Monthly Stock Picks –February 2017

Company Recommendation CMP Target % Upside Time Horizon
Kotak Mahindra Bank Accumulate ( Rs 760-730) 760 910 19.74 9-12 Months
HCL Technologies Ltd Accumulate ( Rs 830-800) 830 1000 20.48 9-12 Months
United Spirits Ltd Accumulate ( Rs 2265-2220) 2265 2690 18.76 9-12 Months
Cummins India Ltd Buy 891 1000 12.23 6-9 Months
Akzo Nobel India Ltd Buy 1511 1750 15.82 9-12 Months
Unichem Laboratories Ltd Buy 275 345 25.45 6-9 Months
Transport Corp of India Ltd Buy 182 220 20.88 6-9 Months

Weightage of Investment (10 Lakh)

Company Amount (Rs) %
Kotak Mahindra Bank 160,000 16
HCL Technologies Ltd 180,000 18
United Spirits Ltd 120,000 12
Cummins India Ltd 130,000 13
Akzo Nobel India Ltd 120,000 12
Unichem Laboratories Ltd 110,000 11
Transport Corporation of India Ltd 130,000 13
Cash/Liquid Bees 50,000 5
Total 1,000,000

Kotak Mahindra Bank:

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
760 Private Bank KOTAKBANK 500247 141748.06 919.78 5 139.23 0.83

Kotak Mahindra Bank Limited’s segments include Treasury, BMU and Corporate centre, which includes dealing in debt, equity, money market, forex market, derivatives and investments and primary dealership of Government securities and Balance Sheet Management unit (BMU); Retail Banking, Corporate/Wholesale Banking, Vehicle Financing, and wholesale trade finance; Other Lending Activities, which includes financing against securities and other loans.

  • The bank is at the end of in integration process, while it’s moving into business as usual phase. Most of the issues emerged from merger process have been addressed.
  • The bank has exhibited healthy improvement in asset quality, while further improved its net interest margins (NIMs) in Q3FY2017. NIMs of the bank have improved to 4.49% in Q3FY2017 compared with 4.47% in the previous quarter and 4.34% in the corresponding quarter last year.
  • Post demonetization, the liabilities side of the bank has improved substantially. The bank has substantially improved its CASA ratio from 39% at end September 2016 to 42% at end December 2016.

On the asset quality, Kotak Bank’s GNPA ratio has marginally improved to 2.42% and NNPA ratio to 1.07% at end December 2016.  We are expecting bank will improve its asset quality from the current comparativelystable assets.Also The CASA deposits ratio zoomed to 42% at end December 2016 from 39% at end September 2016 and 35.3% a year ago. The cost of saving account deposits was stable at 5.52% at end December 2016.Keeping in mind the current growth, expected earnings FY17E is about Rs 22.69 per share,the PE works out to be 33.49 times. Hence one can accumulate Kotak bank between Rs 760-730for the target of Rs 910. Time frame should be 9-12 months.

HCL TechnologiesLtd:

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
830 Computer/soft. HCLTECH 532281 116522.62 282.24 2 163.59 0.61

HCL Technologies Ltd is a global technology company. The company is primarily engaged in providing a range of software services, business process outsourcing and infrastructure services. The company leverages an extensive offshore infrastructure and its global network of offices in various countries and professionals to deliver solutions across select verticals including Retail, Aerospace and defense, Automotive, Telecom, Financial Services, Government, Hi-tech, Media and Entertainment, Travel, Transportation and Logistics, Energy and utilities, Life Sciences and Healthcare.

  • HCL’s third quarter results not onlybeatsour expectationsbut were also the best so far among the top information technology (IT)players. HCL Technologies Q3 FY17 dollar revenue growth was much ahead ofwhat the markets had estimated, and it maintained its full-year guidance.
  • The big positive was that the company managed to maintain margins in the range of 19.5 per cent to 20.5 per cent. EBIT margin improved to 20.68 per cent from 20.4 per cent. The company reported an improvement in EBITDA margins despite wage hikes.

Net profit of HCL Technologies rose 7.13% to Rs 2062.04 crore in the quarter ended December 2016 as against Rs 1924.75 crore during the previous quarter ended December 2015. Sales rose 14.25% to Rs 11814.20 crore in the quarter ended December 2016 as against Rs 10340.55 crore during the previous quarter ended December 2015.We expect the company toreport earnings at Rs 48 FY17E, at CMP PE works out to be 17.29 times. Hence, one can accumulate HCL Tech between Rs830-800 for the target Rs 1000.  Time frame should be9-12 months.

