Portfolio To Light Your Diwali

Diwali being the festival of lights and wealth is one of the most significant events for Indians residing across every part of the world. Diwali traditionally also marks the beginning of the new fiscal year for Indian businesses. However, the previous Samvat 2071 did not turn out to be as profitable for investors considering that it had been witnessing a rather dull performance. However, that did not stop the investors from being optimistic and the market touched its all-time high in the first half of Samvat 2071 with the BSE sensitive index, Sensex, crossing the magic figure of 30,000 in March 2015.

However, then onwards, the market lost all its gains and corrected dramatically only in the second half of the Samvat. The primary reasons behind this fall included global market cues such as China’s currency devaluation and economy slowdown, expected US Fed interest rate hike, worsening situation in the European market after the resignation of Greece’s prime minister, degrading of Brazil to “junk” by global rating agency S&P, and domestic market worries such as logjams over the monsoon parliamentary session creating hurdles for the reform process, weak corporate earning seasons, worsening of monsoon across the country, etc.

That the market is disappointing is clearly visible through the foreign institutional investors’ net equity investments in India of Rs 41,729 crore in Samvat 2071 as against Rs 1,23,139 crore last Samvat. The low but consistent FIIs’ cash inflow helped the Indian market manage to be above the last Diwali Sensex levels with almost 4 per cent gain on the bourses. However, the readers of Dalal Street Investment Journal have reasons to celebrate as our portfolio of Diwali 2014 has created astonishing returns of 29 per cent (See Table: Consecutive Fourth Year of Significant Outperformance). This clearly indicates our standard of research, which has always been at the core of wealth creation for our readers.

Ever since the new government came has assumed power in India since last year, it has started to take control over the finances with a clear focus on economic growth in India. The results have started showing in terms of macro-economic factors such as inflation, fiscal account deficit, capital account deficit and forex reserves. The government’s public finance measures and economic reforms have started giving comfort to the Reserve Bank of India (RBI), which has begun to reduce the policy rates. Prior to the big rate cut cycle, the RBI had not changed its policy rates for almost a year. With the controlled micro-economic data readings, the RBI has cut almost 1.25 per cent, beginning January 2015.

The rate cut will definitely be a reason to celebrate for the equity market as the cost of capital is reduced directly and it increases capital raising capacity. The increase in liquidity in the market will lead to increasing capital expenditure activity across the economy, generating further cash flows and circulating money into the ecosystem. The rate cut also helps to improve the profitability of corporates.
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Though the BJP-led NDA government has a majority in the Lok Sabha, the government lacks a similar status in the Rajya Sabha. This very fact is the predominant reason for the markets to lose optimism as the government is not able to pass key reforms after coming to power. However, the government has considerably managed to implement some key reforms till date. Further, the government has increased public spending through various infrastructure projects across the country. The upcoming result of the Bihar election in the first week of November may provide further boost to economy if the BJP-led NDA wins with majority in the state. Considering the till date performance of the government, we can definitely expect a continuous focus towards the reforms process initiated so far.

India being a net importer of commodities and crude oil will have considerable help from the lower commodity prices. Further, the lower commodity prices are expected to continue to remain subdued over the next few quarters considering the global economic situation. Rather, crude may touch a new low of USD 20 per dollar as per Goldman Sachs’ prediction. Further, the prices of other commodities such as iron, copper, aluminium, etc. too remain lower due to the largest commodity consumer China facing economic slowdown. Hence, this very fact will definitely lower the raw material and fuel and energy costs for the Indian corporates, thus improving their profitability in days ahead.

Though the corporate earnings during the last quarter showed a subdued performance, the Indian markets are looking positively placed to gain in the longer term as the corporate result season is turning out to be positive for the last quarter. Though there would not be any great surprises during the September quarter results, the December quarter could be a turning point for the corporates. The newly elected government last year has started taking steps to improve the economy by increasing public spending, which would be likely to show its benefit from the coming quarters.

