Weekly BSE & NSE Gainers & Losers - 1st July to 5th July 2019

Investment Ideas Budget 2019 (1) Canara Bank Investment Rationale: Most of the PSU banks seem to be on the cusp of turnaround after years of rigorous overhaul of processes, systems and practices in place. Canara Bank looks promising among the pack. In FY19, the bank bounced back into black. There was strong improvement in asset quality, and gross NPA was down to 8.83% as at March’19 from 11.84% as at March’18. This happened while net NPA reduced from 7.48% (FY18) to 5.37% (FY19) and the company posted profits of Rs. 347 crore from loss of around Rs. (4,222) crore in FY18. Substantial containment of fresh slippages along with remarkable cash recovery of Rs. 10,355 crore in (FY19) from Rs. 6,458 crore in FY18 are noteworthy positive indicators. Enabling policy framework, speedier resolution of stressed assets, the government lending its weight in punishing wilful defaulters, and cohesive team work between administrative machineries and banks; have been key factors in turning around the situation and arresting further deterioration of asset quality. Business has picked up. Advances grew by around 12% while NII registered 19% growth. In a falling interest rate scenario, we expect NIMs to be stable. Operating efficiencies have improved remarkably from a margin of 13% (FY17) to 28% (FY19). Pick up in monsoons, the government’s infra push, and slow but steady improvement in the economy is likely to maintain business growth momentum. The board has passed the resolution for raising fresh equity of around Rs. 6,000 crore and unlocking value by disinvesting stake in Can Fin Homes, which at prevailing market price is worth around Rs. 1,400 crore, and will take care of capital needs for business growth. The bank has delivered advances CAGR of 15.57% in the last 15 years, which grew from around Rs. 48,871 crore in 2004 to Rs. 4,28,114 crore by March’19. In the same period, CASA grew at a CAGR of 13.48%, which stands at around Rs. 6 lakh crore as at March’19. Given the visibility, government’s determination and regulator’s approach, we believe Canara Bank is an attractive investment buy. VALUATIONThe bank looks attractively priced. In favourable times it has commanded valuation of 1.5x P/BV on TTM basis. In the last 10 years, the bank was plagued by bad loans which resulted in the stock trading consistently below 1x P/BV, with a mean at 0.93x. We expect the business to grow by a tad over 10% for next two years, while the asset quality improves. Assuming 10% traction in advances, stable margins, 50 bps sequential improvements in gross NPA & net NPA, and operating margin at 30%, we arrive at FY21E book value of Rs. 538 per share. Here, we have not taken into account potential impact of upgradation and/or recoveries of existing NPA or bad loans. Conservatively valuing the bank at 0.9x P/BV at FY21E per share, we arrive at a target price of Rs. 484, implying an upside return of around 67% from the current levels. We recommend to accumulate Canara Bank. Financial Summary Asset Quality The concerted efforts of the bank for improving the asset quality have yielded results, with gross NPA decreasing from 11.84% as at March’18 to 8.83% as at March’19. Net NPA reduced from 7.48% in March’18 to 5.37% in March’19. This marked improvement in asset quality was on the back of significant recoveries and upgradations. The cumulative cash recovery during FY19 was at Rs. 10,355 crore as against Rs. 6,458 crore last year. Upgradation for FY19 was at Rs. 3,074 crore compared to Rs. 943 crore in FY18. The provision coverage ratio (PCR) improved considerably during the period from 58.06% to 68.13%. Slippage has been contained substantially during the year at Rs. 15,480 crore as against Rs. 24,761 crore last year. STORY IN CHARTS Deposit and Deposit growthAdvances and Advances growthNII and NII growthOperating profit and marginPAT and PAT marginPrice to Book Band About the CompanyCanara Bank is one of the largest public sector banks owned by the Government of India. It is headquartered in Bengaluru. It was established at Mangalore in 1906, and is one of the oldest public sector banks in the country. The government nationalized the bank in 1969. As of 31 March 2019, the bank had a network of 6,310 branches and more than 8,851 ATMs spread across 4,467 centers.   (2) Bajaj Electricals Ltd. Investment Rationale It is a trusted name since ages in household kitchen appliances and electrical bulbs, fans and fixtures. Management has shifted focus to the B2C consumer appliances business for the mass segment from EPC projects. It has been a market leader consumer appliances space. Improving financials and prudent management has led to consistent lowering of debt, better operating margins and improved cash flows. Strong brand recall and the foray into LED lightning augurs well. Management’s focus to reduce EPC business and increase share of high-margin consumer product have been yielding dividends. ROE and other return ratios has seen a sharp improvement. We believe the consumption theme is here to stay and as the economy picks up, companies like Bajaj Electricals will be the immediate beneficiaries. Rising household incomes, better awareness about power-saving electrical fittings, kitchen appliances which cook healthy meals, and aspiration augurs well for purchase of new home appliances and/or replacement of old ones. Impetus to affordable housing, switch to LED bulbs, and government push for creating more civil facilities are key growth enablers. EPC order books are usually lumpy in nature, but the company has sufficient order book in place and the upcoming state election in UP should see more margin accretive orders coming to the company, which has a proven track record of execution. We believe the company is well positioned to reap the benefits of the upward swing in the economy. Valuation: The company looks poised to deliver revenue growth of 20% CAGR over the next couple of years. The company is available at a PER of 16xFY21E. Valuing the company at a PER of 25xFY21E per share, we arrive at a target price of Rs.821, implying an upside of 54% from current levels. We recommend to accumulate Bajaj Electricals. Financial Summary Consumer product segment The consumer product segment includes domestic and kitchen appliances, fans, and consumer lighting products. The consumer products segment continued to reap the benefits of the Range & Reach Expansion Programme (RREP), registering a good growth with improvement in margins. RREP has now been fully rolled out across India, which helps the company to reach out to end consumers through more than 2,05,000 retail outlets across the country. EPC Segment The portfolio under the EPC segment of Bajaj Electricals covers everything under the spectrum of power transmission, distribution and illumination. The areas of operation include EHV transmission line projects, EHV substations, monopoles for transmission and distribution, rural electrification projects, RAPDRP, feeder separation, lift irrigation projects, underground power cabling, HV substations, high mast and street lighting, sports lighting, power plant lighting, specialized illumination projects and electrification projects on total turnkey basis. Conference call highlights Q4 FY19 In the consumer durable segment, the revenue in appliances grew by 30%, fans by 26%, lighting by 10%, and Morphy by 1%. In FY20, the lightning segment is expected to grow by 10% to 15%, and the appliances and fan segments are expected to grow at 20% to 25%. Annual EPC revenue is Rs. 3,931 crore, of which the UP project revenue is around Rs. 1,600 crore. The margin from the UP project is low, which results in a low margin for the EPC segment. Company Financials STORY IN CHARTS Sales and sales growthEBITDA and EBITDA marginPAT and PAT marginOrder Book (Rs. 4,844 Cr.) Segmental Revenue BreakupConsumer Product SegmentConsumer Product Segment Revenue Breakup (Cr)EPC Segment Segmental EBIT BreakupConsumer Product SegmentEPC Segment Manufacturing Facility Bajaj Electricals Limited has a world-class manufacturing facility at Ranjangaon about 55 km from Pune, Maharashtra. This plant covers an area of 67,840 sq. m. and has the manufacturing capacity of 40,000 MT per year. With a well-engineered layout, the plant is equipped to manufacture transmission line towers, monopoles, high masts, octagonal poles, conical poles and other fabricated structures. The plant is certified to meet stringent quality standards: ISO 14001, ISO 9001 and OSHAS 18001. About the Company Bajaj Electricals’ business is spread across consumer products (appliances, fans, and lighting), exports, luminaries and EPC (illumination, transmission towers and power distribution). Bajaj Electricals has 19 branch offices spread across different parts of the country, besides being supported by a chain of distributors, authorized dealers, retail outlets, exclusive showrooms called ‘Bajaj World’, and approximately 462 customer care centers. The company also has a presence in the high-end range of appliances, with brands like Platini and Morphy Richards in India. (3) FIEM INDUSTRIES Investment Rational This auto ancillary company looks attractive given the steep correction in the stock price and robust business model it operates on. Fiem stands out in the space, being the leading manufacturer of automotive lamps, mirrors, and led bulbs among other useful plastic parts. It primarily caters to the two-wheeler segment, which usually is a lead indicator of demand-driven economic recovery. Good monsoon will strengthen the existing steady pick up in the rural & semi-urban economy, which will be a boon for the entry-level two wheeler segment. The company’s business is B2B, having healthy cash flows and steady margins. It has been able to hold on to operating margins at around 11% and sub-1 current ratio for the past 5 years. It has a healthy balance sheet with D/E ratio at 0.28, which has been consistently sub 0.5 in the past 5 years. The management’s focus on keeping the current ratio low and favourable