GAIL INDIA LTD : GAS & BEYOND !!!

Scrip Code: 532155 / GAIL

CMP:  Rs. 345.80; Buy at current levels.

Medium to Long term Target: Rs. 398.50; STOP LOSS – Rs. 318.00; Market Cap: Rs. 43,863.95 Cr; 52 Week High/Low: Rs. 395.85 / Rs. 272.20

Total Shares: 126,84,77,400 shares; Promoters: 72,74,05,675 shares – 57.35 %; Total Public holding: 54,10,71,725 shares – 42.65 %; Book Value: Rs. 191.00; Face Value: Rs. 10.00; EPS: Rs. 28.59; Div: 96%; P/E: 12.09 times; Ind. P/E: 8.86; EV/EBITDA: 7.50

Total Debt: Rs. 8,364.52 Cr; Enterprise Value: Rs. 57,918.79 Cr.

GAIL INDIA LTD: The Company was incorporated on 16 August of 1984 and is based in New Delhi, India. The Gas Authority of India Ltd. (GAIL) is one of India's leading Public Sector Enterprises, initially established as a wholly owned Company of the Government of India with 100 % equity held by the Government of India and is the largest gas transmission and marketing company in the Country. It is now one of the 'Navratna' enterprises and is ranked among the top ten companies in India. The equity pattern in the Company has also changed and the Government today holds about 67 % of the equity in the Company. GAIL (India) Limited is a gas utility company in India. The Company’s products include natural gas, liquid hydrocarbons, liquid petroleum gas transmission, petrochemicals, city gas distribution and power. The Company serves the retail sector of natural as by supplying green and clean fuel (CNG) and PNG to domestic and commercial sector. The Company has a joint venture with Vododara Mahanagar Sewa Sadan (VMSS). The Company’s operating segments include Natural Gas Transmission, natural gas trading, petrochemicals, LPG and other liquid hydrocarbons and other segments. Its supplies of natural gas include fuel t power plants and feedstock for gas fertilizer plants. The company produces LPG through fractionation, known as Straight Run (SR). It manufactures and markets downstream HDPE & LLDPE from natural gas cracking at its Pata (Uttar Pradesh state, India) unit. In addition, it operates approximately 400 compressed natural gas retail outlets; and provides piped natural gas to domestic, commercial, and industrial applications, as well as has participating interests in 31 exploration blocks in Mahanadi, Mumbai, Cambay, Assam-Arakan, Tripura Fold Belt, Gujarat Kutch, Krishna Godavari, Cauvery, and Cauvery Palar basins. Further, the company leases bandwidth as a carriers' carrier through its optic-fiber network of approximately 13,000 kilometers; and generates electric power through a joint venture. It owns approximately 9,500 kilometers of natural gas pipelines; 2 LPG pipelines covering 2040 kilometers; 7 gas processing plants for production of LPG and other liquid hydrocarbons; and a gas based integrated petrochemical plant for producing polymer. The Company’s segments include Transmission services, Natural Gas Trading, Petrochemicals, LPG and other Liquid Hydrocarbons, City Gas Distribution and Un-allocable. The Company is marketing Gas Processing Unit’s (GPU’s) products namely Liquefied Petroleum Gases (LPG), Propane, Pentane, Naphtha and by-products of polymer plant namely MFO, Propylene & Hydrogenated C4 Mix. The Company’s subsidiaries include GAIL Gas Limited, Brahmaputra Cracker and Polymer Limited, GAIL Global (Singapore) Pte. and GAIL Global (USA) Inc. In September 2011, the Company incorporated a wholly owned subsidiary GAIL Global (USA) Inc. The company is locally compared with Petronet LNG, Indraprastha Gas ltd, Gujarat Gas Company, NTPC Ltd, GVK Power & Infra ltd, KSK Ebergy Ventures Ltd, Adani Power Ltd, Gujarat Industries Power Company Ltd and globally compared with Hokkaido Gas Co Ltd of Japan, China Gas Ltd of Hong Kong, Nippon Gas Co Ltd of Japan, Agl Resources Inc of New York, Wgl Holdings Inc of New York, Delta Natural Gas Co Inc of USA, New Jersey Resources Corp of USA.

