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Brokerage Recommendations

Monday, February 03, 2014

Religare calls a ‘Buy’ on GAIL
CMP: Rs. 359    Target Rs. 475

GAIL posted an above-expected Q3 PAT of Rs 16.8bn (+83% QoQ) on higher LPG realisations/margins and a one-time gain of Rs 3.5bn. Highlights: (a) NG transmission/trading volumes improve QoQ to 96/80 mmscmd (Q2: 95/ 79). (b) Transmission tariffs/trading margins at Rs 1361/ tscm and US$ 0.32/mmbtu. (c) Petchem volume sales/realisations at 122TMT (+13% QoQ)/Rs 95.5 per kg. Maintain BUY on (a) a likely increase in NG transmission vol. and p/l tariffs and (b) likely lower subsidy in FY15/FY16E.

LPG realisations shore up operating profits: Operating profits improved to Rs 22.8bn (+56% QoQ) on better realisations (Rs 58/kg) in the LPG segment along with higher EBIT margins at Rs 7.6bn (39.4%) due to subsidy exemption. PAT-level performance was also driven by a one-time gain of Rs 3.5bn from divestment in China gas holding.

NG transmission volumes likely bottom out: NG transmission/trading volumes improved marginally in Q3 to 96/80mmscmd (Q2:95/79mmscmd) and are likely to have bottomed out. We expect an improvement over the coming months led by (a) a likely increase in RIL’s KG-D6 production, (b) commissioning of GSPC’s east-coast Deen Dayal field and (c) improved RLNG intake.

Maintain BUY with a revised TP of Rs 475 on (a) rolling over earnings to FY16, (b) a likelihood of tariff improvement for new p/l, upon revision, (c) an expected improvement in NG transmission/trading volumes and (d) improved profitability on exemption/reduction of the subsidy burden .

Karvy Stock Broking calls a ‘Buy’ on Indoco Remedies
CMP: Rs. 120    Target Rs. 143
Indoco’s revenues increased by 25% YoY to Rs1,884mn in Q3FY14, in line with our estimates of Rs1,770mn. Margins were higher due to favorable product-mix. Net Profit has shown growth of 91% YoY to Rs141mn in Q3FY14.

Revenue Details: The Company’s Domestic branded Formulations (DF) business grew 22% YoY to Rs1,149mn, while its Exports Formulations rose 32% YoY to Rs. 620mn(our estimates). Domestic and Export API grew by 40%YoY and 12% YoY respectively. Formulations exports in Regulated markets are up by 24% YoY to Rs523mn compared to Rs423mn in Q3FY13. Non regulated market grew by 116% YoY to Rs96mn compared to Rs44mn in Q3FY13.

Outlook & Valuation: We increase our revenue estimates for FY14E by 2% to Rs7.3bn and maintain our revenues for FY15E. We decrease our EDBITA margins for FY14E from 13.1% to 12.7% and from 19.2% to 18.4% for FY15E. This has been on account of higher R & D and staff expenses. We decrease our EPS estimates from Rs5.8 to Rs4.4 for FY14E and from Rs13.8 to Rs13 for FY15E. As a matter of prudence we continue to write off R & D from the P & L and remove amortization from depreciation. We rate the stock as BUY with a price target of Rs 143 based on 11x FY15E

Nomura calls a ‘Buy’ on Shriram Transport Finance
CMP: Rs. 626    Target Rs. 740
What happened in Q3: SHTF reported AUM growth of 15%y-y vs our estimate of 18.9% as it chose not to grow even its used CV book sequentially. The lender also reported a 20bps q-q compression in NIMs due to negative carry of excess liquidity during the quarter. In addition quarterly LLPs came in at 226bps, the highest in last nine quarters.

FY15F outlook: We expect NIMs of 6.65%, AUM growth of 14% y-y and LLP of 225bps for FY15F. Within CVs we expect used CV to grow at 20% y-y. We expect some support to growth from increasing rural penetration for the lender and strong fee income traction on its transaction base platforms like Automall.
Catalysts: Strong pick-up in loan growth, decline in LLPs

Valuation: TP cut on decrease in both multiple and earnings estimates SHTF currently trades at 1.5x FY15F ABV of INR409.5 and 8.8x FY15F EPS of INR70, for ROA of 2.9% and adjusted ROE of 18.3%. Our revised TP implies 2.3x FY15F ABV (vs. 2.3x earlier). Our valuation methodology remains unchanged.

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