Peerless Masterpicks Monthly- June 2016 Masterpicks... · • UltraTech Cement Ltd, India’s...

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Peerless Securities Ltd. Peerless Mansion, 1, Chowringhee Square, 2nd Floor, Kolkata- 69

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PORTFOLIO PICKS

INDEX OF STOCK PICKS- FOR JUNE 2016 STOCK CMP ENTRY LEVEL RANGE AVG SL TRGTS EXPECTED RETURNS STOPLOSS

MINDTREE 665.35 666.50 660 663.3 620 740 11.03% -6.98%

ULTRACEMCO 3213.65 3216.00 3200 3208.0 2980 3600 11.94% -7.34%

HEROMOCO 2962.20 2945.00 2933 2939.0 2800 3220 9.34% -4.92%

KOTAKBANK 734.00 734.00 720 727.0 688 800 8.99% -6.27%

TECHMAH 542.30 535.00 530 532.5 490 610 14.02% -8.41%

HINDUNILEVER 850.35 850.00 840 845.0 810 910 7.06% -4.71%

BEL 1124.00 1124.00 1110 1117.0 1060 1225 8.99% -5.69%

IMPORTANT ECONOMIC/POLITICAL EVENTS THAT CAN IMPACT THE MARKET IN JUNE 2016

DATE EVENTS

June 02

European Central Bank(ECB) monetary policy meet

June 07

RBI Monetary Policy Meet

June 14-15

FOMC Meeting. Meeting associated with a summary of Economic Projection and a press conference by the Chair.

June 23

UK’s European Union Membership Referendum



Monthly Performance during FY 2016-2017

Monthly Return % of PMP vs. CNX 100

Month wise Return % along with Cumulative Return for FY16-17

MONTH Apr-15 May-15 Cumulative Return%

CNX100 1.84 2.57 4.41

PMP 1.6 2.59 4.19

PEERLESS MASTER PICKS- MAY 2016 PERFORMANCE

CNX100 OPEN PRICE 7954.75 CLOSE PRICE 8159 2.57%

STOCK ENTRY LEVEL SL TRGTS STATUS PRICE P/L %

M&M 1345.00 1266 1480 CLOSE PRICE 1339.10 -0.44

PERSISTENT 739.00 700 805 CLOSE PRICE 731.45 -1.02

NBCC 997.00 940 1100 STOP HIT 940.00 -5.72

DABUR 270.00 255 295 TARGET ACHVD 295.00 9.26

ASIANPAINTS 880.00 830 965 BOOK PROFITS 925.00 5.11

M&MFIN 300.00 280 334 CLOSE PRICE 319.35 6.45

HDFCBANK 1115.00 1050 1225 BOOK PROFITS 1165.00 4.48

PMP RETURN 2.59



Market and Economy Update CORPORATE RESULTS UPDATE After a poor report card during the first nine months of financial year 2015-16, corporate results for the

fourth quarter offer hope of a recovery. The combined net sales of 350 companies, which have declared

results so far, were up 5.6 per cent year-on-year (y-o-y) for the quarter ended March 31, 2016. This

marked the fastest growth in the past six quarters. Before this these companies had reported a decline in

revenue for four consecutive quarters.

The combined net profit (adjusted for exceptional gains and losses) was up 16.9 per cent y-o-y, growing

at the fastest pace in the past six quarters. The reported net profit was, however, down 8.8 per cent y-

o-y, resulting in a decline in companies' underlying earnings per share. This was largely because of low

base effect and increase in operating margins due to reduced input price.



ASSEMBLY ELECTION 2016 OUTCOME- Favorable for GST

Assembly poll results in the four states — Assam, West Bengal, Tamil Nadu and Kerala once again

spurred hopes of early passage of GST Bill as government may find it easier now to deal with

Trinamool Congress and AIADMK in the Rajya Sabha. They now have more flexibility in terms of

manoeuvring their policy matters going forward.

