TITAN INDUSTRIES LTD : WILL GLITTER AGAIN !!!

Scrip Code: 500114 / TITAN

CMP:  Rs. 232.05; Buy at Rs. 230 & Accumulate at every dips.
Short term Target: Rs. 250, 6 month Target – Rs. 285; STOP LOSS – Rs. 207.00; Market Cap: Rs. 20,867.41 Cr; 52 Week High/Low: Rs. 313.35 / Rs. 201.00.

Total Shares: 88,77,86,160 shares; Promoters : 47,10,07,920 shares –53.05 %; Total Public holding : 41,67,78,240 shares – 46.94 %; Book Value: Rs. 24.50; Face Value: Rs. 1.00; EPS: Rs. 8.17; Dividend: 175.00 % ; P/E: 28.40 times; Ind. P/E: 27.46; EV/EBITDA: 17.28

Total Debt: Rs. 5.89 Cr; Enterprise Value: Rs. 19,628.55 Cr.

TITAN INDUSTRIES LTD:  The Company was founded in 1984 and is based in Bengaluru, India. Titan is a joint venture between Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO). Titan Industries Limited manufactures and retail sale of watches, jewelry, clocks, and eye wear primarily in India and internationally. The company provides its watches under Titan Edge, Titan Raga, Nebula, Sonata, Xylys, Fastrack brands. It also markets international brands, such as Versace, Seiko, Tommy Hilfiger, Hugo Boss, Esprit, Raymond Weil, DKNY, Baume & Mercier and Victorinox under a licensed agreement. It also offers jewelry under the Tanishq and Goldplus brand names, as well as operates a chain of luxury jewelry boutiques under the Zoya brand. In addition, the company provides sunglasses under its Fastrack brand; and prescription eye-wear  such as lenses and contact lenses. It sells frames, sunglasses, and accessories of proprietary brands and other premium brands, as well as provides optometry services. Further, the company provides precision engineering components and sub-assemblies, machine building and automation solutions, tooling solutions, and electronic sub-assemblies for use various industries, in aerospace, automotive, oil and gas, engineering, hydraulics, solar, and medical instruments. It operates approximately 1,026 retail stores across a carpet area of over 1.3 million sq. ft. spanning over 204 towns. The company has over 364 World of Titan showrooms; over 140 Fastrack stores; 928 after-sales-service centers; It also has approximately 145 Tanishq boutiques and 2 Zoya stores; over 31 Gold Plus stores; and approximately 220 Titan Eye+ stores. The company has two exclusive design studios for watches and Jewellery, 10 manufacturing units. The company also sells its product through departmental stores such as Shoppers stop, Central, Westside, Pantaloons & Reliance retail. Titan Industries Ltd is locally compared with Gitanjali Gems Ltd, Surana Corporation Limited, Shrenuj & company, Rajesh Exports, Shree Ganesh Jewellary House I Ltd, PC Jewellers and globally compared with Citizen Holdings Co Ltd of Japan, Casio Computer Co Ltd of Japan, F&A Aqua Holdings INC of Japan, Guess? INC of USA, Rolex of Switzerland, Omega of Switzerland, Oakley of USA, Timex of USA, Seiko of Japan, TAG Heuer of Switzerland, Patek Philippe of Switzerland, Swatch Group of Europe .  

Investment Rationale:

Titan Industries Ltd is the world’s fifth largest integrated watch manufacturer with a market share of around 65% in the domestic organised watch market and also enjoys market share of around 40% in the organised jewellery retailing market where the company offers gold and diamond jewellery through its popular brands like Tanishq, Gold Plus and Zoya. Recently, RBI tightened the gold import norm and has gradually doubled the import duty on gold from 4% to 6% to the present 8% this year. From now on, all imports of gold for domestic consumption either through banks or nominated agencies or directly is to be made only with 100% cash margin. Credit of any kind from suppliers or bullion banks for import of gold for domestic use is prohibited. This means that jewelers who traditionally used to borrow gold from domestic banks on 180-day credit will no longer be able to do so. Earlier, Titan never used to buy gold with its own money. They used to lease (borrow) gold from domestic banks for 180 days with the risk of gold prices being borne by the bank. This was a fairly effective and profitable method of procuring gold and led to multiple benefits for the company like the cost of leasing gold was a minuscule 3%, almost one-third of what would have been the financing cost of gold procurement. The balance sheets of jewelers like Titan always remained debt-free, as the company only booked payable's which were due to the bank in current liabilities. This also meant that return ratios also looked quite healthy. But, with RBI’s new norms the entire business model of the jewellery business in India will need to undergo a structural change. Profit growth would be impacted as interest income will come down and interest outgo will shoot up, now company will have to use its own funds and consequently its average cost of gold purchase will shoot up from the current 3% to estimated 10%, the debt on the books will rise significantly, need for working capital will increase significantly. However there is a hope of policy reversal once the current account deficit situation eases. Also, the company can use its license to import gold directly, which will lead to savings of around 1% (paid in the form of VAT). Also, in the longer term, smaller players may find it difficult to sustain. Hence, Titan could gain in the form of increased market share and passing on the additional cost to the consumers by hiking prices of around 3% inform of making charges. The company will use MCX gold futures to hedge its exposure. Company will re-evaluate its current expansion plans and may shelve some of them in order to concentrate on changing business scenario. A growing economy, improving lifestyle, Titan continues to get benefited from the shift from unbranded to branded Jewellery. Titan continues to charge an average 22 % of Gold price as its making charge can easily pass on the hiked prices to consumers.

Outlook and Valuation: 

Titan Industries recently stated that it is seeing strong jewellery sales despite government measures to discourage consumption of gold in country. The company gets around 83% of its total net sales from jewellery, which they expect to grow by over 15% on year in April June and over 25% in 2013-14. Titan is most likely to gain market share from other organised & unorganised players as it has the easier access to credit due to years of strong operating performance, healthy balance sheet and most prominently the Tata brand. Although, its RoCE will take a hit, but company’s has the capability to reinvent its business model. Assuming the ban is for a long duration; as gold imported on lease forms only 8% of total gold imported, the company will surely make its way out. Titan does have a licence to import gold directly to the tune of 10 tonnes. This is a one-time licence and not an annual limit. The company’s annual requirement of gold is around 20 tonnes this will not cover the entire need, but still provides an opportunity for it to partly use the facility, at least in FY14. 

It is notably to say here that, since November  2012, the Rupee has fallen 11.92 % as against dollar where as, internationally the gold prices have fallen nearly 28.13 % over the same period. With strident RBI rules the gold demand is expected to take a dip of around 200 tonnes, which can lower further regulatory action from RBI. At the current market price of Rs.232.05, the stock is trading at a PE of 21.17 x FY15E which compares with the sector average of around 27.5 x and mid cap sector at 24-25 x. While the regulation and demand environment will some what impact the stock and will tend it to trade at lower multiples. But still Titan can post Earnings per share (EPS) of Rs. 10.96 for FY15E. It still remains a solid long term play on the growth of the Indian Jewellery sector with proven management track record. It is expected that soon the demand environment will improve and expect the company to keep its growth story in the coming quarters also. One can ‘BUY’ Titan Industries with a short term target price of Rs. 250.00 and for Medium to Long term investment it could be a good buy for the target price of Rs. 285.

KEY FINANCIALS	FY13	FY14E	FY15E	FY16E
SALES (₹ Crs)	10,113.00	11,933.00	14,200.20	16,898.30
NET PROFIT (₹ Cr)	725.00	804.00	973.00	1,163.30
EPS (₹)	8.20	9.06	10.96	13.10
PE (x)	25.00	22.60	18.70	15.60
P/BV (x)	9.30	7.00	5.40	3.90
EV/EBITDA (x)	16.90	15.60	13.00	10.80
ROE (%)	37.10	35.30	32.70	29.20
ROCE (%)	48.60	20.40	19.30	18.80

I would buy TITAN INDUSTRIES LTD with a short term price target of ₹ 250.00 and for Medium to Long term target it will be Rs. 285. 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 ₹ 207.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

ZEE ENTERTAINMENT ENTERPRISE LTD: Accumulate at every levels !!!

Scrip Code: 505537 / ZEEL

CMP:  Rs. 235.55; Buy at Rs. 230-Rs. 235 levels.

Medium to Long Term Target: Rs. 258; STOP LOSS – Rs. 216.70; Market Cap: Rs. 22,470.47 Cr; 52 Week High/Low: Rs. 255.20 / Rs. 131.45.

Total Shares: 95,39,57,720 shares; Promoters : 41,36,70,212 shares –43.36 %; Total Public holding : 54,02,87,508 shares – 56.64 %; Book Value: Rs. 31.23; Face Value: Rs. 1.00; EPS: Rs. 6.68; Dividend: 150.00 %; P/E: 35.26 times; Ind. P/E: 30.26; EV/EBITDA: 20.13.