Investment Rationale:

GAIL (India), a natural gas company is into exploration, production, processing, transmission, distribution and marketing of natural gas. It now has a turnover of more than Rs. 47,300 crore. The state-owned gas major has a market share of 78 % in natural gas transmission and 70 % in marketing with plans to double up the existing transportation capacity in the next two to three years. It has 27 oil and gas exploration blocks and 3 coal bed methane blocks. GAIL (India) Limited, is India's flagship Natural Gas company, integrating all aspects of the Natural Gas value chain (including Exploration & Production, Processing, Transmission, Distribution and Marketing) and its related services. In a rapidly changing scenario, the company spearheading the move to a new era of clean fuel industrialization, creating a quadrilateral of green energy corridors that connects major consumption centres in India with major gas fields, LNG terminals and other cross border gas sourcing points. GAIL is also expanding its business to become a player in the International Market. GAIL produces million tonnes of LPG. Its 1,922 km LPG transmission pipeline connects the western, northern, and southern part of India and has capacity to transport 3.8 million metric tonnes per annum (MMTPA) of LPG. It also produces propane, pentane and naphtha. It has a joint venture with Gujarat State Petroleum Corporation and Gujarat State Energy Generation where it has an installed capacity of 156 MW. GAIL also has a joint venture with NTPC, Indian financial institutions (IFIs) and MSEB Holding Company, Ratnagiri Gas and Power (RGPPL), which has power generation capacity of 2,150 MW. It has optic fibre network extending over 13,000 km across 200 cities. It leases this network for SCADA, ERP and ISP services to telecom operators including Hutch, Tata Communications, Airtel, Idea Cellular, Tata Teleservices, and Reliance Communications and others. GAIL has a total of 31 exploration blocks in basins such as Mahanadi, Mumbai, Cambay, Assam - Akaran, Tripura Fold Belt and Cauvery. In these blocks it has partnered with companies like ONGC, GSPC, OIL India, Hardy Exploration & Production, Petrogas, JOGPL, Daewoo, OVL, IOC, Korea Gas Corporation, Hallworthy, BPCL, HPCL and Silverwave. The Company also has 70 % equity share in Brahmaputra Cracker and Polymer Limited (BCPL) which is setting up a 2,80,000 TPA polymer plant in Assam. GAIL is a co-promoter with 17 % equity stake in ONGC Petro-additions Limited (OPaL) which is implementing a green field petrochemical complex of 1.1 MMTPA Ethylene capacities at Dahej in the State of Gujarat. GAIL has 31.52 % stake along with NTPC as equal partner in JV Company, RGPPL at Dabhol which operates largest gas based power generation facility in the country and is also setting up 5 MMTPA LNG terminals. GAIL has achieved an overall physical progress of 91 % and financial progress of 73 % till end-FY13. Company has an equity investment of Rs. 1,270 Cr and the project enjoys capital subsidy of 52 %.  

Outlook and Valuation:

GAIL (India) Ltd is India's flagship Natural Gas Company, engages in the exploration and production and also in processing, transmission, distribution, and marketing of natural gas. The Indian Oil and Gas (O&G) sector is one of the six core industries of India and contributes over 15 % to the Gross Domestic Product (GDP). The country is the sixth largest consumer of oil in the world and the ninth largest crude oil importer. The sector is of immense importance to the economy because of its significant forward integration with many other sectors. India is committed to boosting its growth in the years to come and this progress would translate into the country’s energy needs growing many times. The need of the hour, therefore, is to channelise all efforts on exploration of new blocks effectively as well as efficiently. The growing demand for crude oil and gas in the country coupled with policy initiatation is a key. Going forwards GAIL is currently doubling its petchem capacity from 450ktpa to 900ktpa at an estimated capex of Rs. 8,100 Cr. The capacity is expected to be mechanically complete by December 2013 and assuming six months of stabilization period, it is expected that its capacity can be commercially operational by 1QFY15E. GAIL is a gas-based petchem producer and its gas cost is fixed unlike fluctuating costs for naphtha-based producers. However, the Indian government’s decision to increase domestic gas price from April 2014 would adversely impact GAIL’s Petchem business profitability.  As company’s internal gas consumption comprises of both PMT and APM, and as a price hike is expected only in APM gas, it is seen that the gas could cost around USD6.7/mmbtu from FY15E as against $5 as of now and APM gas price to increase to $8.4/mmbtu. It is expected that GAIL’s earnings to remain subdued in the medium term as headwinds on incremental gas availability continue. GAIL’s 1QFY14 subsidy burden is seen at Rs. 700 Cr. In the wake of scheduled increase in domestic gas price from Aril 2014, if the Government were to remove GAIL from subsidy sharing, then based on assumptions the estimated net advantage for Gail comes at Rs. 6/share. Adjusted for investments, the stock trades at 9.41x FY15E EPS of Rs. 38.25. On SOTP-based fair value estimate is Rs. 398.50 per share. In my view GAIL could post EPS of Rs. 38.25 for FY14E & Rs. 44.67 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view, I would buy GAIL INDIA LTD with a Medium to Long term investment for an price target of Rs. 398.50 and off course with a strict stoploss of 8 % on every purchases.