GST aims to simplify the current indirect tax regime by bringing all central and state levies (like excise

duty, sales tax, octroi, VAT and other countervailing duties) under one single head having uniform tax

rate across goods and services (with some exclusions like electricity, alcohol and petroleum products).

INCREASED POSIBILITY OF RATE HIKE BY US FED IN JUNE 2015 IS CREATING

MARKET VOLATILITY.

US Federal Reserve indicated that a possible rate hike in June 2016 if the economic data and labor

market condition improves up to desired level which can bring unpleasant surprises in emerging market

including India.

The Fed has said in April 2016 FOMC minutes this year it would take a cautious approach to raising

interest rates, but recent economic data have renewed hopes that a rate increase could come soon.

Most participants judged that if incoming data were consistent with economic growth picking up in the

second quarter, labor market conditions continuing to strengthen, and inflation making progress toward

the Committee’s 2% objective, then it likely would be appropriate for the Committee to increase the

target range for the federal-funds rate in June,” the minutes read.

WEAKNESS IN EMERGING MARKET CURRENCIES KEEPING PRESSURE IN EQUITIES

Emerging Asian currencies stayed significantly vulnerable to a stronger dollar and risk aversion. The

US dollar took another step higher after US New Home Sales rose by 619k in April, which represented

a 16.6% increase from March, and was the biggest gain since 1992. The 619k rise roundly beat

economists’ estimates of 523. It was the highest reading since January 2008, and represented a

housing market on the up. Emerging market showing weakness for last few days.

The Indonesian rupiah had touched a 3-1/2-month low on suspected dollar demand linked to bond

outflows. The Malaysian ringgit fell to its weakest in more than two months as falling crude prices

underscored concerns over the country's oil and gas revenues.

Singapore's dollar touched a two-month low as leveraged funds unloaded it. Thailand's baht stayed

near a 3-1/2-month trough after foreign investors sold local bonds yesterday.The South Korean won hit

a two-month low as offshore funds dumped the currency on the US dollar's overall strength.



However Indian Rupee exhibits resilience in last few days compared to emerging markets currency

on back of good corporate result.

WPI INFLATION INCHING UP :

The Wholesale price index-based inflation turned positive after a gap of 17 months, rising 0.34 per cent

year-on-year in April against -0.85 per cent in the previous month, as food and manufactured items

turned dearer while deflation in fuel products narrowed sharply.

On a seasonally adjusted basis, the headline WPI inflation rose 0.86 per cent month-on-month, the

strongest pace of sequential jump in the last 32 months.

.

INDIA’S CONSUMER INFLATION ACCELATES IN APRIL 2016

India's annual consumer price inflation accelerated to a stronger-than-expected 5.39 percent in April

from 4.83 percent the previous month, according to the government data. Meanwhile, food inflation

picked up to 6.32 percent in April from 5.21 percent in March, the data showed. Separately, data

showed India's industrial output edged up 0.1 percent in March from a year earlier, well below forecasts

for 2.5 percent growth. There has been an increase in food prices this month. Particularly things like

fruits, vegetables, pulses and sugar have seen a fairly high month-on-month increase, which has really

pushed up food inflation also to 6.3 percent.



STOCK PICKS MINDTREE – BUY

Target Data Last Closing Price (Rs) : 665.35

Target (Rs) : 740

Buy zone (Rs) : 666.5-660 Stop loss (Rs) : 620

Beta : 0.42

Technical Outlook:

• The stock has found support around 620 which is the lower end of Bollinger Band. Historically also 600-620 has acted as a strong support zone for the stock and the stock has bounced back after coming to its support zone.

• One can buy this stock for the immediate target around 740.

Fundamental Outlook:

• Mindtree reported a stronger-than-expected Q4 (6% QoQ growth; 7% in cc terms) driven by growth in Travel & Hospitality, Technology Media & Services. EBITDAmargin (17%) declined 60 bps QoQ due to drop in gross margin, which was partially offset by SG&A^ efficiencies. Digital (39% of revenue) posted strong growth and the momentum has continued. Mindtree posted a profit of $23 million, an 11 per cent jump from last year. Revenue surged 32 per cent to $195.6 million.

