Investor's Eye: Update - UPL; Viewpoint - Force Motors

 

Investor's Eye [September 23, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE     UPL Recommendation: Buy Price target: Rs430 Current market price: Rs349   Price target revised upward Rs430   Key points  UPL has addressed some of the key balance sheet concerns like repaying debt of Rs850 crore in FY2014 and improving working capital efficiency (resulting in better cash inflows). The improvement in return ratios is another reason for a rise in its valuation multiples. The nearterm concerns over weak monsoon rainfall have also eased with the overall deficit at close to 11% of the longterm average and the sowing acreage has moved up to 95% of the last year's acreage. The weather condition in some of its other key markets like Latin America is stable and should keep the overall demand environment favourable. In this note, we are introducing FY2017 estimates and rolling over the price target on EPS of Rs35.8 for FY2017. Consequently, we maintain our Buy call on the stock with a revised price target of Rs430. UPL remains our most preferred pick among the large-cap players in the agro-chemical industry.     VIEWPOINT       Force Motors  Current market price: Rs1, 281   Huge gains of 90% within few weeks; advice profit booking     Key points Force Motors Ltd (FML), a leading manufacturer of passenger and commercial vehicles, has witnessed a sharp appreciation in its stock price over the past month on the back of expectations of improved financials, new product launches and plans for a new facility in Chennai for assembly of BMW engines. The stock has appreciated over 90% since our viewpoint report dated August 14, 2014, highlighting the aforementioned re-rating triggers & points. Though the growth outlook remains positive on the back of the incremental revenues from its Chennai plant for BMW, technical tie-ups and the proposed introduction of new LCV platform, but we believe that the stock has run ahead of its fundamentals. It trades at 18.1x FY2016 EPS estimates and EV/EBITDA of close to 8.9x (FY2016 estimated EBITDA), which is at a premium to quality companies like Maruti Suzuki and seems to be unjustified. Consequently, we advise investors to book profits. Risk to our call: A higher than expected ramp-up in the BMW business and better than expected margins (though we had assumed margins that are higher than the historical trend) could result in an upside to our estimates. Click here to read report: Investor's Eye      Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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