SOTP VALUATIONS 

Business Subsidiary	Value Per Share (₹)
Gas Transmission	160.00
Gas Trading	67.00
Petrochemicals	113.00
LPG & Liquid HC	46.00
E&P Upside	21.00
Other Investments	46.00
Enterprise Value	453.00
Less: Net Debt	54.50
Equity value	398.50
TARGET PRICE	398.50

KEY FINANCIALS	FY13	FY14E	FY15E	FY16E
SALES (₹ Crs)	47,300.00	58,100.00	88,400.00	1,00,100.00
NET PROFIT (₹ Cr)	4,000.00	4,500.00	4,900.00	5,700.00
EPS (₹)	31.71	35.49	38.25	44.67
PE (x)	10.50	9.30	8.70	7.40
P/BV (x)	1.70	1.50	1.40	1.20
EV/EBITDA (x)	7.50	6.60	5.90	4.80
ROE (%)	17.50	18.90	16.90	17.60
ROCE (%)	13.90	14.10	13.30	14.80

I would buy GAIL INDIA LTD for Medium to Long term target of Rs. 398.50. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 318.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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SANGHVI MOVERS LTD : ENJOYS DEEPER MOAT !!!

Scrip Code: 530073 / SANGHVIMOV

CMP:  Rs. 40.55; Buy at current levels.

Short Term Target - Rs. 45; Medium to Long Term Target – Rs. 55; STOP LOSS – Rs. 48.00; Market Cap: Rs. 175.53 Cr; 52 Week High/Low: Rs. 102.25 / Rs. 35.50.

Total Shares: 4,32,88,000 shares; Promoters : 2,01,32,444 shares – 46.51 %; Total Public holding : 2,31,55,556 shares – 53.49 %; Book Value: Rs. 153.26; Face Value: Rs. 2.00; EPS: Rs. 0.62; Dividend: 50.00 % ; P/E: 65.40 times; Ind. P/E: 6.32; EV/EBITDA: 3.16

Total Debt: Rs. 353.48 Cr; Enterprise Value: Rs. 540.32 Cr.

SANGHVI MOVERS LTD: The Company was founded in 1989 and is based in Pune, India. Sanghvi Movers Limited operates as a crane rental services company. It’s a major player in Equipment rental & leasing sector in India and other parts of Asia. It provides heavy lift, plant erection and maintenance services for various large scale projects. The company also offers over dimensional, heavy, and bulk cargo transportation services. It operates a fleet of 400 medium to large size hydraulic truck mounted telescopic and lattice boom cranes and crawler cranes with lifting capacity ranging from 20 MT to 800 MT; and 132 hydraulic multi axle modular trailers. In addition, the company also engages in the generation of power from windmills. It primarily serves power, cement, steel, refinery, metros, windmill, and metal sectors. The Company operates in two business segments: Operations of Cranes and Power Generation. It earns regular revenue from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka. The Company's clients include ACC Ltd, BGR Energy Systems Ltd, Birla Corporation Ltd, Electrosteels Ltd, Furnace Fabrica (India) Ltd, Jindal Steel & Power Ltd, Leitner Shriram Mfg Ltd, Neelachal ISPAT Nigam Ltd, Suzlon, Aditya Birla Group, TOYO, BHEL, Reliance, Vedanta Group, Siemens, Tata Steel, Enron power, Samsung and Gujarat Ambuja. Sanghvi Movers ltd is globally compared with Nippon Pallet Pool Company Ltd of Japan, Han Kook Capital Company Ltd of South Korea and with Nippan Rental Company Ltd of Japan.

