30-November-2016

There was a case of optimism in the Indian stock market as normal monsoons after 2 consecutive years of deficit

rainfall and the 7th PC recommendations gave a fillip to the India Consumption Story, But this optimism was short

lived with an earnings disappointment in Q2FY17 failing to provide a clear picture on India’s premium valuation status

& any pick-up in growth, causing the domestic stock markets to be in a limbo throughout October. The month of

November proved to be even more fatal for domestic equities, given the double whammy of a surprise win for Donald

Trump in the US Presidential Elections and the Centre’s decision to undertake demonetization of old ₹ 500 & ₹ 1,000

notes with the NIFTY 50 taking a plunge below 8,000 on November 21st.

Emerging economies such as India may continue to experience some turbulence over the short term when you

consider the possible fiscal stimulus by the Trump administration expected to push US GDP growth & inflation. Fall-out

of BREXIT and prospects of the US FED hiking rates coupled with the short term impact on consumption following

demonetization has thrown open interesting investment opportunities for the savvy long-term investor.

We strongly believe that India’s consumption story would hold out, considering the positive impact of demonetization

over the long term, a proactive government with a laser focus on policy reforms such as GST, fiscal stimulus and the

demographic dividend enjoyed by the Indian economy.

We bring to you an interesting mix of companies spanning several sectors across market cap. We believe these

companies are attractively priced on the basis of both technical & fundamental parameters.

Company Sector CMP (₹) 1 year

Target Price (₹) Potential Upside

Action Construction Equipment Cranes 48 67 40%

Arvind Textile 357 450 26%

Balrampur Chini Mills Sugar 121 160 32%

ICICI Bank Banking 256 310 21%

Jain Irrigation Systems MIS 89 120 35%

KEC International T & D 143 180 26%

LKP Advisory

Fundamental View

Action Construction Equipment – ACE is our small cap pick to play the operating leverage from GOI driven

infrastructure revival. Presence across the 4 verticals of Cranes, Construction Equipment, Material Handling & Farm

Equipment makes ACE a perfect proxy to play the India Story

Given its 60% dominant market share in Mobile & Tower Cranes we believe that its recent merger with ACETCR

brings in high margin rental business within the listed entity.

Its Farm Equipment business in our view should do well this fiscal on the back of a good monsoon and given its

comfortable debt equity and positive free cash flows, ACE trading at 2x book value has the potential to deliver a

40% upside for investors in one-year.

Technical View

A bullish flag pattern on the monthly time scale is formed on ACE chart.

A closer look at RSI on monthly time scales indicates that 50 has been a zone of extremely strong support and a

reversal as well.

Combining both the parameters and the recent bounce from the 200 DMA as well, we believe the stock can lead

to a strong breakout on a multi month time frame.

ACTION CONSTRUCTION EQUIPMENT CMP: ₹48

LKP Advisory

Fundamental View

The $1.3bn ARVIND is one of India’s largest integrated Textile & Apparel company. While its traditional textile

business continues to grow at high single digit, its ₹2700cr brand portfolio has been growing at 25% CAGR for

the past 3 years driven by its power brands, distribution footprint and ability to straddle its brands across the

income pyramid.

We believe that its relationships with iconic global brands and sourcing capabilities acts as an entry barrier to

competition and value unlocking from its high margin brand business coupled with de-leveraging would enhance

shareholder value going forward.

ARVIND trading at 22xFY17E earnings may not be cheap on valuation but its unique strategies and leadership in

its space make us bullish on its prospects for a one-year price objective of ₹450

Technical View

A bullish pennant price pattern getting formed on the monthly charts. Interestingly, the stock had broken out of

this pattern few months back, and has now retraced back to the neckline.

A closer look at Stochastic Oscillator indicates that the stock is inching towards a strong indicator breakout. If the

stock continues to take support at the rising trendline and Stochastic Oscillator provides the needed breakout, we

believe the stock could head towards a multi month upmove.

ARVIND CMP: ₹357

LKP Advisory

Fundamental View

There are close to 550 sugar mills in India of which BCML with a capacity of 76500TCD has the best balance sheet

among large integrated sugar mills. Its balance sheet strength enables BCML to hold on to its sugar inventory (

presently 18lac quintals costing ₹27.5 per kg ) and leverage the present buoyancy witnessed in sugar prices.