Total Debt: 1.00 Cr; Enterprise Value: Rs. 22,144.17 Cr.

ZEE ENTERTAINMENT ENTERPRISES LTD: Zee Entertainment Ltd was founded in the year 1982, based in Mumbai. Company was originally incorporated as Empire Holdings Ltd on November 25, 1982, it later on September 8,1992 changed its name to Zee Telefilms Limited. In January 10,2007, post de-merger of News and Cable Business Undertaking, the company changed its name to Zee Entertainment Enterprises Limited. The company came with an IPO in August 1993 with 89,28,000 shares of Rs. 10 each at Rs. 30 per share these were listed on BSE on November 25, 1993. In 1999, company announced a stock split of 1:10 and the face value was reduced to Rs. 1 per share. ZEEL, together with its subsidiaries, operates as a vertically integrated media and entertainment company in India. Zee entertainment enterprise operates in three segments: Broadcasting and Content, Education and Film Production. The Broadcasting and Content segment develops, produces, and procures television programming and film content and delivers those through satellites, cable, and Internet. It broadcasts channels, such as Hindi general entertainment channels and regional language general entertainment channels, Bollywood channels, sports channels, English entertainment channels, alternate lifestyle channels. The company broadcasts Hindi entertainment channels - Zee TV, Zee Smile, and 9X; Hindi movies channels - Zee Cinema, Zee Premier, Zee Action, and Zee Classic; English entertainment, movies, and life style channels - Zee Studio, Zee Café, and Zee Trendz; and Sports channels - TEN Cricket, TEN Action, TEN Sports, and TEN Golf. It also broadcasts Regional language entertainment channels, including Zee Marathi, Zee Bangla, Zee Talkies, Zee Telegu, Zee Kannada, ETC Punjabi, and Zee Tamil; religious and alternate lifestyle channels comprising Zee Jagran and Zee Salaam; music channels, such as Zing and ETC Music; niche and special interest channels comprising Zee Khana Khazana; and HD channels, including Zee TV HD, Zee Cinema HD, Zee Studio HD, and TEN HD. Company earns revenues by the way of advertisement and subscription revenues and syndication. The Education segment engages in distribution of software learning products; and provides education and training in information technology. The Film Production segment produces and distributes films. The company has a library housing approximately 1,00,000 hours from 80,000 hours of television content; and rights to approximately 3,000 movie titles. Effective March 29, 2010, Zee News Ltd. demerged its Regional General Entertainment channel business undertaking and transferred its operation to Zee Entertainment Enterprises Limited. It has operations in India, the United States, Canada, Europe, Africa, the Middle East, Southeast Asia, Australia, and New Zealand. ZEEL can be locally be compared with Sun TV Network Ltd, Network 18 Media & Investment Ltd and TV18 Broadcasts Limited and Globally with Walt Disney company of USA, News Corp of USA, Time Warner of USA , CBS of USA, VIACOM of USA, NBC Universal of USA.

Investment Rationale:

Zee Entertainment Enterprise Ltd the country's largest content provider has unveiled its new corporate brand identity that positions the company as one of the world for the world. The new brand logo this time includes the famous Indian maxim "Vasudhaiva Kutumbakam" or "The World is my Family" or shared humanity reflecting the corporate increasing global footprint over the last 20 years. ZEE globally comprises of 67 Cr people including viewers, shareholders, partners and other stakeholders and growing stronger. This new identity now encompasses the ZEE group's news and digital business verticlas, bringing them under one umbrella brand called "ZEE Media". ZEE has a presence in content distribution through both analog and digital platforms through Media Pro Enterprise India, which is a joint venture between Zee Turner and Star Den Media Services. The bargaining power of Media Pro enables Zee along with Star and Turner channels to command a higher share of the ARPU than their combined market share. The board of directors of ZEEL, as a Special Reward to its shareholders, on completion of 20 years of broadcasting business of the Company have announced and approved distribution of about Rs. 2,015 Crs, by way of Bonus issue of 6% Redeemable Preference Shares of Face value of Re. 1 each. The bonus issue is in ratio of 1:21 i.e. 21 redeemable preference shares with tenure of eight years of Re. 1 each for every 1 Equity share of Re. 1 held in a company. Board also recommended a dividend of Rs. 2 (200% of face value). The bonus issue will amount to outgo of Rs. 2,015 crore, with one-fifth of the amount i.e. around Rs. 400 Cr redeemable from fourth year onwards in five equal instalments till eight year. On the performance side the average weekly GRPs of ZEEL increased from 196 to 220 with a relative market share of 19% among the top 6 GECs, this was reflected in the ad growth of 15.5% YoY at Rs. 479.2 Cr in quarter gone by. The improving ad scenario is expected to provide impetus to ad growth subsequently. It is expected that company can have ad growth of 8.90% and 10.2% in FY14 & FY15 respectively. Also, the subscription revenue growth has been seen largely due to DTH penetration. Revenue from digital cable would further drive growth subsequently. Zee Entertainment’s Q4FY13 numbers were better on all the fronts. The top-line came in at Rs. 964.3 Cr showing growth of 11.0% YoY. Both ad revenues and subscription revenues posted growth of 15.5% YoY and 13.0% QoQ. The robust revenue growth led to a better-than-expected EBITDA margin of 25.1% expanding 6.71% YoY in spite of higher sport losses in this quarter. Consequently, PAT came in at Rs. 179.6 Cr posting growth of 12.1% YoY. Incremental subscription revenue from digital cable is yet to flow into the financials of Zee.

Outlook and Valuation:

ZEEL has recently launched Bengali movies channel Zee Bangla Cinema, Arabic GEC Zee Alwan and Kids edutainment channel ZeeQ. ZEEL’s subscription revenue continued its trend of posting strong growth due to increased penetration of digital systems, especially DTH, and better bargaining power because of Media Pro. The subscription revenue grew 13% QoQ to Rs. 454.6 crore. The growth was brought about by a domestic subscription revenue growth of 13.5% QoQ. The international subscription revenue grew by 3.2% QoQ to Rs. 117.2 crore. The under declaration by Local Cable Operators has badly affected the ARPU from analog cable, which currently stands around Rs. 4.00 per subscriber as compared to Rs. 17.00 per DTH subscriber. With impending digitisation, cable and DTH ARPU are expected to be on converging. This would lead to incremental subscription revenue of around Rs. 620.1 crore from FY12-15. The overall subscription revenue is expected to grow at a CAGR of 24.7% in FY12-15 to reach Rs. 2,531.0 crore for FY15. At the current market price of Rs. 235.55, the stock is trading at 28.04 x FY14E EPS of Rs 8.40/share and at 21.03 x FY15E EPS of Rs 11.12/share. Based on last quarterly performance and issuance of redeemable preference shares as bonus shows the management’s confidence in future cash flows of the company, but one should expect to take a hit in dividend pay-out, with Sports business continues to generate operating loss along with the TRAI's QoS regulations which is the cap on advertising time on a clock hour basis can impact ad volumes, hence ignoring little much of risk, the stock could be a buy at current levels with a medium to long term target of Rs. 258.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	3,041.00	3,699.60	4,276.40	5,029.60
NET PROFIT (₹ Cr)	589.10	719.60	803.50	1,070.60
EPS (₹)	6.10	7.50	8.40	11.20
PE (x)	38.30	31.20	28.10	21.10
P/BV (x)	6.60	5.70	5.00	4.10
EV/EBITDA (x)	30.10	23.10	20.20	14.20
ROE (%)	17.10	18.40	17.70	19.60
ROCE (%)	20.50	23.30	23.20	26.70

I would buy ZEE ENTERTAINMENT ENTERPRISE LTD with a price target of ₹ 258.00 for Medium to Long term target. 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 ₹ 216.70 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

MAHINDRA AND MAHINDRA : RIDING ON LAUNCHES & SUBSIDIARIES !!!

Scrip Code: 500520 / M&M

CMP:  Rs. 947.30; Buy at current levels.

Medium to Long term Target – Rs. 1053.40; STOP LOSS – Rs. 871.51; Market Cap: Rs. 58,162.39 Cr; 52 Week High/Low: Rs. 1026.00 / Rs. 674.30.

Total Shares: 61,39,80,756 shares; Promoters : 15,53,60,571 shares –25.31 %; Total Public holding : 45,86,20,185 shares – 74.69 %; Book Value: Rs. 197.18; Face Value: Rs. 5.00; EPS: Rs. 54.37; Dividend: 250 % ; P/E: 17.42 times; Ind. P/E: 18.44; EV/EBITDA: 11.91.