• FY16 has seen industry leading growth of 22.5 per cent for Mindtree. Management is confident that the strategic roadmap with digital and managed services as underlying themes backed by expert teams will help them to deliver superior results going forward.

• Quarterly growth continues to be driven by top client. The top customer grew 13.9% QoQ despite coming off from a strong base (4.2% QoQ in Q3, 13.4%, 13.5% QoQ growth in Q2FY16 and Q1FY16, respectively). Client additions were healthy (likely due to Magnet360) while transition was stable. MTL added 37 (23 in Q3, 18 in Q2) new clients in Q4, highest since Q1FY13. Active clients, including acquisitions, increased QoQ to 348 vs. 294 while clients contributing $1 million on an LTM basis increased by six to 70.

• We expect Mindtree to deliver 16% USD revenue CAGRover FY16-18, driven by strong deal wins and traction in digital services. EBITDA margin to hold at 18% for FY17/18 as operating levers play out. The stock trades at 18x/ 16x FY17E/ FY18E EPS.



ULTRATECH CEMENT LTD – BUY


Target (Rs) : 3600

Buy zone (Rs) : 3216-3200

Stop loss (Rs) : 2980 Beta : 0.85

Technical Outlook:

• The stock took breakout above the long term upward sloping trendline around 2400 and has been moving upwards since then with good base formation around 2600. The stock has been consolidating for the last one year in the price range of 2800-3200 for most of the time.

• The stock is trying to take breakout above 3200 for immediate target of 3600.


• UltraTech Cement Ltd, India’s largest cement maker came out with net profit for the quarter ended 31 March2016 rose 10% due to a better operational performance. The company reported a consolidated net profit of Rs.723 crore, against Rs.657 crore in the same period a year ago. Net sales rose 5% to Rs.6,850 crore from Rs.6,517 crore.

• The company reported a 15% y-o-y growth in cement sales at 13.20 million tonnes (mt) for the January-March 2016 quarter. The average realization, however, was 9% lower at Rs.4,609 per tonne. UltraTech also reported a 5% y-o-y rise in capacity utilization at 84% for fiscal 2016. In its outlook for the next fiscal, the firm expects cement demand to grow 7-8%.

• UltraTech Cement (UltraTech) has entered into a binding MoU for acquisition of 22.4 MT cement assets of Jaiprakash Associates (Jaypee). On 31 March, UltraTech signed a second deal with Jaiprakash Associates to purchase its 21.2 mt cement assets for Rs.15,900 crore. As part of the deal, the firm is also expected to pay an additional Rs.470 crore on the completion of its under-construction assets. In its results presentation, UltraTech said the acquisition will be financed through 20-year rupee term loans and a five-year moratorium on the principal amount.This move will increase its capacity by 33% to 90.7 MT (from the current 68.3 MT), making it the largest cement player in the domestic market (fourth largest player globally) with a market share of over 22%. The assets to be acquired include 22.4 MT cement capacity along with 325 MW captive power plant for |16,970 crore, which works out to US$110/tonne. The deal will be positive for the company considering synergy benefits, access to newer markets and reasonable valuation.



HERO MOTOCORP LTD– BUY


Target (Rs) : 3220

Buy zone (Rs) : 2945-2933

Stop loss (Rs) : 2800

Beta : 0.79

Technical Outlook:

• The stock has taken breakout of the ascending triangle pattern on weekly charts above 2700 and is comfortably trading above the support zone with good volumes.

• Momentum indicator RSI is trading around 60 indicating the stock has upside left and near term target of the stock will be 3220.


• Hero MotoCorp's January-March quarter met street estimates with net profit rising 70.9 percent at Rs 814.2 crore from Rs 476.5 crore in corresponding quarter last fiscal. During the period, total income also rose 10.6 percent at Rs 7512.2 crore against Rs 6793.9 crore on annual basis.