Furthermore, the government’s continuing efforts on public spending will further boost growth in the economy over the coming months. The government’s focus on clearing infrastructure as well as road projects is expected to provide the much-needed lifeline to infrastructure companies. With recovery in corporate earnings coupled with increasing investment, we believe the domestic markets are at an attractive juncture for investments.
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India has remained investors’ favourite for the last few months across the emerging markets’ pack. Brazil, an emerging economy, was recently downgraded to “junk” by global rating agency S&P and this downgrade will see considerable impact on its economy, leading it to slide downwards in investors’ ranking. Further, the world’s second-largest economy is already facing considerable demand slump. Being a commodity exporter, the Russian economy may also see some pressure on its economy.

More interestingly, despite turmoil in most of the international markets, India has emerged as one of the fastest growing markets globally. This would be the primary reason behind a hike in India’s exposure to the global emerging markets (GEM) and Asia, excluding Japan, during the past three months. Global rating agency Standard & Poor’s has also affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings for India. The ratings assure the country’s sound external profile and improved monetary credibility.

The European Central Bank (ECB) has started to take note of the unrest in the European markets. Hence, to revive the markets, ECB has already started thinking of increasing its USD 1.2 trillion stimulus programme. Another added factor for the stimulus is the inflation figure at minus 0.1 per cent and the overall deterioration in global economies. Among key concerns are the slowdown in China and developing economies as well as a rise in the euro in recent weeks. Further, now it is almost clear that the US Federal Reserve is not going to hike its interest rate in this calendar year over the worsening of a few global economies. This will further neglect the FIIs’ cash outflow in the near future.

After losing all the gains made last Samvat, the Indian stock market is trading at almost the same level as of last Diwali. However, there are a few companies that have become increasingly costlier and their stock prices have gone up over the higher earnings’ expectations. Nevertheless, the recent correction has made these stocks considerably cheaper in valuations. Companies that have strong business models are definitely bargain buyers in the current market situation. We are bullish on the businesses with strong earnings’ potential even if India’s economic recovery has yet to accelerate.

However, it should be taken as an opportunity to invest for the long term. Going ahead in the story, we are recommending a portfolio of seven stocks to our readers. We advise buying them in a staggering manner. We believe the portfolio would be able to generate better than market returns. To sum up, the Dalal Street Investment Journal team wishes our readers a very Happy Diwali and Prosperous New Year.

While investors were cheering the optimism of the market brought on by Diwali, readers of Dalal Street Investment Journal had even more reasons to celebrate. Our Diwali 2014 portfolio managed to outperform the benchmark index by significant margins. To put the figures in perspective, our portfolio has generated returns of 29.22 per cent appreciation while the Sensex is almost 3.83 per cent.

Here we would like to credit our consistent focus on research to find fundamentally strong counters for our readers, even at times when the scenario was quite shaky and not many on the street were in favour of investing in Indian equities. This is the fourth consecutive year when we have managed to beat the benchmark index with significant margins. In 2012, while our portfolio appreciated 29 per cent as against 11 per cent returns provided by the Sensex, in 2013 too our portfolio generated returns of 21 per cent as against 11.50 per cent of the Sensex. In 2014, our Diwali portfolio provided 49.21 per cent against Sensex returns of 28.87 per cent.

If you look at the scrip-wise performance, the BEML stock has doubled in a year’s period, yielding almost 108 per cent. The other star performers within our portfolio were Bosch, NIIT Technologies and UPL which gave handsome 48, 38 and 34 per cent returns respectively. Though there were three stocks which gave negative returns, Supreme Industries (-1 per cent) and Biocon (-6 per cent) were only marginally down. However, Cox and Kings gave a negative 17 per cent return due to the bleak economic environment despite the good specific fundamentals of the company.

Needles to say, it is important to review one’s own performance as it allows you to gauge yourself and also set a higher benchmark for future performance. This time also we are recommending a model portfolio to our investors and expect another round of stellar performance for next Diwali.
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Here is why

•           Slowly diversified its port portfolio reducing dependence on Mundra port

•           Steady growth in container volumes and cargo handled at all its ports

•           RBI allowed foreign investors to invest up to 40 per cent in APSEZ

The government’s Sagarmala Project, aimed at port-led development in coastal areas, is bound to boost the country's economy and the cabinet has lined up about Rs 70,000 crore for its 12 major ports. The government will set up 14 coastal economic zones and a special economic zone at Jawaharlal Nehru Port Trust (JNPT) in Mumbai under Sagarmala Project. Free trade warehousing zones will be set up in Cochin and Ennore. According to the government, ports will play huge role in double digit GDP target. Further, port, shipping and highways sector will very soon add 2 per cent to the country's GDP. Adani Ports and Special Economic Zone (APSEZ) has the most traction to benefit from the improving macroeconomic environment.