Total Debt: Rs. 3,174.22 Cr; Enterprise Value: Rs. 50,619.76 Cr.

MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra & Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, based in India. Mahindra & Mahindra Limited operates in the Motor vehicles and car bodies sector. The Company operates in nine segments: Automotive segment comprising of sales of automobiles, spare parts and related services; Farm equipment segment comprising of sales of tractors, spare parts and related services; Information technology (IT) services comprising of services rendered for IT and telecom; Financial services comprising of services relating to financing, leasing and hire purchase of automobiles and tractors; Steel trading and processing comprising of trading and processing of steel; Infrastructure comprising of operating of commercial complexes, project management and development; Hospitality segment comprising of sale of timeshare and Systech segment comprising of automotive components and other related products and services, and its others segment comprise of logistics, after-market, two wheelers and investment. In November 2009, BAE Systems entered into a joint venture agreement with Mahindra & Mahindra Limited to create a land systems focused joint venture Defense Company, based in India. During the fiscal year ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor Company Limited - a manufacturer of sports utility vehicles in Korea. The company has a distribution network of over 130 dealers in Korea and exports to over 90 countries through 1,200 dealers. With the support of M&M, SMC is working on a revitalization plan with strong focus on cost reduction along with new product development and market expansion. The Group at the end of the March 2013 comprised of 123 Subsidiaries, 5 Joint Ventures and 12 Associates. A full summation of Gross Revenues and other income of all the group companies taken together for the whole year Fiscal 2013 was Rs. 88,093 crore (USD 16.2 billion). Mahindra & Mahindra Ltd is compared locally with Maruti Suzuki India Ltd, Ashok Leyland ltd, Tata Motors, Bajaj Auto in India and globally with Hino Motors Ltd of Japan, Great Wall Motor Company Ltd of China, Beiqi Foton Motor Company Ltd of China and Guangzhou Automobile Group Company Limited.

Investment Rationale:

Mahindra & Mahindra, India’s leading SUV manufacturer and the leader in the Indian Pick up segment has now entered into compact car segment, where Maruti & Hyundai are dominant players with introducing M&M's Verito Vibe a sub 4 meter vehicle based on the Verito (Logan) platform. M&M has invested around Rs. 60 Cr in the development of its new 'Vibe' and has launched three variants starting from Rs. 5.63 lakhs to Rs. 6.49 lakhs (ex- showroom Mumbai without octroi). M&M is targeting a niche segment by calling the Vibe a compact car not a Hatchback or sub 4-meter sedan. M&M had two launches in the month of April and May - first its new Bolero Maxi Truck Plus (BMY Plus) which is priced at Rs. 4.33 lakhs (BS3) ex showroom Thane and Rs. 4.43 lakhs (BS4) ex showroom Mumbai excluding octroi. This truck has been developed on Mahindra’s rugged Bolero Pick up platform and is conceptualized to carter to the needs of urban goods transportation. It is powered by Mahindra’s proven 2523 CC fuel efficient common rail engine which delivers 17.7 km per liter mileage. Second it launched its H- Series Xylo with the advance technology mHawk engine. The power pack h-series offers a range of variants starting with H4 (with ABS options), H8 (with ABS & Airbag option) and a fully loaded feature packed H9 version which includes several unique features like Voice Command Technology (VCT), Cruise Control, Digital drive Assist System etc. The new H series starts at an very competitive price of Rs. 8.23 lakhs ex showroom Mumbai. It will be notable to say here that Xylo was introduced in 2009 and from then on it has carved a unique identity for itself in the area of class leading space & comfort. Mahindra Vehicle Manufacturers Limited (MVML), located at Chakan near Pune, was set up as a 100% subsidiary of the company with a view to sourcing contemporary products for expanding the market offerings of the company. The overall performance of the standalone business has been good despite the tough operating environment, with the UV segment growing 23.4% YoY while the FES segment de-grew of around 1% YoY. Export markets volumes have been lower in the quarter as international markets like Sri Lanka and Bangladesh have witnessed slowdown. The consolidated Gross Revenues and Other Income for the year ended 31st March 2013 grew by 17.4 % to Rs. 74,403.0 crore from Rs. 63,357.8 crore in last year. On account of a change in the status of Tech Mahindra from a Joint Venture to an Associate effective 31st Aug 2012, the revenues reported above include M&M’s share of Tech Mahindra revenue only till end Aug 2012. On a like to like basis the growth in the consolidated revenues in the current year is 20.6% over the previous year. The consolidated profit after tax and after deducting minority interests for the year is Rs. 4,099.2 crore as compared to Rs. 3,126.7 crore in the previous year – a growth of 31.1%. During the year, some of the major group companies like Mahindra Finance, Mahindra Lifespace Developers and Tech Mahindra significantly improved their performance over the previous year. Mahindra Finance performed with a 41% growth in consolidated revenues and showed 44% increase in profits, and that of Tech Mahindra with a 22% growth in consolidated revenues and an 18% growth in profits. There was significant improvement in the performance of Ssangyong Motors, the group’s South Korean subsidiary, with a 29% reduction in its losses. During the current year there was also a deemed divestiture profit of Rs. 277 crore arising from the Qualified Institutional Placement of Shares by Mahindra & Mahindra Financial Services Ltd. In the Passenger Utility Vehicle segment, the Entity sold 72,076 vehicles in the current quarter - a growth of 23% over the numbers sold in Q4 last year. All the products of the entity’s UV portfolio continued to do well and the Entity continued its leadership position with a market share of 47.8%. In the Cars segment, the Entity sold 3,747 Verito Cars. The Entity also exported 7,766 Vehicles in the current quarter. In this quarter, the company sold 46,107 tractors under the Mahindra & Swaraj brands as against 48,517 tractors sold in Q4 last year. The company exported 3,767 tractors in Q4.

