Hero Motocorp: Unevils the new Passion Pro -110 cc, Passion XPRO-110 cc and Super Splendor – 125 cc with more power and new color options. The motorcycles would be launched in a phase wise manner starting January 2018. With the launch of the new models, Hero is aiming to further augment its dominant market leadership in the 100-125 cc segment. Positive.
Gayatri Projects: Gayatri Projects has secured a Rs.1339.00 crore contract in joint Venture with M/s. Public Joint Stock Company ‘ Kyivmetrobud’ i.e Gayatri-KMB (JV), from National Highways Authority of India. It is also the company’s first project in the state of J&K, and it now takes Gayatri’s presence to 15 States of India. Positive for Gayatri Projects.
Consumer Discretionary: Maharashtra state has issued a notification allowing shops, including restaurants (that do not serve alcohol), cinema halls, salons, hyper malls and businesses such as banks, medical establishments and tax consultancies, to remain open 24×7 in the state. It does not include liquor shops and bars. At present, shops are allowed to be open till 10pm, while commercial establishments have to shut by 9.30pm and restaurants by 12.30am – prima facie this notification seems to be beneficial for retail establishments like D-Mart, Future Retail, Specialty Restaurants, Jubilant Foodworks, PVR and Inox Leisure as this will pull in the customers and boost revenue growth, but having said that, higher operating cost (with respect to higher wages, night shift compensations) along with lower operating leverage would dent margins in the near term.
ALERT – Aurobindo Pharma has issued a nationwide recall of Pantoprazole sodium for Injection 40 Mg Per Vial, due to presence of glass particles in vial – Negative for Aurobindo; taking into consideration this negative development (which could lead to regulatory issues in future) we shall review our recommendation and target price after interacting with management of the company, in the meantime we advise not to bottom fish in the stock.Pantoprazole Sodium for Injection 40 mg per vial, is used for short term treatment of gastroesophageal reflux disease associated with a history of erosive esophagitis and pathological hypersecretion including zollinger-ellison syndrome. AuroMedics had commenced shipping the product to customers on August 7, 2017 and was distributed to wholesalers and/or hospitals nationwide.HDFC, HDFC Bank: HDFC sells 6.3% in CAMS to Warburg Pincus arm for Rs210 crore. HDFC subsidiary HDFC Bank is also selling a part of its shareholding in CAMS to Warburg Pincus affiliate Great Terrain Investment at the same price. – Positive read thru
Pidilite: to consider share buyback on Dec. 26 – positive read through for the stock
GIC Re: Co gets ‘in principle’ approval for Lloyd’s syndicate – Positive read thru
General Insurance Corporation of India (GIC Re) has got ‘in principle’ approval to create a new syndicate from Lloyd’s Franchise Board. The syndicate will enable GIC Re to broaden and diversify the group’s international portfolio. GIC Re has partnered with Ironshore’s Pembroke Managing Agency (Pembroke) to establish and manage the syndicate.
Hero Motocorp: To launch refreshed variants of Splendor and Passion motorcycles; positive read thru
Eicher Motors: Royal Enfield to commence bookings of the Interceptor 650 and Continental GT 650 in April 2018 at a payment of Rs 5,000. The motorcycles are likely to be launched in mid-2018 and are expected to be priced close to Rs 3.25 lakhs (ex-showroom). Both the new motorcycles would compete with the Harley Davidson street 750 and Truimph Bonneville Street twin. Positive.
Telecom sector: Govt may allow 100% FDI in telecom via automatic route – positive read-thru
As per media news, the government is finalising a plan to allow 100% FDI for telecom services through the automatic route which allows firms to attract foreign funds without its approval. At present 100 per cent FDI is allowed, of which up to 49 percent investment in a company can be done through the automatic route.
Reliance Industries: Reliance Jio in talks to acquire Rcom’s assets; positive read through for Reliance Industries if the deal goes in its favor
Reliance Jio, subsidiary of Reliance Industries, has emerged the front-runner to acquire the assets of debt-ridden Reliance Communications (Rcom), which has put its spectrum, towers and fibre on the block with an estimates worth of Rs35000 crore as per media report – positive read through for Reliance Industries if the deal goes in its favor as it would help it to further strengthen its network coverage.
Amara Raja Batteries Limited: Viewpoint – Charged Up. (View: Positive; CMP: Rs 833)
• ARBL to continue outpacing the battery industry’s growth: Amara Raja Batteries Limited (ARBL) has outpaced the battery industry with 18% topline CAGR compared to industry growth of about 12% during FY2012-FY2017. Growth was mainly driven by outperformance of the automotive segment. ARBL secured order from OEM customers, given the OEM strategy to derisk supplies (OEMs do not depend on a single source) and include additional vendors. ARBL is increasing its share of business with OEMs and adding new OEM customers, which would enable the company to outgrow the industry [currently OEM market share of ARBL in four-wheelers (4W) is 38%, while two-wheelers (2W) OEM market share stands at 15%]. In addition, ARBL has been ramping up distribution in the automotive aftermarket segment, which would enable it to outpace industry growth. ARBL is increasing 2W battery capacity from 11 million units currently to 16 million units by the end of FY2018 and 4W battery capacity from 10.5 million units to 12.75 million units by the end of FY2018. We expect topline of ARBL to report a 15% CAGR over FY2018-FY2020 as against the battery industry’s growth of 10-12%.
• Market share gain from unorganised players in automotive aftermarket coupled with foray in the inverter segment to provide additional growth avenue: Post GST implementation, unorganised players are likely to lose market share as tax avoidance becomes difficult and they lose pricing advantage over organised players. Unorganised players currently form about 35% of the auto aftermarket demand (21-22% of the overall industry battery demand) and, thus, provide a huge opportunity for organised players such as ARBL. The company has launched products in the value segment to gain market share from unorganised players and we expect gradual market share gains. Further, ARBL has recently forayed in the inverter segment (market size of the inverter and home UPS segment stands at Rs. 4,000 crore), which opens up a huge growth opportunity.
• Margin improvement on cards; Expect double-digit earnings growth to resume from H2FY2018: ARBL has been reporting declining earnings for the past four quarters, led by dual impact of demonetisation and initial glitches post GST rollout. Sub-optimal capacity utilisation coupled with drop in the high-margin automotive aftermarket segment led to a margin decline. We expect capacity utilisation levels to improve with the automotive aftermarket business back on track coupled with healthy outlook for the automotive OEM business. ARBL has undertaken price hikes of 10-15% in the past six months, which should lead to margin improvement from H2FY2018. We expect ARBL earnings to resume the double-digit growth trend from H2FY2018 and expect 15% PAT CAGR over FY2018-FY2020.
• Initiate with a Positive view: ARBL is the second largest player in the duopolistic lead battery industry. ARBL is poised to outgrow the battery industry’s growth, led by outperformance of the automotive segment. Players such as ARBL stand to benefit post GST implementation and benefit to the organised industry. ARBL is among the few quality ancillary stocks to play the formalisation theme (formal economy to gain from GST). At the CMP, the stock is trading at 23.4x FY2019 and 20.3x FY2020 earnings, which is lower than the long-term historical multiple of 23x. We initiate coverage on the stock with a Positive view and expect 15-16% gains over the next six months.
AIA Engineering: View Point – Book profits, as valuations limit upside
• Stellar returns of 23% within six months; Book profits: AIA Engineering (AIA) delivered stellar returns of 23% since our initiation of view point on June 14, 2017, at a CMP of Rs. 1,345. The stock has also given 20% returns post the view point update on November 15, 2017, at a CMP of Rs. 1,377.
• Growth outlook improves after two tough years; Margins to stabilise at lower level: Our positive view on AIA was based on earnings CAGR of 20% over the past five years (FY2012-FY2017), largely driven by volume growth coupled with rupee depreciation. Further, AIA is expected to increase its capacity by one lakh tonne, which will take its total capacity to 4.4 lakh tonne by the end of FY2019. Management expects incremental volumes to come up from foraying into newer geographies, opening of new mines and long-term orders from an international gold mine player. However, management expects its foray into newer markets to impact realisation, while higher ferro chrome prices (major input cost) are likely to impact operating margin. Management has guided for 22-24% OPM to be sustainable in the long term. Factoring above, we expect AIA to deliver 23% earnings CAGR from FY2018E-FY2020E.
• Valuations at higher level leave limited scope for upside: AIA benefits from its leadership position in the industry, strong earnings growth visibility with RoCE/RoE 20-22%/14-16%, respectively, on consistent basis, and healthy cash flows. The company continues to trade at premium valuations in the engineering space. The recent run up in the stock price leaves limited scope for further upside. Therefore, we advise investors to book profits at the current level and re-enter the stock at a better price point. At the CMP, the stock is trading at 35x/29x its FY2019E/FY2020E earnings and 19x/16x its FY2019/FY2020E EBITDA.
Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
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