Adani Ports is engaged in the business of providing infrastructural facilities. The company is primarily involved in the business of developing, operating and maintaining the port and port-based related infrastructure services, including multi-product special economic zones at port locations. Its segments include port and SEZ activities and others. APSEZ's other segment mainly includes aircraft operating income and services as per concession agreement with Government of India, Ministry of Railways for movement of container trains on specific railway routes and multi-modal cargo storage-cum-logistics services through development of inland container depots at various strategic locations.

APSEZ diversified its business to reduce the dependency on single Mundra port. The company recently got a nod to develop the Vizhinjam Port in Kerala. Last year, it had acquired Dhamra Port in Odisha from Tata Steel and L&T Infrastructure, for an estimated Rs 5,500 crore. APSEZ is also developing a Rs 1,270 crore container terminal inside Ennore Port and the first phase is expected to be ready by January 2016. The total capacity would be 1.2 million twenty-foot equivalent units (TEUs), of which 0.8 million TEUs will be ready in the first phase.

On the financial front, APSEZ's topline is growing with 25.2 per cent CAGR in the last five years. The company's EBITDA and net profit is also increasing at CAGR of 24.6 per cent and 20.31 per cent respectively over the previous five years. Considering its recent quarter result, revenue increased by 38.58 per cent to Rs 1,748 crore in Q1 FY16 as compared to the same period in the previous financial year. APSEZ's EBITDA got boosted by 39.35 per cent to Rs 1,145 crore in Q1 FY16 on a yearly basis. The company's EBITDA margin expanded by 36 basis points to 65.49 per cent in Q1 FY16 on a yearly basis. Its net profit rose by 12.83 per cent to Rs 641 crore in Q1 FY16 as compared to the same period in the previous fiscal year.

The consolidated cargo across all ports handled by the company was 40 million tonnes (MT) in Q1 FY16 with a growth of 17 per cent over the corresponding quarter last year. In case of containers, the Mundra Port handled 7.48 lakh TEUs in Q1 FY16 as against 6.81 lakh TEU's in Q1 FY15 and witnessed 10 per cent growth as compared to growth of 3 per cent aggregate growth in container volumes at all the major ports. Its twin ports of Hazira and Dahej handled cargo increase by 22 per cent to 5.42 MT in Q1 FY16.

The Reserve Bank of India (RBI) allowed foreign investors to invest up to 40 per cent in APSEZ in June 2015. Over one year, the company's shareholding pattern indicates that FII holdings expanded by 1,526 basis points to 33.18 per cent and DII holdings also expanded by 223 basis points to 5.09 per cent as of September 2015 quarter. Its institutional holdings expanded by 108 basis points to 38.27 per cent in Q2 FY16. On the valuation front, APSEZ share is available at trailing 12 months (TTM) PE of 27.24x times which is aligned with industry PE of 27.28x. Considering volume growth and further expected growth in volume, we recommend our readers to buy the stock.
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Here is why

•           Government mandate for DAS Phase III and IV will expand market for DishTV

•           DishTV, being a pioneer market leader in the industry, has competitive advantage

•           Delivering strong financial results from the last three consecutive quarters

Analog TV households are mandated to be digitized under the Digital Addressable System (DAS) as per government notification. The Ministry of Information and Broadcasting (MIB) has set deadline for DAS Phase III till December 2015. Further, the deadline for DAS phase IV is December 2016 and will be covered across rest of India with approximately 73 million TV households. Digital penetration in India is only 52 per cent, the lowest among countries like Korea, Sri Lanka, Indonesia, Japan, New Zealand, Singapore. DishTV, being a market leader with vastly scattered distribution network, is expected to benefit the most from this “Digital India” campaign.

DishTV is Asia’s DTH service provider. DishTV has on its platform more than 496 channels and services, including 22 audio channels and over 43 HD channels & services. The company has a vast distribution network of over 1,685 distributors and over 2,01,300 dealers that span across 8,929 towns in the country. DishTV customers are serviced by thirteen 24x7 call centres catering to 11 different languages to take care of subscriber requirement at any point of time.