Outlook and Valuation:

M&M continued its good performance in spite of the tight macroeconomic constraints that had tethered the Indian economy for the past several quarters and which seems to have somewhat eased in the last few months. The company’s market share during the quarter was 37.2%. Looking forward, the management expects the Indian economy to stage mildly, consumption-led recovery in Fiscal year 2014. Subject to a normal monsoon, as forecast by the Indian Meteorological Department, agricultural growth is likely to see considerable improvement in Fiscal year 2014, leading to a steady moderation in inflation and a bounce back in rural incomes, and consumer demand. At the same time, with the advanced economies expected to witness a recovery this year, exports are likely to maintain the momentum witnessed in Q4. Private investment demand, however, is likely to remain weak. It may show a significant pick up in case there is a concerted policy action by the government. Overall, our outlook on the economy, while more positive than six months ago, remains cautious and watchful. On SOTP (sum-of-the-parts) basis, the valuation of M & M on standalone business comes at Rs. 825/share and the value of its investments in other listed subsidiaries comes at Rs. 228.40/share after a 20% holding discount. Company has majority stakes in various listed companies in other sectors, including technology, property and finance, its Investments constitutes to 65% of the balance sheet. The high growth potential of M & M's subsidiaries is expected to unlock the actual value of the stock over the years to come. Listing of its subsidiaries has been supporting the company’s valuation in the recent past and will continue to do so in the long term as well. So holding on to M & M would be advisable for the long term players. In my view M&M could report EPS in FY14E & FY15E of Rs. 62.20 sh and Rs. 72.70/sh, respectively. I would buy M & M LTD for the medium to long term period with a price target of Rs. 1053.40 

SOTP VALUATIONS 

Business Subsidiary	Value Per Share (₹)
M&M Standalone	825.00
M&M Financial Services (Listed)	89.71
Mahindra Forgings (Listed)	3.60
Mahindra Holidays & Resorts Ltd(Listed)	20.80
Mahindra Lifespace Developers(Listed)	10.73
Mahindra Ugine Steel Co(Listed)	1.18
Tech Mahindra(Listed)	77.38
Ssangyong Motor Company	24.00
Other Investment (at BV)	1.00
TOTAL	1053.40

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	31,392.00	39,903.10	47,537.90	54,133.00
NET PROFIT (₹ Cr)	2,878.90	3,352.80	4,075.20	4,765.40
EPS (₹)	43.90	51.20	62.20	72.70
PE (x)	20.50	17.70	14.50	12.40
P/BV (x)	4.90	4.00	3.30	2.70
EV/EBITDA (x)	16.00	12.60	9.90	8.10
ROE (%)	23.80	22.90	22.90	22.10
ROCE (%)	20.90	22.40	24.20	24.60

I would buy MAHINDRA & MAHINDRA LTD with a price target of ₹ 1053.40 for Medium to Long term target. 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 ₹ 871.51 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

SHRIRAM TRANSPORT FINANCE COMPANY LTD : BET ON THIS ONE !!!

