyient delivered weak performance in Q3FY19 on revenue front while margin expansion was a positive. Revenue was at USD 165.1mn was down 2.2% QoQ, (-1.5%) in CC(constant currency). Services (88% of rev, -0.2% QoQ CC) growth was below expectation while DLM (12% of rev, -10.3% QoQ) fall was less than expected. Aerospace & Defence (34.3% of rev, +0.5% QoQ) has been stable in a seasonally weak quarter. EBITDA Margin was up 103bps QoQ to 14.7%, led by margin expansion in Services (16.3%,+100bps QoQ) and DLM (4%, +30bps QoQ). Going forward, we expect revenue growth to be driven by ramp up in postponed deal in communication segment, acceleration in Aerospace & Defence (mainly led by higher spend from military and healthy spends in avionics & MRO) and improvement in semiconductor & utility space.

Drivers: The company will continue to make investments in Platforms & IPs which will aid future growth. We expect growth to come from Acceleration in Aerospace & Defence, Ramp-up in DLM and Recovery in Communication led by new order wins. Cyients Q3FY19 margins have improved 100 bps on the back of cost efficiency and rupee depreciation. Company is expected to witness healthy growth in the coming quarters mainly led by improved growth in communication and aerospace segment.

Financial: Revenue at Rs 1188 crore in Q3FY19 vs Rs. 983 crore in Q3FY18 up 20%. Net Profit at Rs. 92 crore in Q3FY19 vs Rs. 109 crore in Q3FY18 down 15.3% whereas, EBITDA stands at Rs. 175 crore in Q3FY19 vs Rs. 143 crore in Q3FY18 up 22% and EBITDA Margins at 14.78% in Q3FY19 up 18bps from 14.60% in Q3FY18.

Just Dial Ltd. (NSE: JUSTDIAL) (Share Price : Rs.612.50): Avoid

Valuation: Fairly-Valued stock with TTM PE of 22x.

Reasons to avoid: JD could be under-investing in A&P (Advertising and Promotion) in contrast to the aggressive cash-burns by most of domain-specific apps. Due to this it will effect on its product/service categories where it is used by their consumers and that affecting the extant paid-client base. We believe in coming quarter earnings revision cycle will likely to be weak as revenue growth will remains muted. Furthermore, major risk in long-term for JDs revenues/business model remains the growing generic search capabilities of Google + direct web-presence by medium/small enterprises with the falling costs of setting up websites. Thus, given the Q3 performance and the recent buy-back from the company are already priced-in the stock. One can avoid the stock and sell at higher levels.

Financial: On the financial front in Q3FY19 Net Sales was Rs 226.78 crore vs Rs. 196.79 crore in Q3FY18 up 15.24%. Net Profit at Rs. 57.34 crore in Q3FY19 vs Rs. 28.60 crore in Q3FY18 up 100.49%. Whereas, EBITDA stands at Rs. 89.29 crore in December 2018 up up 81.74% from Rs. Rs. 49.13 crore in December 2017.

Dish TV India Ltd. (NSE: DISHTV) (Share Price : Rs.40): Avoid

Valuation: Fairly-Valued stock with TTM PE of 22x.

Reasons to avoid: Company has posted good number in Q3 but it is un-comparable due to its merger with videocon d2h. The main threat to company is Jio, which had announced plans to enter the cable broadband and IPTV space, strengthened its distribution reach by acquiring a majority stake in two of the MSOs Hathway Cable and Network. The deal gave Jio access to 24 million households and 27000 LCOs. We believe this is a major breakthrough for last mile connectivity and that will effect on the ARPU's of the dish tv and shift in subscriber base. With, high promoter pledge (84% of promoters stake is pledged) is also a cause of concern as we have already seen recent carnage in the stock due to this.

Financial: On the financial front in Q3FY19 Net Sales was Rs 1517.45 crore vs Rs. 740.77 crore in Q3FY18 up 104.85%. Net Profit at Rs. 161.66 crore in Q3FY19 vs Rs 3.58 crore in Q3FY18 up 4615.64%. Whereas, EBITDA stands at Rs. 529.71 crore in December 2018 up 144.87% from Rs. 216.32 crore in December 2017. The numbers have been un-comparable due to merger with Videocon d2h.

Jubilant Foodworks Ltd. (NSE: JUBLFOOD) (Share Price : Rs.1332): Avoid (10 Steps To Pick The Best Stocks)

Valuation: Overvalued valued stock with TTM PE of 56x.

Reasons to avoid: Company has delivered strong Same Store Sales growth (SSSG) of 14.6% in Q3FY19 with dunkins becoming profitable in this quarter which has supported margins in the overall business. Domino's market share in Pizza is likely to be remain at 70%. But recent announcement of the management of Jubilant Group to charge 0.25% royalty on Jubilant brand from FY20 which have dampened its corporate governance issue. Nevertheless, it has reversed its decision of royalty payment after facing severe criticism from analyst community but still it will have negative impact on the stock in near term. Considering all the positive factor has discounted in the stock at these level with TTM PE 56x which is quite expensive and with recent launch of Hong's Kitchen (Chinese cuisine segment) it will also put pressure on margins in near term. So, one can avoid a stock at these levels.

Financial: On the financial front in Q3FY19 Net Sales was Rs 929.05 crore Vs Rs. 795.17 crore in Q3FY18 up 16.84%. Net Profit at Rs. 96.51 crore in Q3FY19 vs Rs. 66.02 crore in Q3FY18 up 46.17%. Whereas, EBITDA stands at Rs. 184.38 crore in December 2018 up 31.5% from Rs. 140.21 crore in December 2017.

Relaxo Footwears Ltd. (NSE: RELAXO) (Share Price: Rs. 755.75): Potential Buy

Valuation: Overvalued valued stock with TTM PE of 52x.