DishTV uses the NSS-6 satellite platform which is unique in the Indian subcontinent owing to its automated power control and contoured beam which makes it suitable for use in ITU-K and N-rain zones ideally suited for India’s tropical climate. The satellite has competitive advantage to provide durable service to its customers. DishTV has total bandwidth capacity of 720 MHZ, the largest held by any DTH player in the country. It has 16 transponders, the largest among its competitors.

DishTV offers 100 per cent pre-paid services. The company majorly earns from subscription revenues. The major expense for DishTV is programming and other costs amounting to 29 per cent of total expenditure. However, as the company’s subscriber base is increasing, the programming and other costs as a percentage of subscription revenue have considerably decreased over the past few years from 71 per cent in FY08 to 31 per cent in FY15. The second major cost for the company is selling and distribution expense which constitutes 15 per cent of total expenditure. Further, DishTV also pays 10 per cent of gross revenue as mandatory license fee as per guidelines of MIB. However, the Telecom Regulatory Authority of India (TRAI) recently recommended reducing license fee to 8 per cent. Another positive development for the company will be subsuming of the Entertainment Tax and Service Tax post rollout of Goods and Service Tax (GST).

Considering the latest quarter result, DishTV added 3.38 lakh net subscribers during Q2 FY16 despite a seasonally weak quarter. The company's consolidated revenues increased by 15.77 per cent to Rs 752.42 crore in Q2 FY16 on a yearly basis. It earned 85.03 per cent from DTH segment and remaining 32.19 per cent from its infra support services segment during Q2 FY16. DishTV's EBITDA boosted by 57.47 per cent to Rs 255 crore in Q2 FY16 on a yearly basis with 26.06 per cent reduction in selling and distribution expenses. The company's EBITDA margin expanded heavily by 897 basis points to 33.89 per cent in Q2 FY16 on a yearly basis. It reported net profit of Rs 86.96 crore in Q2 FY16 against net loss of Rs 14.09 crore in Q2 FY15.

DishTV's Average Revenue per User (ARPU) stood at Rs 171 against Rs 173 in Q1 FY16 and Rs 166 in Q2 FY15. The company added six new HD channels during the quarter, taking the total HD channel count on its platform to 48, the highest in the industry. Dish TV has been a category leader and has been a serial innovator in the space. The company launched India’s first push video-on-demand service, DishFlix, during Q2 FY16.The product has had an encouraging response so far and is on track to carve out a niche market for itself.

Over the last one year, the FIIs’ and DIIs’ holdings in the company expanded by 790 basis points to 19.76 per cent and 90 basis points to 4.01 per cent respectively. Considering good market expansion and increasing high margin HD revenue, we recommend buying the stock.
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Here is why

•           Focused and targeted market segment along with increase in booking area

•           Its low debt to equity profile in infrastructure industry attracts investors

•           Almost 79 per cent focus on mid-sized homes

The Smart City plan may soon become a reality as the Union Cabinet has shortlisted 100 most awaited cities across pan India. The Urban Development Ministry will streamline the process by the year end and issue notifications to enable municipal corporations to provide approvals to building projects in a time-bound manner. The government intends to bring these changes to give a push to its initiatives like Housing for All, Smart Cities Mission and Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The ongoing growing scenario across the realty sector will boost the business of companies like Kolte Patil Developers (KPDL).

KPDL is in business of construction of residential, commercial, and information technology (IT) parks along with renting of immovable properties and providing project management services for managing and developing real estate projects. The company has developed and constructed over 48 projects, including 35 residential complexes, nine commercial complexes, and four IT parks covering a saleable area of over 10 million square feet across Pune and Bengaluru.

Realty developer Kolte-Patil Developers has completed acquisition of 100 per cent stake in its special purpose vehicle company Corolla Realty. The company earlier held 37 per cent stake in the company and has paid total consideration of Rs 164 crore for the complete buy out. Corolla is the holding entity for Ivy Estate and has 80 acre property development at Wagholi in Pune. The project's total saleable area is 5.3 msf of which around 2.5 msf has already been sold at the end of Q1 FY16. Furthermore, KPD witnessed 30 per cent growth in booking in area to 2.85 million square feet (msf) in FY15 on yearly basis. The company's booking area rose by 46 per cent to 1,677 crore in FY15 on a yearly basis.

KPD has focus on mid-income homes and the strength in Pune’s property market helps the company to enhance their business. The company plans to launch 7 msf spread over six projects during FY16 such as four in Pune and one each in Mumbai and Bengaluru, primarily in the mid-income segment. KPD's 79 per cent inventory of ongoing projects is priced below Rs 1 crore as of Q1 FY16. It planned to launch 10 msf in cities, including Mumbai. On increment in rental rates for commercial property, KPD's management has planned to re-start commercial property development by next year.

In the latest quarter, KPD’s topline grew with 27.79 per cent CAGR from period of FY11 to FY15. The company's EBITDA boosted by 18.84 per cent CAGR in the last five years and stood at Rs 204.38 crore in FY15. Its net profit also witnessed growth at CAGR of 6.4 per cent in recent years and stood at Rs 65.33 crore in FY15. KPD's total debt stood at Rs 378.48 crore in FY15. The company has total debt to equity ratio of just 0.45 as of FY15, which is quite lower for an infrastructure industry company.

Interestingly, KPD's latest shareholding pattern indicates that its institutional holdings expanded by 489 basis points to 12.15 per cent over the one year. The company's foreign institutional investors (FIIs) holdings expanded by 29 basis points to 12 per cent and domestic institutional investors (DIIs) holdings contracted by 13 basis points to 0.15 per cent in September 2015 quarter.

On valuation front, KPD share is available at TTM PE multiple of 22.37x times, which is quite proportionate to industry PE multiple of 23.97x times. The company has TTM EPS of Rs 7.99. Its ROE and ROCE stood at 12.37 per cent and 17.44 per cent respectively as of FY15. Considering that it is a intrastructure and reality company, the financial ratios for the company helped it to stand out against its peers. Further, the company operates in an strong vibrant market with considerable amount of inventory for mid-size housing. Further, its lower debt position and reviving market conditions for housing impresses us to recommend this stock to our readers.
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Here is why

•           Strong retail and branch expansion to give stiff competition to new entrants

•           Strong asset quality with ever increasing assets

•           Planning to merge with parent HDFC, creating behemoth

India has attractive long-term growth prospects and HDFC Bank being a large financial institution in India is set to profitably supply the financial resources needed for the country's development. HDFC Bank will continue to generate high returns on equity, and is favorably positioned to leverage India's strong long-term economic growth prospects. Despite remarkable loan growth, averaging about 31 per cent annually for the past 10 years, HDFC Bank has managed to expand its deposit base at nearly the same time around 29 per cent, maintaining a low cost of funds and increasing its profitability.

On the Financial front, recently HDFC bank reported good financial performance during its second quarter FY16 results. The total interest earned by the bank during this quarter stood at Rs 14,772.52 crore compared to Rs 14,041.06 crore, an increase by 5.2 per cent on sequential basis. The total income of the bank rose by Rs 17,324.28 crore in Q2 FY16 against Rs 16,502.97 crore in Q1 FY16. The NII (Net Interest Income) stood at Rs 6,681 crore, which rose by 4.57 per cent on a Q-o-Q basis. The net income margin stood at 4.2 per cent; it was 4.3 per cent in the previous quarter. The net profit of HDFC Bank stood at Rs 2,869.45 crore in Q2 FY1 compared to Rs 2,695.72 crore in Q1 FY16, which grew by 6.44 per cent.

The bank's asset quality seems to be improving as the gross NPA (Non Performing Assets) stood at 0.91 per cent from 0.95 per cent in the previous quarter and net NPA stood at 0.25 per cent against 0.27 per cent in the previous quarter of the same fiscal. Over the years, HDFC Bank has performed financially strong. The last financial year too was not an exception for its performance. Interestingly, the banks deposits grew higher than credit at 23 per cent on a yearly basis during FY15. Further, the five year CAGR for deposits stood at 16 per cent. The CASA ratio remained stable at around 40 per cent during the same period. With the good and comfortable asset quality of the bank, it managed to maintain its NIM around 4.3 per cent for a long period.

With the changing scenario in banking and financial industry and the RBI allowing new banking licenses to 23 financial institutions, HDFC Bank too is preparing itself to give tough competition in the coming years. During FY15, the bank opened 611 new branches and 510 ATMs. However, despite the addition to the infrastructure, the bank maintained its cost to income ratio at 44.6 per cent for the year ended March 31, 2015, as against 45.6 per cent for the previous year. The bank focused on semi-urban and under-banked markets, with over 52 per cent of the bank’s new branches in semi-urban and rural areas.

There is still considerable scope for long-term expansion and shareholder value creation, as the bank benefits from rising incomes across India's middle and upper classes, which have been the bank’s target customer segments for a long time. The bank’s focus on salaried individuals with steadily rising incomes, and on giving loans mainly to existing clients within this segment, has allowed HDFC Bank to control non-performing loans. The bank’s data-driven approach to understanding customer behavior prior to giving out a loan has become the gold standard in the industry.

HDFC Bank has good lending standards, with very less non-performing loans. The earning five year CAGR of HDFC Bank is more than 20 per cent, which is the best among the large private sector banks in India because of core income growth pick up led by healthy loan growth, stable NIMs and gradual improvement in fee income. Additionally, HDFC and HDFC Bank planned to merge in the start of the year 2015 but are awaiting certain more approvals. If it will happen, HDFC Bank may be a larger bank than state-run SBI. The bank is trading at a price to book value of 4.43x and at a price to earnings per share of 26.17x. 
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Here is why

·         Acquisition of New York-based Time-Cap Laboratories

·         Lower levels of rupee expected to benefit most

·         Robust financials and debt equity profile for the company

According to IMS, sales of over-the-counter (OTC) medicines currently account for approximately 11 per cent of the total global pharmaceutical market. Three regions account for 70 per cent of the global OTC market: Europe accounts for the biggest share with 33 per cent, North America 20 per cent; and South East Asia 17 per cent. Japan and Latin American command 12 and 10 per cent respectively, and remaining with other smaller regions. Being the majority of the products in OTC market, Marksans Pharma (MPL) has great exposure towards to gain business in OTC dominant geographies.

MPL manufactures products for segments such as pain management, cough and cold, diabetes, cardiovascular, central nervous system, antibiotics, gastrointestinal, anti-allergic and oncology. The company is engaged in research and development, and offers contract research and manufacturing services to global pharmaceutical companies. MPL has a manufacturing facility spread across Goa, India; Southport, the United Kingdom and New York, the United States. It supplies products to more than 25 countries.

MPL has recently acquired Time-Cap Laboratories, New York in June 2015. Time-Cap manufactures solid dosegeneric pharmaceuticals like private label OTC medications, generic prescription drugs and nutritional supplements. Time-Cap has a facility in Farmingdale, New York, from where it manufactures 50 unique products including tablets, capsules and pellets. The strategic acquisition could help to MPL for expansion of its manufacturing capabilities along with product portfolio and penetration into the US. Time-Cap's average annual revenue was USD 30 million per annum over the last four years and had average annual adjusted EBITDA of USD 4 million in the same period. Time-Cap is zero debt company. Through the acquisition MPL's topline would get enhance by almost 25 per cent.

On the financial front, MPL is witnessing topline growth of 12.56 per cent CAGR over the last three years. The company's EBITDA too growing at 20.27 per cent CAGR from FY12 to FY15 period. Its revenue increased by 26.29 per cent to Rs 800 crore in FY15 as compared previous financial year. MPL's EBITDA boosted by 55.11 per cent to Rs 188 crore in FY15 on yearly basis. The company's net profit rose by 52.12 per cent to Rs 109.39 crore in FY15 on yearly basis. MPL able to cut debt burden by 44.54 per cent to Rs 88.59 as of FY15. Its total debt to equity ratio has come down from 1.12 in FY14 to 0.23 in FY15. In MPL's latest quarter result, revenue too increased by 22.27 per cent and net profit too increased by 25.63 per cent in Q1 FY16 on a sequential basis. Its EBITDA and net profit margins expanded by 53 and 39 basis points to 24.67 and 14.81 per cent in Q1 FY16 on a sequential basis respectively.