• The improved profit margins were combined results of the highest-ever quarterly sales of 1721240 units and several margin improvement initiates taken during the period longer term outlook on demand environment remains positive, driven by structural drivers like reducing replacement cycles, less penetrated rural market , changing dynamics in urban markets leading to increasing demand for scooters and low finance penetration. On the cyclical front too, with lower inflation, fuel prices and reversal in a decelerating GDP trajectory, FY17-FY18 could be successively better years than previous ones.

• Despite a slew of competitive launches in its forte Executive segment, Hero has remained largely unscathed in terms of motorcycle market share. Specifically in the 125cc segment, its Glamour has gained market share. Hero is likely to gain market share in the scooter space. As such, Hero is well set to capitalize on any revival in demand in the domestic two-wheeler market in H2FY17 and FY18

• Management commentary on margins points to an upward trajectory over the next few quarters driven by (a) 90 bps benefit in FY17 on cost saving from LEAP exercise (b) better pricing environment upon demand revival.

• With improving outlook for rural growth on the back of a good monsoon and positive macro environment for urban revival we expect double digit volume growth trajectory back in FY18



KOTAK MAHINDRA BANK LTD- BUY

Target Data Last Closing Price (Rs) : 734

Target (Rs) : 800

Buy zone (Rs) : 734.40-720 Stop loss (Rs) : 688 Beta : 1.12

Technical Outlook:

• The stock has been trading in a tight trading range of 620-700 for most of the trading days in the past one year.

• The stock is forming a flag pattern as well as a broadening triangle pattern with upside target of 800.


• Kotak Mahindra Bank a decent platform(1298 branches) to cross-sell its products, given its presence in the financial spectrum. Kotak Securities has 2.7% market share in overall market volumes and is one of the prominent domestic investment bankers. It is developing its presence in the asset management and insurance businesses, where it has 3-5% market share

• Kotak Mahindra Bank (KMB) reported Q3FY16 PAT (consolidated, excluding life insurance) of INR8.9bn (up 34% YoY), in line with our estimate. Q3FY16 marked stable performance in banking business with steady progress in eIVBL’s integration, with waning impact of integration one-off costs and some visible benefits (lower opex and improving customer acquisition). Credit cost was higher at INR2.35bn due to provision on SRs and credit substitutes, largely from eIVBL.

• Credit cost rises on eIVBL book (The merger of ING Vysya Bank (eIVBL) with the Kotak Mahindra Bank was effective from April 1, 2015).

• Management maintains FY16 guidance After the blip in Q2FY16, GNPLs(Gross non performing loan) of the merged entity was stable at 2.3%. Credit cost during the quarter inched up to INR2.35bn (INR3.05bn in Q1FY16 & INR2.38bn in Q2FY16) due to provision on SRs and credit substitutes with significant portion from eIVBL. Management continued to maintain that ~6% of eIVBL is in various forms of stress including NPLs, assets sold to ARCs/CDRs and accounts



TECH MAHINDRA LTD- BUY


Target (Rs) : 610

Buy zone (Rs) : 535-530

Stop loss (Rs) : 490 Beta : 0.82

Technical Outlook:

• The stock has taken breakout of the bollinger band with huge volumes and is trading well above the resistance zone of 480-500.

• The stock is trading above the 50 DMA and 100 DMA with momentum indicator RSI indicating that the stock is likely to move higher .

• INR 610 will be the near term target for the stock where it will find some resistance.


• Tech Mahindra reported a better-than-expected 18% quarter-on-quarter growth in consolidated net profit at Rs 897 crore for the quarter ended March, 2016 (Q4FY16). IT consulting & software company had profit of Rs 759 crore in December 2015 quarter and Rs 472 crore in March 2015 quarter. Income from operations grew 2.7% at Rs 6,884 crore on sequential basis.

• TechM could benefit from the integration related opportunity arising out of the acquisitions undertaken by its clients (both AT&T and BT are amongst company’s top 5 clients and TechM’s business in these accounts declined in FY16E). TechM is likely to see a growth in business from BT in FY17E after several successive years of decline in this client account (we reckon that the revenues from BT have declined from ~US$ 600 mn in FY08 to ~US$ 100 mn currently). Additionally if history is an evidence, we could see significant growth for TechM in other US client account.

• WE recommend to accumulate Tech Mahindra given greater confidence in improving operational and financial performance



HIND UNILEVER LTD -BUY


Target (Rs) : 910 Buy zone (Rs) : 850-840 Stop loss (Rs) : 810 Beta : 0.40

Technical Outlook:

• The stock is moving in a downward moving channel with major support around 780-760 zone.

• After falling for five consecutive weeks the stock has seen some positive movement with good volumes indicating the stock is taking support.

• The immediate target for the stock will be in the range of 940-960.


• Hindustan Unilever (HUL), FMCG behemoth, reported standalone net profit of Rs. 1,089.59 crore for the quarter ended March 31, 2016, registering growth of 7.02% yoy and 12.17% qoq. The company’s revenue stood at Rs. 7,945.66 crore, up 3.52% yoy but down 0.44% qoq. Operating profit margin for the current quarter at 18.46% expanded by 129 bps yoy and 53 bps qoq. For the year ended March 31, 2016, the company reported standalone net profit of Rs. 4,082.37 crore, declining by 5.4% yoy. Its standalone revenue for the period stood at Rs. 31,987.17 crore, registering growth of 3.84% yoy.

• With strong brands in the growing aspirational segments, HUL, aided by an improvement in margins (17.5% in FY16E, 18.2% in FY17E & 18.7% in FY18E), is strongly placed to capture a revival in consumer demand, going forward.

• Market growth improvement largely dependent on Rural. However Commodity prices may have

bottomed out so pricing element will beν higher in FY17. Excise impact largely in the base, commodity costs hardening , price led growth may be higher

• Key risks includes Worsening of rural consumption trends is a key risk, Deep pocket players like P&G may engage in price war/irrational competition (like in shampoo category) to gain market shares.



BHARAT ELECTRONICS LTD – BUY

Target Data Last Closing Price (Rs): 1124

Target (Rs) : 1225

Buy zone (Rs) : 1124-1110

Stop loss (Rs) : 1060

Beta : 1.32

Technical Outlook:

• The stock has taken support around 1100 which is also 61.8% fibonnaci retracement level.

• The stock is also forming a large symmetrical triangle pattern and is currently trading in the mid of the pattern which chances of taking breakout and near term target of the stock will be 1225.


• BEL is emerging as a substantial beneficiary of the “Make in India” reform in defence.

• BEL‟s 80% of revenue comes from defence orders which largely depend on defense requirements and its procurement policies.

• The current order book is robust at Rs32,333cr, 551% up from last year. • On a conservative basis we expect 15% CAGR in earnings over FY16EFY20E.

• More potential in earnings growth will emerge as per the progress of the recently initiated modernization & indigenisation programme.

• Cash rich, total cash as on 3QFY16 at Rs5,280cr (including term deposit) and is debt free.

• ROE to be above 14% over the next 2-3years. BEL‟s valuations have hovered at lower end of 13x-15x during last 10 years, though its average peak valuation was at 22x.



DISCLAIMER

Disclosure: We, (Amartya Ray, MBA, Kaushik Hore, B.com (H), author and the name subscribed to this report, hereby

certify that all of the views expressed in this research report reflect our personal views about the subject issuer(s) or securities and no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. As per records or Information, Research Analyst or his/her relative or Research entity does not have any

financial interest in the subject company other than disclosed.

Disclosure of Interest Statement A w er hip f he ck - N

Ser e fficer irec r r e p ee - N

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Peerless Masterpicks Monthly- June 2016 Masterpicks... · • UltraTech Cement Ltd, India’s...

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