Investment Rationale:

Sanghvi Movers is the 3rd largest crane services company in Asia and ranked seventh largest in the world. The company has a robust fleet of over 400 cranes, majority of which are above the 100 tonne category. Sanghvi Movers has an overall market share of about 45% and more than 80% market share in the 100 tonnes and above category. The company undertakes the implementation of turnkey projects and caters to 75% of the traditional power sector and 65% of the windmill sector’s crane requirement. The company has Crawler and truck mounted cranes and also has Hydraulic Multi Axle Modular Trailer. The company claims to have 98 % guaranteed machine availability with a timely deployment. The company has its owned state of the art Sanghvi Training Academy which provides high skills crane training programmes and produces highly skilled crane operators. Sanghvi Movers has 12 depots across the country to ensure timely deployment of cranes. The Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry despite having the second largest network of roads at 3.83 million km, the fourth largest rail network of 63000 km, 128 airports, 12 major ports, 1 trans-shipment port and 187 non major ports. Indian Logistics sector grew by 8 to 10 percent annually over the last decade. There are several factors which have favorably impacted the growth of the logistics industry, like the country’s tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. Exim trade volume of India is growing consistently from last decade hence India is set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012. India’s level of containerization is less than 25 % as against global average of 60 % - 70 %. An average time taken to clear import and export cargo at ports is about 19 days in India as against 3-4 days in Singapore. The trend towards containerization picked up in India in the last decade. Container traffic has seen a growth of 12 % CAGR in India from 2.5 million TEU in 2000-01 to 7.5 million TEU in 2010-11.

Outlook and Valuation:

Sanghvi Movers has a near monopolistic position in the high tonnage crane rental market in India. Company is a great proxy play to the improvement in Indian Infrastructure industry. The company is led by a strong entrepreneur C. Sanghvi and his professional team, company has been able to maintain its competitive advantages. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) expanding moats which is a very strong sign of a future Multi-bagger stock. Logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods, logistics encompasses all of these. A typical logistics framework mainly consists of physical supply, internal operations and physical distribution of goods and services. To put it more simple manner, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price/cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel. As said before the Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry and trade volume of India is growing consistently from last decade & hence India is all set to increase its share in global trade from less than 1 % now to about 1.6 % in 2013, and Sanghvi Movers is well equipped for that, also as Prime minster of India has now emphasized more on infrastructure development – Sanghvi Movers is a silent play to that. It is expected that the Sanghvi Movers EBITDA margin to be down 4.37 % yoy (slightly up qoq) chiefly from lower yields due to keener competition and discounts. Yields continue under pressure and are expected to be lower in FY14 from 2.86 % in FY12 because of intensifying competition. This leading domestic crane-hiring company provides hydraulic and crawler cranes to industries in infrastructure. The slowdown, however, in its target market (wind and power) would weigh on its results. Competition from foreign and domestic crane rental service players and lackluster investment in the infrastructure sector will keep the capacity utilisation and blended yield under pressure and affect the profitability in FY14E. There could be a re-rating of the stock only after a reversal trend in the capex cycle. Keener competition from foreign operators at lower rates and the slowdown in fresh investment have led to less planned capex for the next two years. The company has been struggling with delays in executing wind and power projects and the slowdown in steel and cement capacity expansions. Its cranes are operating at lower utilisation and yields, and it is grappling with bad-debt issues. With no capex for the next two years, debt would slide 50 % from its current consolidated debt of around Rs. 590 Cr. At the CMP of Rs. 40.55 the stock quotes at 4.71 x FY14E and 1.231x FY15E earnings. One can ‘BUY’ SANGHVI MOVERS with a short term target price of Rs. 45.00 and for Medium to Long term investment it could be a good buy for the target price of Rs. 55. 

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	450.50	339.20	337.90	351.60
NET PROFIT (₹ Cr)	101.80	40.90	37.30	45.80
EPS (₹)	23.50	9.50	8.60	10.60
PE (x)	2.80	6.90	7.50	6.10
P/BV (x)	0.40	0.40	0.40	0.40
EV/EBITDA (x)	4.30	3.50	3.00	2.40
ROE (%)	16.20	6.20	5.40	6.20
ROCE (%)	15.40	9.30	9.20	9.50

I would buy SANGHVI MOVERS LTD for Medium to Long term for target of Rs. 55 and for the shorter term it woud be Rs. 45.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 37.30 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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HINDUSTAN UNILEVER LTD : BEST IN FMCG !!!

Scrip Code: 500696 / HINDUNILVR

CMP:  Rs. 571.60; Buy at every dips.

Medium to Long term Target: Rs. 633; STOP LOSS – Rs. 525.90; Market Cap: Rs. 1,23,612.44 Cr; 52 Week High/Low: Rs. 725.00 / Rs. 432.15

Total Shares: 216,25,69,017 shares; Promoters : 145,44,12,858 shares –67.25 %; Total Public holding : 70,81,56,159 shares – 32.74 %; Book Value: Rs. 12.37; Face Value: Rs. 1.00; EPS: Rs. 16.61; Div: 1850.00 % ; P/E: 34.43 times; Ind. P/E: 38.24; EV/EBITDA: 25.69.

Total Debt: ZERO Cr; Enterprise Value: Rs. 1,23,287.81 Cr.

HINDUSTAN UNILEVER LTD: The Company was founded in 1931 and is based in Mumbai, India. The company was formerly known as Hindustan Lever Limited and changed its name to Hindustan Unilever Limited in 2007.  Unilever Ltd on November 17, 1956, offered 5,57,000 shares of Rs. 10 each to the public at par. In February 1980, in order to reduce the Non- Resident holding in the company to 51 %, Unilever Ltd offered for sale of 42,39,523 equity shares of Rs. 10 each at a premium of Rs. 9.50 per share, this was out of its shareholding in the company. Hindustan Unilever Limited, is a Fast Moving Consumer Goods (FMCG) company – it provides home and personal care products; foods and beverages in India and internationally. The company operates in 7 business segments. The company offers soaps and detergents, including soaps, detergent bars, detergent powders, detergent liquids, and scourers; and personal products - such as oral care, skin care, hair care, deodorant, talcum powder, and color cosmetic products, as well as Ayush services. It also provides beverages - including tea and coffee; foods, such as atta (flour), salt, and bread; culinary products comprising tomato and fruit based products, and soups; and ice creams, such as ice creams and frozen desserts. In addition, the company offers chemicals, such as glycerin and fine chemicals; agri commodities; and water purifiers, as well as exports marine and leather products. HUL has over 35 brands spanning 20 distinct categories. Its portfolio of brands includes the brand names like - 3 Roses, Annapurna, Brooke Bond, Taaza, Bru, Kissan, Knorr, Kwality Wall’s, Lipton, Modern, Red Label, and Taj Mahal brand names; personal products under the Aviance, Axe, Breeze, Clear, Clinic Plus, Closeup, Dove, Fair & Lovely, Hamam, LEVER Ayush Therapy, Lakme, Lifebuoy, Liril 2000, Lux, Pears, Pepsodent, Pond's, Rexona Soap, Sunsilk, and Vaseline brand names; and home care products under the Active Wheel, Cif, Comfort, Domex, Rin, Sunlight, Surf Excel, and Vim brand names and water purifiers under the brand name Pureit. As on 31^st March 2013, Company had over 35 brands spanning 20 distinct categories. From April 01, 2013, Aquagel Chemicals Pvt Ltd become a subsidiary of Hindustan Unilever Ltd. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share.  The company is locally compared with ITC, Godrej Consumer, Dabur India, Colgate, Marico, Emami, Godrej Ind, P&G, Gillette India, Bajaj Corp, Jyothy Labs, Amar Remedies, JHS Svendgaard, GKB Ophthalmics and Globally compared with Associated British Foods Plc of London, Colgate-Palmolive Co of New York, Kimberly-Clark Corp of USA, Procter & Gamble Co of USA, Nestle S.A of Europe, Pepsico Inc of USA, Coca- Cola Co of USA, Mondelez International Inc of USA (earlier known as Kraft Foods Inc which acquired Cadbury’s), Heineken Nv of Amsterdam, Starbucks Corp of USA, McDonald’s Corp of USA, Yum! Brands Inc of USA, Danone of Paris, Asahi Group Hld Ltd of Japan, and Kerry Group of Dublin.

Investment Rationale:

HINDUSTAN UNILEVER LTD is a play on consumption growth in India. The company has displayed its ability to effect price hikes and avoid impact of inflation in vegetable oils, which, combined with improved outlook for fabric wash and strong growth in processed foods and beverages, boosts the positive outlook on the stock. The recent moves by the company to dispose of its non-core assets including few properties give it a near term upside. The FMCG market in India is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen. In the last decade the FMCG sector has grown at an average of 11 % a year; in the last five years, annual growth accelerated to 17 %. The FMCG Industry is characterized by a well-established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. The rural India accounts for 70 % of India’s population, 56 % of National Income, 64 % of total expenditure and one third of the total savings. The Indian FMCG sector is the fourth largest sector in the Indian economy. Indian rural markets contribute around 45 % in HUL sales. In-order to tap the rural markets, HUL has conceived a project named Project Shakti. This project was started in 2001 with the aim of increasing the company's rural distribution reach as well as providing rural women with income-generating opportunities. This is a case where the social goals are helping achieve business goals. The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of Hindustan Unilever Ltd identifying the uncovered village areas. The representative of the company meets the panchayat and the village head and identify the woman who they believe will be suitable as a SA. After training she is asked to put up Rs. 20,000 as investment which is used to buy products for selling. The products are then sold door-to-door or through petty shops at home. On an average a Shakti Amma makes a 10 % margin on the products she sells. The main advantage of the Shakti program for HUL is having more feet on the ground. Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready consumers in the form of SAs who become users of the products besides selling them. This gives thrust to the company’s volumes. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share amounting to Rs. 19,174 Crs. The total shares tendered by HUL shareholders were 31,99,91,578 shares out of which 31,95,63,398 shares were accepted by Unilever Plc. The tender offer was announced on April 30, 2013 and began on June 21, 2013 and ended on July 4, 2013. Unilever wanted to raise its stake to 75 % from 52.48 %, but managed to hike its stake to 67.26 %. The stake rise by the parent company shows confidence in the India consumption growth story and parent believes that India is one of the biggest markets for Unilever and it would be beneficial to acquire a larger share in its Indian Arm. HUL also launched few products in the beauty portfolio with offerings like Lakme Youth Infinity range, Lakme Cleanup Clear Pores range, Ponds Pimple Clear facewash and Dove facewash with Nutrium Moisture. HUL continues to focus on innovations as it believes that it is these innovations that will bring strong growth when the market scenario improves.

Outlook and Valuation:

Business environment for HUL continues to be challenging with slowing growth being witnessed on both the value and volume fronts. The overall competitive intensity has stepped up in various categories while the up-trending has come to an pause. The discretionary category which was outpacing the other category over a longer term has come to a pause, but the company believes it to be a short-term phenomenon. HUL, in its board meet in January 2013, approved a royalty of 3.15 per cent of turnover effective from February 2013. Till January 2013, the company paid 1.4 per cent of the total turnover as royalty to its parent company, Unilever. The company will increase the royalty from 1.4 per cent to 3.15 per cent in a phased manner till March 2018. On performance side, HUL’s 2QFY14 revenues grew by 9.2 % YoY to Rs. 6,890 Cr owing to higher than expected volume growth of 5 %. HUL saw a recovery in Personal Product (PP) growth to 12 % YoY against 2 % of 1QFY14 which is the key positive. Higher sales in PP were at the cost of lower margins which were down by 1.41 % YoY. Waning price led growth and higher competitive intensity in Sales & Distribution has not only impacted sales growth of the segment but also its margins. HUL’s EBITDA margin remained flat at 15.7 % as EBITDA grew 11.1 % to Rs. 1,080 Cr. Lower than expected tax rate led to Adjusted PAT growth of 9.6 %. HUL has a robust product pipe, and has a strong and lucrative personal products portfolio, and expanding distribution network. But with waning price growth in Sales & Distribution, difficult demand environment in packaged foods and personal products and with increased competitive intensity; it is expected that company’s revenue growth will curtail. However, HUL is also a good play because it has a revenue growth from a medium to long term perspective, however due to increase in royalty, steep hike in tax rate and slowdown in discretionary segments remains an overhang on this stock. Depreciation in rupee impacts price of imported raw materials. A rise in crude oil prices can impact packaging costs and indirectly / directly impact palm oil and LAB prices. Increase in palm oil prices may lead to gross margin contraction. The price war in HUL’s popular segments with new entrants entering the fray could hit the company hard. HUL pay’s rich dividends and one can hold this stock from a three five year perspective and focus on new product launches and market share gains in existing categories. At the current market price of Rs. 571.60, the stock P/E ratio is at 34.43 x FY14E and 30.73 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 16.60 and Rs. 18.60 respectively. Hindustan Unilever Ltd could be a good buy for the target price of Rs. 633 for Medium to Long term investment. 

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	22,987.70	26,317.20	28,726.20	32,417.20
NET PROFIT (₹ Cr)	2,686.50	3,385.10	35,90.30	4,034.80
EPS (₹)	12.40	15.60	16.60	18.60
PE (x)	47.60	37.80	35.60	31.70
P/BV (x)	36.50	47.20	33.20	25.20
EV/EBITDA (x)	35.30	29.40	26.40	23.00
ROE (%)	83.40	103.10	104.50	87.60
ROCE (%)	257.80	489.10	431.00	227.40

I would buy HINDUSTAN UNILEVER LTD for Medium to Long term for target of Rs. 633. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 525.90 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold HINDUSTAN UNILEVER LTD in my investment portfolio.

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HERO MOTOCORP LTD: HERO OF TWO WHEELER MARKET !!!

Scrip Code: 500182 / HEROMOTOCO

CMP:  Rs. 2035.95; Accumulate at every dips.

Medium to Long term Target: Rs. 2140; STOP LOSS – Rs. 1873.25; Market Cap: Rs. 40,655.37 Cr; 52 Week High/Low: Rs. 2150.00 / Rs. 1435.00

Total Shares: 19,96,87,500 shares; Promoters : 7,97,12,482 shares –39.92 %; Total Public holding : 11,99,75,018 shares – 60.08 %; Book Value: Rs. 250.70; Face Value: Rs. 2.00; EPS: Rs. 104.77; Div: 3000 % ; P/E: 19.55 times; Ind. P/E: 19.24; EV/EBITDA: 10.96.

Total Debt: ZERO Cr; Enterprise Value: Rs. 40,520.42 Cr.

HERO MOTOCORP LIMITED:  HERO MOTOCORP Ltd was incorporated in 1984 and is based in New Delhi, India. The company changed its name to Hero MotoCorp after splitting from Hero Honda Motors Ltd in July 2011. Hero MotoCorp engages in the manufacturing and sales of motorcycles in India. It provides a range of two wheeler products, including motorcycles and scooters and spare parts. The company markets its product under various brands, including CD Dawn, CD Deluxe, Splendor Plus, Splendor NXC, Passion and Passion Pro, Passion Plus, Glamour, Super Splendor Pro, Achiever, Glamour FI, Hunk, CBZ X-treme, Karizma, Pleasure and Karizma ZMR. The company offers its product Achiever in 135 cubic centimeter segment. In the 150 cubic centimeters and above the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers 100 cubic centimeter scooter Pleasure. It offers its products through a network of dealers, service and spare parts outlets and dealer-appointed outlets. The company’s bikes are manufactured across three manufacturing facilities. Two of these are based in Gurgoan and Dharuhera which are located in the state of Haryana in northern India. The third manufacturing plant is based at Haridwar, in the hill state of Uttrakhand. The company was a joint venture between India’s Hero Group and Japan’s Honda Motors Co whereby the promoter the Munjal’s bought the stake of Honda in July 2011. The company is compared to Bajaj Auto Ltd, TVS Motor Company Ltd, Atlas Cycles (Haryana), Shivam Auto Ltd, and Ashok Leyland Ltd locally and is globally compared with Harley-Davidson Inc of USA, Suzuki Motor Corp of Tokyo, Yamaha Motor Co ltd of Tokyo, Isuzu Motors Ltd of Japan, Aftab Automobiles Ltd of Middel East, Fuji Heavy Industries Ltd of Japan, Daihatsu Motor Co Ltd of Japan, Kawasaki Heavy Industries Ltd of Japan, Shimano Inc of Japan globally.

Investment Rationale:

Hero MotoCorp Ltd, India’s largest two-wheeler manufacturer, is charting out new growth strategy post Honda’s exit from the joint venture in January 2011. Post separation, Honda’s aggressive expansion plan has been exerting pressure on the market share of all two-wheeler players. However, Hero Motocorp is expected to maintain its leadership due to its largest distribution network with a deep presence in rural markets, and with a strong brand recall and also due to investment in building its own R&D and tie-ups with overseas technology partners. The company is targeting 1o lakhs two wheelers to be annually exported by FY17E. Over the years, Hero MotoCorp has built its distribution network of 750 dealers and 4,350 service centres. The network, has now grown more than 3 times in the past seven years, and now is fairly spread across rural and semi-urban areas. The rural sector constitutes around 46 % of Hero MotoCorp’s total sales volumes in FY13. Despite low industry volume off-take and stiff competition in the Indian two-wheeler market, Hero MotoCorp remains the market leader with 37.1 % share of industry sales volumes in H1FY14 followed by Bajaj Auto and Honda who are the closest competitors reporting 21.3 % and 20.8 % share, respectively, during the same period. HeroMotoCorp dominates the two-wheeler market with 51.4 % market share of the domestic motorcycles segment, led by its number one position in the executive sub-segment. Although intense competition is likely to impact Hero MotoCorp’s market share but still, it is expected that the company will hold leadership position around 52 % in market share in the domestic motorcycles market which can be possible for Hero MotoCorp as it has the largest distribution reach with 5,100 touch points, it has a strong brand recall especially in rural areas. The company has announced plans to invest Rs. 2,575 Cr in the coming years for setting up of new capacities which will increase its capacities by 20 lakhs units to 90 lakhs units, a part distribution centre at Rajasthan and has also recently set up its own R&D team and has tied up with three overseas technology companies viz Engines Engineering, AVL Austria and Erik Buell Racing, and management has also indicated to launch seven to eight new variants every year. Hero MotoCorp launched 15 models/variant in H2FY14 including a refresh version of its high-end bike Karizma. Karizma is the company’s first commercial production developed in collaboration with its technological partner EBR. The company has taken a price increase of Rs. 500 to Rs. 1500 on all models from 1 October 2013. The company is also developing a low-cost motorcycle for the Indian market; the motorcycle will be priced lower than the existing entry-level model HF Dawn which is priced at ₹37,000. It has indicated that once this model is successful in the Indian market, it would be considered for exports.

Outlook and Valuation:

Hero MotoCorp’s efforts for brand building post the Honda split and its investment phase and intensifying competition in two-wheelers will exert pressure on its profitability in the short term. In the global market, Honda has largely maintained more than 50 % market share and it is aggressively trying to replicate its success in India. Honda’s brand image along with technology edge may increase competitive pressure. It is expected that the overall motorcycle sales in India which is 80 % of two-wheeler industry sales to grow at 7 % - 9 % CAGR during FY13-18, led by rural demand. Hero MotoCorp’s domestic motorcycle sales volumes which are dominated by rural sales are expected to grow at 6 % CAGR during FY13-FY15. The company’s strong distribution network in rural markets and brand image are expected to drive growth. Also, it plans to expand in the export markets and its exports are expected to grow at a CAGR of 20 % during FY13-15. However, contribution of export to sales would still be low at 3 % in FY15. Hero MotoCorp is working on variant or models to meet specific requirement of export markets. Hero Motocorp expects to roll out its first own-technology based two-wheeler by FY14. Ability to successfully launch variant or new models will be a key to monitor. Post the split from Honda, Hero MotoCorp is building its own R&D facility in Rajasthan at an investment of Rs. 400 Cr and is expected to be operational by FY14 end. The company’s annual report mentions that the R&D centre will be spread across 250 acres, making it the largest two-wheeler R&D unit in India. It is expected that in FY15, with the royalty outflow to Honda going out from Q2 FY15 its volume growth expectations will become higher and its margins will continue to outperform. Its earnings will not be hampered with the impact of higher tax rate of around 27 % arising out from Haridwar benefit getting stopped and surcharge of 10 %. Factoring these pros and cons, HERO MOTOCORP looks as a good buy for the medium to long term with the target price to Rs. 2,240. At current price of Rs. 2035.95, the stock is trading at P/E of 19.06 x on FY14E & 14.61 x on FY15E. In my view Hero Motocorp could post EPS of Rs. 106.80 for FY14E & Rs. 139.30 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 2240.00 for Medium to Long term investment. And for short term it would be Rs. 2137.00

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	23,878.90	23,978.80	26,087.20	29,178.00
NET PROFIT (₹ Cr)	2,378.80	2,118.70	2,132.90	2,782.70
EPS (₹)	119.10	106.10	106.80	139.30
PE (x)	17.50	19.70	19.50	15.00
P/BV (x)	9.70	8.30	7.10	5.80
EV/EBITDA (x)	10.50	11.70	10.60	9.10
ROE (%)	65.70	45.60	39.20	42.70
ROCE (%)	69.50	46.10	47.30	53.00

I would buy HERO MOTOCORP LTD for Short term it would be Rs. 2137.00 and for the Medium to Long term it would be Rs. 2240. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 1873.25 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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TWITTER IPO : SOME INTERESTING DETAILS !!!

Twitter : Twitter lists today. Issue price $ 26. 

At the current price of $46.00 and 705 million fully diluted shares, Twitter has a market cap of $32.4 billion. 

474,696,816 current shares 

42,708,824 options 

85,657,603 RSUs outstanding as of 9/30/13 

116,512 convertible preferred 

7,202,952 RSUs granted after 9/30/13 

13,178,040 stock issued for MoPub acquisition 

1,237,847 options issued for MoPub acquisition 

80,300,000 stock reserved for equity compensation plans

705,098,594 Total Shares 

$46.00 Current price 

$32,434,535,324 Valuation