is reflected in the prior year’s operation. The company’s D/E ratio has come down from 1.42x in 2005 to 0.28x at present. The company has delivered revenue CAGR of 15% and operating profit CAGR of around 11% in the past 5 years. Its return ratios currently stand at ROCE of ~17.5% and ROE of ~11.50%. Fiem’s business is insulated from any change in dynamics of the automotive business, be it transition to electric or solar-powered vehicles from petrol or diesel-powered vehicles. ValuationFiem is presently trading at a PER of 10.38x (TTM basis). At the upper end of valuation multiple, it has commanded PER of 30x (TTM). We believe turnaround for the two-wheeler automotive segment is round the corner. A good/normal monsoon coupled with the prevailing low interest regime is a tailor-made platform for the momentum to pick up. We expect the top line to continue growing by 15% for the next couple of years with stable margins. Conservatively valuing the company at a PER of 10x FY21E per share, we arrive at a target price of around Rs. 581, implying an upside of over 33%. We recommend to accumulate Fiem Industries. Financial Summary Product Offerings Fiem manufactures a wide range of automotive systems and parts i.e. automotive lighting systems and signalling equipment, automotive LED lighting systems, rear-view mirrors, sheet metal parts and plastic parts for two-, three- and four-wheelers. The company’s diversified product portfolio that includes automotive head lamps, LED head lamps, tail lamps, signalling lamps, LED tail lamps, LED signaling lamps, rear view mirrors, roof lamps, warning triangles, complete rear-fender assembly, frame assembly, mudguards and various sheet metal and plastic parts. It is capable of catering to the needs of almost all segments of automobile industry viz., two wheelers, three wheelers, four wheelers, LCVs, HTVs, tractors and electrical vehicles as well. In the LED luminaries segment, the company has developed more than 100 new-generation LED luminaries including LED bulbs, tube lights, down lighters, panel lights, street lights, bay lights, and flood lights, catering to all segments of customers like domestic, commercial, industrial institutional and government, for their indoor and outdoor lighting requirements. In integrated passenger information system (IPIS), the company is manufacturing and supplying a large number of products to Indian Railways, besides also supplying various LED display systems for buses to state road transport corporations, schools, etc. Manufacturing Facilities Clientele Company Financials STORY IN CHARTS About the Company Fiem Industries Limited (FIEM) is one of the leading manufacturers of automotive lighting, signalling equipment, rear view mirrors, sheet metal and plastic parts in India. It has strong presence in the automotive components industry, and has also diversified into LED luminaries for indoor and outdoor applications and integrated passenger information system (IPIS) with LED display. Company was founded by Mr. J. K. Jain, who is a first-generation entrepreneur. Its major business comes from the two-wheeler segment of the automobile industry. Few of the company’s productsClick Here to Read the Report Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. 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NIFTY DAILY CHARTIt was turmoil on the D – street during yesterday’s session following the weakness in global indices and some sentimental shift on the domestic front post the disappointment from Budget 2019. As a result, the index Nifty spot collapsed by more than 250 points to close near day’s low. On the other hand, NIFTY BANK index plunged around 900 points from its previous close. The market breadth remained extremely negative right from the beginning of the session. On the sectoral front, none of the group indices managed to close in positive terrain. From the list of losers, NIFTY PSU BANK (-5.90%) and NIFTY REALTY (-2.49%) stocks were the worst performers. From the F&O space, PNB (-11.46%), BANKINDIA (-10.50%) and BAJAJFINSV (-10.40%) remained under limelight.In our recent weekly edition; we discussed about the rising trend line. That support was broken right at the opening of yesterday’s session. Now the index, has entered the gap area which we have been taking about since quite some time. The gap will get filled near 11420 level but before that the index might find support between 11520 – 11470 levels which is the trend line support and placement of 100 DEMA. Thus going ahead, 11520 – 11420 zone could be a demand zone for the markets. A move below the same might change the optimistic scenario and we might enter ‘Sell on Rise’ mode. Thus the coming sessions could be highly decisive for the domestic markets. In case of any pullback, 11575 – 11650 levels are likely to act as strong resistance for the index. For the time being one should avoid bottom fishing trades and wait for confirmation to go long. The larger upside trend would now result only above 11800 which is way far from here on.   Disclaimer)