Scrip Code: 511218 / SRTRANSFIN

CMP:  Rs. 815.65; Buy at current levels. Medium to Long Term Target: Rs. 860; STOP LOSS – Rs. 750.40; Market Cap: Rs. 18,504.15 Cr; 52 Week High/Low: Rs. 842.70 / Rs. 495.20. Total Shares: 22,68,63,936 shares; Promoters : 5,85,02,778 shares –25.79 %; Total Public holding : 16,83,61,158 shares –74.21. %; Book Value: Rs. 190.05; Face Value: Rs. 10.00; EPS: Rs. 42.49; Dividend: 65.00 %; P/E: 19.19 times; Ind. P/E: 16.73; EV/EBITDA: 6.32.

Total Debt: 17,727.08 Cr; Enterprise Value: Rs. 32,390.05 Cr.

SHRIRAM TRANSPORT FINANCE COMPANY LTD: The Company was founded on 30th June 1979 and is based in Mumbai, Maharashtra. The Company is the flagship company of the Shriram Group. The main object of the company was to provide hire purchase finance to trucks. In February of 1984, company issued 1,80,000 shares at par to the general public. Shriram Transport Finance Company Limited operates as an asset financing non-banking finance company that provides commercial vehicle finance in India. It offers finance for pre-owned and new commercial and passenger vehicles, tractors, three wheelers, multi-utility vehicles, and pre-owned and new construction equipment. The company also provides tire loans, engine replacement loans, working capital loans, co-branded credit cards, and freight bill discounting products, as well as accepts various deposit products. In addition, it owns, operates, and manages Automall, a physical auction platform for pre-owned commercial vehicles; and sells refurbished commercial vehicles. The company serves small truck owners and first time users. As of May 08, 2012, the Company had a network of 528 branches and service centers. The company employees nearly 12000 people and has Asset Under Management (AUM) of more than Rs. 52,717 Cr. Company has more than 6,00,000 customers. The company is compared locally with M&M Financial Services ltd, Sunderam Finance, Manappuram Financial, Bajaj Finance Ltd, GIC Housing Financial and Globally with Aeon Thana Sinsap (Thailand) Public Company Ltd of Thailand, Zenkoku Hosho Co Ltd of Japan, Hitachi Capital Corporation Ltd of Japan.

Investment Rationale:

Shriram Transport Finance co. Ltd is a part of Shriram Group, a prominent player in commercial vehicle financing business, chit funds, consumer finance, life insurance, general insurance, stock broking, property development, project engineering and IT. In February 2013, Sanlam Emerging Markets Ppty Ltd, a unit of Sanlam Ltds Sanlam Life Insurance Ltd, raised its stake to 10% from 6.3%, by acquiring a 3.7% stake in the Company. This deal augments Sanlam’s existing portfolio of business in Africa & Asia, in support of the group’s target of sustainable value creation in these growth markets. It further strengthens the existing relationship between Shriram & Sanlam. Last year Sanlam invested R2 billion in Shriram Capital Ltd the holding company of financial services of Shriram Group. Sanlam Emerging Markets holds 26% in SCL. In May 2013, Piramal Enterprises Ltd acquired a 10% stake in Shriram Transport Finance Co Ltd. Piramal bought 2.28 Cr shares at Rs. 723 per share of the company worth Rs. 1,652 Cr from a private equity major TPG. This deal was in-line with Piramal’s strategy for building their presence in financial services sector. This deal is positive for Shriram Transports, if it gets a banking licence, the stock can double from current level. At the end of March 2013 the company had total Assets under Management (AUM) of Rs. 49,676 Cr segmented into Pre-Owned CV of approximately Rs. 39,828 Cr and into New CV of approximately Rs. 9,527 Cr and approximately Rs. 321 Cr from others services. Valuation skills is critical to succeed in this space given that the amount of loan EMI and truck operator’s ability to repay rests on the value of the truck and Shriram has considerable expertise in valuation of pre own trucks. They value vehicles in to Old Commercial Vehicle and New commercial Vehicle – the Loan to Value Ratio for the Old CVs ranges from 60 % -  70 % and for new CVs it ranges from 75 % - 85 %. Experience in credit appraisal & recovery/collection operations has lead Shriram Transport Finance to become one of the leading organized players in the sector. Due to the underdeveloped banking habits of small truck operators, a large part of monthly collections is in the form of cash also the company have continuous monitoring of disbursed loans so that loan recovery process becomes easier. Company’s Capital Adequacy ratio as of March 31, 2013 stands at 20.58 %. Shriram Transport securitized its loan book at regular basis to fund new origination's which helps in maintaining its growth momentum. Company’s Securitized assets portfolio at the end of FY13 stands at Rs. 18,232 Cr at the end of FY13.