BCML has posted a huge turnaround in operations during H1 of this fiscal with net profits coming in at ₹217crs

compared to a loss of ₹84crs during the same period last fiscal. ( sugar prices in H1 of this fiscal were upwards of

₹35 per kg as against prices of ₹25 per kg in the same period last fiscal )

Its large co-generation facility of more than 150MW of saleable power and highly efficient distillery capacity of

320KLPD enables BCML to de-risk its business model during any kind of down cycle in its sugar business. We

recommend a BUY on BCML for a one-year price objective of ₹160

Technical View

One of the stronger sector from the start of 2016, the Sugar sector has provided extremely strong returns so far.

With cyclicalty nature of the sector, historically we have seen trends (up or down) lasting for few years for many of

these stocks.

Balrampur Chini has broken out of a Bullish price pattern on longer term time scales. We believe that in the near

term the stock has seen a correction and this correction halted at the rising resistance trendline.

If the indicator breaks out on the upside, we believe that Balrampur Chini can rally once again and be one of the

key performers in the sector.

BALRAMPUR CHINI MILLS. CMP: ₹121

LKP Advisory

Fundamental View

ICICI BANK is one of India’s largest banks with a large business franchise spanning close to 4500 branches and

over 14000 ATM with advances of over ₹4.5trillion. Well capitalized with Tier-I CAR of 13.25% and CASA of 45%

the bank has paid a heavy price for its high exposure to domestic corporates which now stand at 28% (exposure

to steel, cement, mining & power now stands at 12%)

While the key risk remains that of deterioration in asset quality ( NNPA now at ₹165bn is 3.2% ) we believe that its

exposure to retail loans now at 48% of total loans is growing at more than 20% and the bank should be able to

maintain 3% plus NIM quite comfortably going forward.

ICICI BANK is most widely held with FII holding at 50% and DII holding at 37%. We value the bank at 2.5x adjusted

book value to arrive at our one-year price objective of ₹310 by the end of CY 2017( The value of its Insurance

Subsidiary which is close to ₹40 per share provides additional comfort to the investor)

Technical View

ICICI Bank has been on a channeled uptrend since start of 2016. For most part of 2016 the stock had

underperformed many of its peers in the private sector banking space.

However, with the structured uptrend and stock available at its key support, we believe that this gap of

underperformance can be significantly closed in by the stock and it can lead to a strong uptrend.

With key supports placed at the crucial rising support trendline of the channel pattern, we believe that ICICI Bank

can lead from the front if the Pvt Banks see a strong recovery going ahead.

ICICI BANK CMP: ₹256

LKP Advisory

Fundamental View

Jain Irrigation is the market leader in Micro Irrigation Systems – MIS and derives 45% of its revenues outside India.

A normal monsoon this year coming after two consecutive years of drought has brightened the prospects for the

company in some of its key markets like Maharashtra.

Jain Irrigation is also an household name in Agriculture & Plumbing solutions and its piping business is a key

beneficiary of lower polymer prices. The company stands well placed to bag orders under the AMRUT scheme of

the GOI.

Jain Irrigation has had tough times for the last two years and we expect the company to stage a turnaround in

operations this fiscal led by a good monsoon and possible structural triggers in certain key markets in India which

could provide an upside trigger as well going forward. We recommend a BUY on the stock for a one-year price

objective of ₹120

Technical View

Jain Irrigation has come out of a broadening triangle bottom formation. Spread across a multi month time frame,

such bottom patterns hold significant importance in proclaiming long term reversals.

Couple this with the increased volume participation in the last 8 odd months of this strong rally.

Recently, the price retraced to almost exactly 38.2% retracement of its recent price rally.

If we assume that this is the immediate medium term bottom, and use preliminary Fibonacci Projection ratios, till

61.8% projections, the stock could start a fresh rally and head towards a fresh 52 week high breakout soon.

JAIN IRRIGATION SYSTEMS CMP: ₹89

LKP Advisory

Fundamental View

KEC is a Global EPC major of the RPG Group and is a large player in Power Transmission & Distribution which

comprises of almost 70% of its ₹11000cr Order Book

Its Order Intake at ₹6000crs is up close to 30% YTD and has substantial L1 position close to 4000crs. 60% of its

business is from India and 40% is International. Its Railway Business is now gaining traction and is on a high

growth trajectory.

KEC has reported more than 100% growth in net profits during the first half of the current fiscal and is a big

beneficiary of lower interest rates going forward. We recommend a BUY on KEC with a one-year price objective of

₹180

Technical View

Interestingly, KEC international is one of the few stocks which have confirmed a triangle price pattern breakout.

Even with most of the midcap stocks undergoing significant correction in the last 1 month, this stock has

managed to stay absolutely strong.

We believe, that with the strength in the chart in recent volatile times, and the breakout patterns on price and

likely breakout in indicators, the stock can start a multi month uptrend in the medium term.

KEC INTERNATIONAL CMP: ₹143

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