United Spirits Ltd:

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
2265 Breweries& Distil. MCDOWELL-N 532432 32894.72 145.33 10 127.61 0.73

United Spirits Limited is engaged in the business of manufacture, purchase and sale of alcoholic beverages. The Company baically operates through two segments: India and Outside India. Thesesegmentsare engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines), including through Tie-up units/brand franchisees within India and outside India. Its product portfolio includes whisky, vodka and rum segments, and caters to various consumers through luxury, premium, prestige and popular spirits categories. Its brand portfolio includes McDowell’s No.1, Royal Challenge, Signature and Antiquity.

  • The net sales for December 2016 quarter have increased by 3% to Rs 2494.31 crore. Sales were down due to demonetization. This growth was underpinned by continued focus on premiumisation, increased investments behind power brands and selective participation in popular.
  • Company’sPrestige & Above segment net sales up 12%. Popular segment net sales declined 6% impacted by the Bihar prohibition. OPM has increased by 74 bps to 11.8%. The net profit has increased by 297% to Rs 147.70 crore due to fall in interest cost, absence of EO expense and fall in tax rate.

For 9M, the Prestige & Above segment represents 41% of total volumes and 58% of total net sales, up 4ppts and 5ppts respectively compared to last year. McDowell’s No 1. core whisky brand net sales grew 19% in Q3. Signature grew 50% in Q3.Considering all these factors and good growth prospectus ahead, we expect company to report earnings of Rs 79.13 FY17E, at CMP PE works out to be 28.62 times. Hence, stock can be accumulatedbetween Rs 2265-2220 for the target price of Rs 2690. Time horizon should be 9-12 months.

Cummins India Ltd

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
891 Engines CUMMINSIND 500480 24652.78 55.44 2 128.27 0.73

Cummins in India is in a business of design, manufacture, distribute and service engines and related technologies, including fuel systems, air handling, filtration, emission solutions and electrical power generation systems. Its technology and pioneering initiatives are bringing innovative solutions and dependable services at the best possible value to users across the country.

  • Net sales grew by 19% to Rs 1355 crore for Dec’16 quarter. OPM was higher by 150 bps to 16.7%, Export sales for the quarter was up by 23% to Rs 451 crore for Dec’16 quarter. Domestic sales stood at Rs 972 crore, up by 16% YoY for Dec’16 quarter was the highest ever domestic sales for the company.
  • Management overall expects domestic sales growth of around 10-12% for FY’17 and exports to remain flat on YoY basis as compared to an earlier expectation of flat to negative exports for FY’17..
  • The company is currently operating at around 65% of installed capacity and there is a huge scope for leverage as and when the exports return and private spending increases domestically.
  • The company’s capex cycle has hit its peak curve. With this the entire peak capex cycle is complete and company’s capex will be in the range of only around Rs 100-150 crore going forward from FY’18 onwards..

Within the industry segment, Compressor segment sales continue to grow strong due to road construction and water rig activities. Railways and mining sales were more or less flat. Marine sales grew on double digit but on a lower base of last year. The consistency in the performance is the major key for the marign improvements for the Cummins India.Hence,we expect company to report earnings of Rs30 FY17E. At CMP PE works out to be 29.7 times. Hence, stock can be bought at CMP for the target of Rs 1000. Time frame should be 6-9months.

Akzo Nobel IndiaLtd

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
1511 Paints AKZOINDIA 500710 7053.13 46.66 10 185.89 0.50

Akzo Nobel India Limited is engaged in manufacturing of paints, varnishes, enamels or lacquers, organic and inorganic chemical compounds. The Company operates through two segments: Coatings and Others. Coatings segment consists of decorative, automotive and industrial paints, and related activities. Others segment consists of chemicals and polymers. The Company manufactures and markets a range of coatings covering decorative paints; performance coatings; marine coatings; protective coatings; metal coatings; powder coatings; specialty coatings; vehicle refinishes, and specialty chemicals.

  • Company’s sales rose 2.17% to Rs 723.97 crore in the quarter ended December 2016 as against Rs 708.57 crore during the previous quarter ended December 2015. In September quarter the net profit of Akzo Nobel India rose 18.46% to Rs 41.59 crore in the quarter ended September 2016 as against Rs 35.11 crore during the previous quarter ended September 2015. Sales rose 7.52% to Rs 670.69 crore in the quarter ended September 2016 as against Rs 623.77 crore during the previous quarter ended September 2015.
  • Recently, Akzo Nobel India has inaugurated a first-of-its-kind specialty coatings production facility and colour laboratory in Noida, Uttar Pradesh, to service its customers in the consumer electronics, automobile and cosmetics industry.
  • With an investment of Euro 0.4 million or Rs 3 crore, the new site will manufacture 600 kilolitre of coatings annually, thus catering to the localisation drive undertake by many large companies.

Going forward, we expect company to report earnings of Rs 50 per shareFY17E. At the CMP PE works out to be30.18 times. Hencestock can be bought at current levels for the target of Rs 1750. Time frame should be 9-12 months.

Unichem LaboratoriesLtd

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
275 Pharmaceuticals UNICHEMLAB 506690 2529.55 18.18 2 118.16 0.77

Unichem Laboratories Limited manufactures active pharmaceutical ingredients (APIs or bulk actives). In addition, it has various pharma products for addressing therapeutic areas, such as gastroenterology, cardiology, diabetology, psychiatry, neurology, anti-bacterials, anti-infectives and pain management. It also provides a range of metabolic syndrome products for addressing diseases, such as hypertension, obesity, atherogenic dyslipidemia and prothrombosis.

  • Company’s consolidated Sales/Income from operations (Net) stood at Rs 1,33,456.38 lacs as compared to Rs 1,20,179.34 lacs in the previous year, reflecting an overall growth of ~11%. In FY16.
  • Unichem has cumulative filings of 36 ANDAs of which 20 have been approved. Unichem has Wholly Owned Subsidiaries in UK, USA, Brazil, South Africa and Ireland. Improvement in turnover is seen in the South African and Irish subsidiaries.
  • The Company continues to leverage its manufacturing strengths to become the partner of choice for supply of quality generic products to global generic Companies.

Company remains confident of continuing and building the growth momentum seen during the financial year 2015-2016. The expected growth in domestic formulations will be mainly led by resumption of growth in the Chronic segment. With the launch of new products and new variants of older molecules, the Acute segment is also expected to carry forward above market growth witnessed in past years. Hence,we expect company to report earnings of Rs 15 FY17E. At CMP PE works out to be 18.33 times. Hence, stock can be bought at CMP for the target of Rs 345. Time frame should be 6-9months.

Transport Corporation of India Ltd

CMP Sector NSE Symbol BSE Code MCAP (Cr) Equity (Cr) Face Value Book Value Beta-Sensex
182 Transport & Logistics TCI 532349 1404.81 15.32 2 71.31 0.76

Transport Corporation of India is India’s leadingend to end integrated supply chain and logistics solutions provider(LSP) and a pioneer in the sphere of cargo transportation in India.TCI Group has an extensive network of over 1400 company owned offices, a huge fleet of customized vehicles and managed warehouse space of 10.5 million sq. ft. and a strong work force of 5000+. The Company’s segments include Freight Division, Supply Chain Solutions Division, Seaways Division, Energy Division and Global Division.

  • Net profit of Transport Corporation of India declined 18.39% to Rs 16.91 crore in the quarter ended December 2016 as against Rs 20.72 crore during the previous quarter ended December 2015. Sales rose 14.93% to Rs 446.74 crore in the quarter ended December 2016 as against Rs 388.69 crore during the previous quarter ended December 2015.
  • The major tax reform, GST implementation will lead to need for larger warehousing and bulkier movements between hubs, lesser paper work and faster movement of trucks which would benefit the industry as a whole.

The transport and logisticssector are fundamental to the development of a country, Indian logistics market is expected togrow at a CAGR of 12.17% by 2020 driven by the growth in retail, FMCG and e-commerce sectors.Most waited GST in the logistics industry will diminish logistics costs up to 10-15 percent over a period of 3-4 years. With GST, there will be efficient cross-statetransportation and rationalization of paper work of road transporters. This will reduce operations costs as taxation will be done at a national level and not by each state.Hence,Weexpect company to report earnings of Rs 13 FY17E. At CMP PE works out to be 14 times. Hence, stock can be bought at CMP for the target of Rs 220. Time frame should be 6-9months


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