Reasons to consider: Relaxos Q3FY19 revenues jumped 20.6% YoY to Rs 551 crore. Due to strong volume growth we have seen 20% increased in revenue during the quarter. For the seventh consecutive quarter, Relaxo has reported double digit volume growth. The company continues to witness better growth compared to its peers. Management focusing on addition of new stores with increasing distribution reach and premiumization will benefit to gain a market share in coming quarter but also put pressure on the margins in near term.

Key Drivers: Management remains optimistic about the growth in domestic footwear industry and believe that the structural reforms like GST would help the organized sector to grow in the coming quarters. Due to implementation of GST, organized sector would continue to outperform and Relaxo being a market leader in the economy category will be the key driver for the stock. The contribution of mid category would grow for the company, going ahead (15% to 20%).

Financials: In Q3FY19 Net Sales was Rs 551 crore Vs Rs. 457 crore in Q3FY18 up 20.6%. Net Profit at Rs. 35.6 crore in Q3FY19 down 6.7% from Rs. 38.2 crore in Q3FY18, whereas EBITDA stands at Rs. 72.7 crore in Q3FY19 vs Rs. 71.9 crore in Q3FY18 up 1.1%.

JET AIRWAYS Ltd. (NSE: JETAIRWAYS) (Share Price: Rs. 232): Avoid

Valuation: Overvalued stock with negative earnings.

Reasons to avoid: The company is posting negative earnings continuously for the last four quarters. The company is having a high debt of Rs 9600 crores on balance sheet as of 9MFY19. On top of that, recently it has added debts of Rs.225 crore by pledging fixed deposits worth Rs.1500 crores with SBI. Though this Pledging can solve short term liquidity crunch of the company but weakens its leverage status. Currently, jet airways not paying salary to its employees to control cost. Which further led to the downgrading by ICRA in Jan-19.

Financials: On the financial front in Q3FY19 Net Sales was Rs 6148 crore Vs Rs. 6086 crore in Q3FY18 up 1%. Net Loss at Rs. 588 crores in Q3FY19 from profit of Rs. 165 crore in Q3FY18. The company posted negative operating margins of (4%) in Q3FY19 compared to positive operating margin of 9% in Q3FY18 whereas, In Q3FY19 interest cost also increased by 15% to Rs 257 crore.

Asian Granito India (NSE: ASIANTILES) (Share Price : Rs.176.65): Potential Buy

Valuation: Fairly-Valued stock with TTM PE of 16x.

Reasons to avoid: AGL is one of the top three market players in the Tiles & Ceramics business. The company has PAN India presence with 289 exclusive showrooms. Its continuing focus on the retail segment by launching a new product in its high margin segment marble & Quartz is expected to drive margins for the company. Improving demand and management guidance further adds earnings and margin visibility of the business. AGL has posted a robust revenue and profitability growth of 15% and 25% coupled with ROCE of 16% and ROE of 13% in the past 5 years. The stock is technically trading at the bottom levels.

Key Drivers: The well-diversified business among government and institutional clientele and the increased focus on the retail business remains one of the key drivers of the business. Moreover. Tiles and ceramic segments are expected to get a boost from the governments initiative to build 20 million affordable houses under PMAY

Financial: In Q3FY19 Net Sales was Rs 296.22 crore Vs Rs. 263.78 crore in Q3FY18 up 12.3% YoY. Net Profit at Rs. 4.63 crore in Q3FY19 down 60.4% YoY from Rs. 11.70 crore in Q3FY18, whereas EBITDA stands at Rs. 24.98 crore in Q3FY19 vs Rs. 36.96 crore in Q3FY18 down 32.41% YoY.

Ashok Leyland Ltd. (NSE: ASHOKLEY) (Share Price: Rs.87): Avoid

Valuation: Undervalued stock with TTM PE of 13.55x.

Reasons to avoid: Auto sector is experiencing drag down in volume amid low demand. Decline in a volume of M & HCV by 17% led to revenue impact by 15% YoY in the current quarter. Margins are also expected to decline over higher raw material cost and low volume base.

Financial: In Q3FY19, revenue down by 20.7% QoQ and 12.1% YoY. EBITDA margin compressed by 56 bps QoQ and 105 bps YoY. PAT down by 28.2% QoQ and 24.4% YoY.

JK Lakshmi Cement Ltd. (NSE: JKLAKSHMI) (Share Price: Rs.328): Avoid

Valuation: Overvalued with TTM PE of 55.04x.

Reasons to avoid: The company not able to withstand the higher cost of freight and power & fuel cost which results in EBITDA margin compression by 78 bps. Also, higher RM price due to clinker purchase from outside and rise in maintenance cost affected the margin. Meanwhile, short term blip is expected due to elections on ongoing infra projects which can affect demand in peak season.

Financial: In Q3FY19, net sales up 11.7% YoY. EBITDA margin stood at 10.5%. PAT stood at Rs 14.8 crores

CG Power and Industries (NSE: CGPOWER) (Share Price: Rs.37): Avoid

Valuation: Higher valued stock with negative earnings.

Reasons to avoid: The company is posting negative earnings quarter after quarter. The company delivered negative margins in the last few quarters. Promoter holding low and promoters have pledged the entire 100% of their holdings. This is a complete trading stock. Too much volatile.

Financials: The company has posted stable revenue growth in FY18. But growth on the expense side was much higher. The company posted operating margins of -5%. Interest cost is nearly tripled in the last couple of years from Rs. 80 crore to Rs. 220 crore. On the balance sheet side, reserves are going down while borrowings are increasing. Fixed assets are decreasing. Cash flows were negative for the year 2018.