Outlook and Valuation:

The Commercial Vehicle Financing market size is of Rs. 1,85,000 Crs & Shriram Transport Finance Company Limited (STFC) is one of the largest assets financing NBFC with approximately 25 % market share in pre-owned and approximately 5-6 % market share in new truck financing. Strategically present in high yield - pre-owned CV financing with expertise in loan origination, valuation and collection. The company has expanded product portfolio which to include financing of tractors, small commercial vehicles, 3-wheelers, passenger commercial vehicles and construction equipment Large customer base in excess of 9,50,000 as of March 31, 2013. The company has an extensive distribution network of 539 branch offices, 350 rural centres and has partnership with over 500 Private Financiers. The company has tied up with Axis Bank to distribute credit cards to small truck owners and has so far distributed over 3,00,000 credit cards as of March 31, 2013. It is expected that due to legislative pressure on banning trucks beyond 15 years is likely to trigger replacement boom backed by the introduction of Voluntary Retirement Scheme for old trucks with better financing options by the Transport associations. It is expected that this will trigger an replacement demand for 13,50,000 new as well as pre owned trucks. The Passenger Commercial Vehicle Financing market size is estimated to be at Rs. 24,000 backed by the growth in population and an improving road infrastructure, also the tractor financing market is estimated to be at Rs. 30,000 Cr in FY13 and which is witnessing a strong growth. Shriram Transport through its wholly owned subsidiary Shriram Equipment Finance Company would focus on end to end equipment financing. The Construction Equipment financing market is expected to reach over Rs. 40,000 Cr by 2013 end driven by the huge infrastructure spending during the 11th 5-year plan which is estimated to be at approximately Rs. 20 trillion. Shriram transports has 21 Automalls in operation currently & plans to create 50-60 more Shriram Automalls where it provides platform to facilitate buyers & sellers to meet for sale of pre-owned CVs, these automalls earns commission fees through its advisory services and also will provide financing to the buyer. These 21 automalls sold over 75,000 assets so far. The company posted its Q4 FY13 consolidated Total Income of Rs. 1908.05 Cr a growth of 21.1 % YOY, with a PAT of Rs. 383.46 Cr showing a growth of 16.6 % YOY. The Net Interest Income including income from securitization raised 12.8 % to Rs. 952.10 Cr YOY. Growth in total income was driven by growth across key revenue streams; company’s Interest Income was up by 43.1% to Rs. 1,310.36 Cr from Rs 915.82 Cr. Its operating profits grew by 14.3% to Rs. 745.89 Cr from Rs. 652.88 Cr. Its standalone PAT grew by 15.3% to Rs. 355.23 Cr from Rs. 308.06 Cr due to decrease in provisioning cost by 19 basis point. Company’s Gross NPAs & Net NPA stood at 3.20% & 0.77% as against 3.06 % & 0.44 % respectively and the Net NPA in absolute amount stands at Rs. 241.64 Cr maintaining its Coverage ratio of over 76%. At the current market price of Rs. 815.65, the stock is trading at 12.86 x FY14E EPS of Rs 63.39/share and at 12.13 x FY15E EPS of Rs 67.20/share. With the large institution investors coming in and with the introduction of Automalls and the with the increasing replacement demand for the trucks and with the better recovery of loans Shriram transport  looks a good stock to buy at current levels with a medium to long term target of Rs. 860 

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	5,889.70	6,461.38	6,978.30	7,536.56
NET PROFIT (₹ Cr)	1,257.45	1,357.50	1,438.18	1,524.47
EPS (₹)	55.56	59.83	63.39	67.20
PE (x)	12.42	11.70	9.60	11.32
P/BV (x)	2.61	2.40	2.00	1.60
EV/EBITDA (x)	6.44	5.67	5.03	5.40
ROE (%)	20.98	20.80	20.11	20.20
ROCE (%)	18.42	18.60	18.51	18.40

I would buy SHRIRAM TRANSPORT FINANCE COMPANY LTD with a price target of ₹ 860.00 for Medium to Long term target. 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 ₹ 750.40 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL