| Summary of Contents STOCK UPDATE Gabriel India
Recommendation: Buy
Price target: Rs64
Current market price: Rs52 Impressive results, outlook positive; maintain Buy with a revised price target of Rs64 Key points - For Q1FY2015 Gabriel India (Gabriel) reported a double-digit top line growth of 19% YoY on the back of a strong traction in the two-wheeler segment and a pick-up in the PV segment. The OPM expanded by 110BPS YoY, resulting in a 39% Y-o-Y growth in the operating income. Consequently, the adjusted net profit improved by 66% YoY to Rs15 crore and was above expectation.
- Gabriel is expected to keep up the pace of strong top line growth by virtue of its high revenue share with Honda Motorcycle and Scooter India (HMSI) and TVS Motor Company. The company plans to expand its footprint in Gujarat so as to service HMSI's upcoming facility in the state which would further boost its share. Signs are positive in the PV segment with a change in consumer sentiment since May 2015 (post-general election results). The CV segment too is showing signs of bottoming out and a recovery is expected in H2FY2015 with a pick-up in the economy. We also expect a margin expansion going forward on the back of higher operating leverage.
- Based on Q1FY2015's strong performance and a better outlook ahead, we have revised upward our earnings estimates for FY2015 (up 2%) and FY2016 (up 3%). Gabriel will continue to deliver a strong financial performance (on revenue and profitability fronts) with a continued traction in the two-wheeler business and an improving outlook for the CV and PV segments. In addition, the constant effort to de-leverage the balance sheet would boost the return ratios. Hence, we maintain our Buy rating on the stock with a revised price target of Rs64 (vs Rs56 earlier).
Relaxo Footwears
Recommendation: Buy
Price target: Rs430
Current market price: Rs386 Robust revenues; earnings hit by high raw material cost Key points - In Q1FY2015 Relaxo Footwears' top line grew at a strong 19.2% YoY, driven by volume growth and price uptick. Despite the strong revenue growth, a steep 23.5% Y-o-Y increase in the cost of raw materials led to a merely 9.2% growth in the operating profit while the margin contracted by 122BPS YoY. The lower operating profit coupled with a higher depreciation charge restricted the earnings growth to 7.2% YoY.
- With its economical price points (averaging at Rs112 per pair) the company is well placed to cash in on the consumer's transition towards branded shoes from those in the unorganised segment. We thus expect the company to post a 21.8% revenue CAGR over FY2014-16. Moreover, initiatives to improve efficiency, rationalise costs along with stable raw material prices are likely to culminate into a strong 33.8% compounded annual growth in the earnings over FY2014-16.
- The visibility of the company's earnings, prudent risk management practices of its management, its healthy balance sheet and its transition towards being a professionally managed company keep us positive on the stock. We maintain our Buy rating on the stock with a price target of Rs430.
Selan Exploration Technology
Recommendation: Buy
Price target: Rs700
Current market price: Rs567 Soft quarter but strong production ramp-up ahead; retain Buy Key points - For Q1FY2015 Selan Exploration Technology (Selan) reported a revenue growth of 11% YoY to Rs25.3 crore on the back of a volume growth of 3% and a realisation growth of 8% owing to the rupee's depreciation against the dollar over the last year. There was a significant rise in the overhead cost (administrative and other expenses) and provision for development of hydrocarbon assets; hence, the operating profit declined by 5% YoY. However, if we adjust the provision (to build future assets) for the development of hydrocarbon assets, the operating profit grew by 12% YoY. Below the operating level, the PAT declined by 7% YoY due to higher depreciation (up 63% YoY).
- In its recent AGM, the management reaffirmed the potential to significantly increase the production volumes through the ongoing exploration programme. It has already drilled 11 wells that once commercialised could potentially increase the production levels by 100,000 barrels per annum (over a 50% jump over the existing annual production levels). Selan has applied for the next phase of regulatory approvals to drill more wells and take forward the exploration programme.
- Notwithstanding the temporary delay in ramping up the oil production from its oil fields, we remain positive and believe that the management is committed to monetising the oil assets in the most efficient manner possible to create value for the shareholders. We retain our Buy recommendation of the stock with a price target of Rs700.
Corporation Bank
Recommendation: Hold
Price target: Rs388
Current market price: Rs334 Asset quality weakens, price target revised to Rs388 Key points - Corporation Bank reported subdued results for Q1FY2015 as the net profit declined by 39% YoY despite a provision write-back of Rs194 crore on investments. The operational performance remained weak as the net interest income decline by 2.1% YoY and the NIM was at a sub-par level (1.93% vs 1.91% in Q4FY2014).
- The asset quality deteriorated as fresh addition to NPAs increased QoQ to Rs1,315 crore (Rs1,158 crore in Q4FY2014) mainly contributed by loans to the corporate (Rs778 crore) and SME (Rs235 crore) segments. The bank also restructured Rs539 crore worth of loans in Q1FY2015.
- In view of increased asset quality concerns and continued shortfall in the operational performance, we revise the price target on the stock to Rs388 by downgrading the valuation multiple to 0.55x FY2016E book value (0.8x FY2016E adjusted book value). The capital position (tier-I CAR of 7.86%) is weak and we expect the return ratios to remain subdued over FY2014-16. We, therefore, maintain our Hold rating on the stock.
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
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