Investor's Eye
[December 31, 2013] | | |
| Summary of Contents
STOCK UPDATE CMC
Recommendation: Hold
Price target: Rs1,800
Current market price: Rs1,632 Price target revised upwards to Rs1,800, wait for better entry levels Key points -
During the last three months of 2013, some of key mid-cap information technology (IT) stocks had started seeing a major re-rating owing to the improved business visibility and better growth prospects for FY2015/16E, led by pertinent signs of improvement in key markets (US and Europe). Some of the mid-cap names like Persistent Systems, Infotech Enterprises, NIIT Technologies and Mindtree Ltd, among others are trading at significantly higher than their three years average one-year forward PER. Whereas, CMC Ltd (CMC), which trades at a premium to other mid-cap IT companies, is currently trading at 8.9% premium to its own three years average PER. -
We have introduced our FY2016 estimates; we expect the company's revenues and earnings to grow at the compound average growth rate (CAGR) of 17.6% and 18.5% respectively over FY2013-16. In the last one month, the stock has gained around 23% and outperformed the IT indices (8%). Given the strong growth visibility of CMC led by Tata Consultancy Services' (TCS) synergies and quality management bandwidth, the company has also got re-rated along with the other mid-cap names. We have been retaining our positive stance on CMC from last two years and continue to maintain our positive bias on the company's business model and future outlook. -
We now value CMC at 5% premium to its long-term average PER (13.4x) and roll over our PER to FY2016 and arrive at a 12-month price target of Rs1,800 (implied PER at 14x FY2016E). Given the sharp run-up in the stock in the last one month, we expect it to take a breather and we maintain our Hold rating on the stock, owing to the limited upside and would wait for a better entry level to revise our rating on the stock. Gateway Distriparks
Recommendation: Buy
Price target: Rs178
Current market price: Rs138 Early signs of revival; price target revised to Rs178 Key points -
Improving macro data-points has a positive reading for logistics companies: The fortunes of most of the listed logistics players are closely linked to the growth in export-import (exim) trade. The volume data from major Indian ports show that the exim trade volume has grown by 1.4% in April-November 2013, which is an improvement over the decline in exim volumes for the past two years (2% and 3% in FY2012 and FY2013 respectively). The recent surge in exports and the growing consensus that the gross domestic product (GDP) growth would pick up gradually after bottoming out in FY2014 (though by 40-60 basis points in FY2015) has brought back investor interest in logistics stocks. In this note, we look at the correlation between the change in the economic growth (GDP) and industrial activity (index of industrial production [IIP]) to impact on exim trade volumes. We see a high correlation (a correlation co-efficient of 0.7) between exim trade with the movement in IIP figures (changes in the industrial activity). -
Gateway Distriparks - scope for further re-rating on business outlook and unlocking of value in subsidiaries: Gateway Distriparks Ltd (GDL) has appreciated by close to 40% in the last three months. In addition to the improving macro data-points, the move to unlock the value in its subsidiaries (especially the cold chain business, Snowman, through a possible public offering) has gone down well with investors. GDL, a leading and well managed logistics company, would benefit from any possible uptick in its core business (driven by exim trades) and is our preferred pick in the logistics sector. The stock also offers a dividend yield of over 5% (a dividend of Rs7 in FY2013 and interim dividend of Rs4 in October 2013). Thus, we maintain our Buy recommendation on the stock with a price target of Rs178 (due to the rollover of valuations).
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Regards,
The Sharekhan Research Team | |
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