Ramkrishna Forgings (RFL) Target Price of Rs975.
Ramkrishna Forgings (RFL) is the second largest forging company in India after Bharat Forge (BFL) with an aggregate capacity of 150,000 MT. RFL has concluded its major expansion drive and is currently in the process of improving the utilisation of newly commissioned facility. Further, as India’s economy is set to witness healthy growth on the back of reforms and visible improvement in global economy, we expect demand for automotive parts to remain healthy and hence for forging works. Despite a sharp upsurge in stock price during last six months due to improving financials and healthy outlook, we believe that the stock still trades at attractive valuation considering a massive discount of ~50% in FY20E earnings against BFL. However, as healthy improvement in return ratios (RoE at 21% in FY20E) is comparable with that of BFL (23% RoE in FY20E), we expect the valuation gap to shrink in ensuing period. We maintain BUY recommendation on the stock with a Target Price of Rs975.
Apollo Tyres Target Price of Rs305
Apollo Tyres (ATL) currently enjoys ~28% market share in the TBR segment. As radialisation forms only 45% of domestic TB tyre market, we see a significant scope for radialisation in the domestic CV segment, which would benefit manufacturers like ATL, going forward. We expect ATL’s market share in radial tyre segment to improve on the back of capacity expansion to meet the rising demand. Further, ATL is expected to benefit immensely with the recent imposition of Anti Dumping Duty in Chinese TBR. Looking ahead, with the likely pick-up in utilisation from Hungary unit and possible improvement in price as no new capacity is coming up in the European region except for Korea-based Nexen, we expect ATL’s European operations to witness improvement. We have BUY rating on the stock with a Target Price of Rs305.
Kajaria Ceramics - Target Price of Rs851
Kajaria Ceramics (KCL) has a market share of ~10% in domestic ceramic tiles industry, including the unorganised players (unorganised segment accounts for 60% of domestic tiles volume). We believe that over the years, the Company has laid strong foundation for growth by focusing on creating a strong brand, new product introduction, increasing distribution footprint and higher share of JVs. In our view, Kajaria is well-placed to capitalise on the burgeoning opportunity in tiles industry in coming years. Kajaria Ceramics’ own facility at Gailpur went on stream in Sept’17 to manufacture high-value ceramic floor tiles with capacity of 3.5msm taking the total annual capacity of the unit to 30.1msm. Based on expected EPS of Rs22.4, the stock currently trades at a reasonable PE multiple of 32.3x FY19E earnings. We maintain our BUY recommendation on the stock with a Target Price of Rs851.
Asian Granito - Target Price of Rs701
Asian Granito Ltd. (AGL) is the third largest listed tile player in India with total manufacturing capacity of 32msm. Currently, the unorganised industry controls over half of the ceramic tile market in value terms and 60% in volumes. With rollout of GST, there would be a complete audit trail of transactions post introduction of E-Way bill w.e.f. Feb’18. This will make it extremely difficult for the unorganised players to evade tax, which in turn will benefit the large organised players like Kajaria, Somany and AGL. Recent reduction in GST to 18% from the initial rate of 28% should hasten the process of formalisation of the sector, in our view. Going forward, we expect AGL’s growth momentum to accelerate further owing to faster formalisation of industry post GST roll-out, increasing focus on premiumisation, higher A&P spend and enhanced distribution footprint. Considering visible improvement in growth trajectory coupled with attractive valuations of 15.3x FY20E earnings (45% discount to market leader Kajaria), we maintain our BUY rating on stock with a Target Price of Rs701.
Federal Bank - Target Price of Rs150
Federal Bank (FBL) has delivered consistent growth in operating profit and loan book over the last few quarters. The Bank showed greater resilience on asset quality front with its gross and net NPAs remaining within the Management’s comfort zone in 2QFY18. We believe that Federal Bank will continue to deliver further improvement in operational performance led by improving loan book growth along with changing portfolio-mix. The Bank continues to witness moderation in SMA-2 balance, which clearly suggests fresh slippage during 1HFY18 was more of a one-off event. Notably, the Bank is gradually coming out of the scenario marked with higher provisioning and continued stress on asset quality for last few quarters. Looking ahead, we expect the strong traction in earnings to continue owing to robust growth in loan book, moderate credit cost and healthy margins. We reiterate our BUY recommendation on the stock with a Target Price of Rs150.
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