On the geographical segment front, MPL earned revenue of 63.4 per cent from Europe and UK, 20.54 per cent from US & North America, 9.11 per cent from Australia and New Zealand and remaining 6.95 per cent from Rest of the World during Q1 FY16. Interestingly, the rupee is expected to remain at the current levels before showing any appreciation for the next few quarters. Hence, MRL which earns 99 per cent will benefit the most out of lower rupee. Interestingly, over the one year, MPL's FIIs expanded by 791 basis points to 15.22 per cent as of September 2015. On the valuation front, MPL's share is available at trailing twelve months (TTM) PE multiple of 35.35x times which is quite lower as compared to peers such as TTM PE of Natco Pharmaceuticals at 68.96x times, Indoco Remedies at 37.02x times. Considering its cheaper valuation, acquisition of Time-Cap Laboratories and lower rupee levels, MPL looks quite attractive investment opportunity.
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Here is why

·         Government initiatives to boost infrastructure, especially Make In India

·         Continuous focus on high profit margin business of JLR

·         Cheaper valuations compared to peers and expected market recovery

The automobile sector is considered to be an important economic indicator. India is expected to witness multi-fold increase in motorization as the working population and GDP per capita increases in the next decade or so and making Indians as one the biggest middle class population in the world. The current government’s thrust on infrastructure investment, ease of doing business and 'Make in India' initiatives efforts are definitely positive news for Tata Motors (TML).

Jaguar Land Rovers (JLR) business continues to show impressive performance despite a slowdown in China sales numbers. Other geographies continues its strong upward momentum mainly in the US, UK and Rest of Europe. For JLR, FY16 is expected to be an important as the company is ramping up its production capacity with new manufacturing facilities. Capex, which is pegged at 3.6 billion pounds this fiscal, mainly for capacity expansion and engine. However, JLR's current heavy investments, if successfully executed, would increase its products breadth and volume over the medium term.

The company expects profitability to be supported by its core Land Rover products and the roll-out of new/refreshed products in 2016, including the new Evoque convertible, the all-new Jaguar XF, Jaguar XE and Jaguar SUV, F-Pace, and also Ingenium Engines-a high margin product. The auto major is also looking to launch celebration editions of various models including Bolt, GenX Nano range and Safari Storme. The company would also introduce Indigo model with special celebration kit and Zest celebration edition.

Tata Motors is setting up its first bus dealership 'BusZone', offering a host of new features.  With BusZone, Tata Motors aims at addressing specific and growing requirements of the bus customer, a very important commercial vehicle customer segment by offering sales and service support exclusively for bus chassis and bus bodies.

The Tata Motors sales for FY2015 stood at 9,97,550 vehicles, lower by 2.3 per cent as compared to the previous fiscal of FY14. In FY15, Indian automobiles volume grew by 2.4 per cent, whereas Tata Motors declined by 11.5 per cent, which in turn further reduced the company’s market share from 16.5 per cent to 14.1 per cent. H1 had muted sales volume number in the domestic markets due to no new launches and intense market competition. Whereas, H2 is expected to be a better for the company in terms of sales volume, with new launches lined up along with discounts and offers on the existing models in order to drive up sales.

With TML’s consistently investing into capex, products and technologies that would certainly give it advantage in comparison to its peers. With the host of new products lined up in both the passenger vehicles and commercial vehicles, the company will continue to excite the customers. Fundamentally TML is in a good position given its product profiles plus its upcoming new launches. Tata Motors have given a handsome ROE of 32.38 per cent for FY15, over and above the industry averages. The PE multiple of TML is 9.4x times lowest among its top 5 peer companies: Ashok Leyland (197.36x), Eicher Motors (65.24x), Force Motors (44.54x), and industry PE multiple was 13.34x as on October 27, 2015. Considering the new launches and expected economic recovery, we expect TML to show stellar performance across all its segments. Further, the Make in India and infrastructural initiatives too will benefit automobile companies such as TML in days to come.
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Here is why

·         Maggi relaunch will boost Nestle’s revenue

·         Consistent good financials over the last five years

·         After correction and relaunch, Nestle valuation looks quite attractive

Nestle is engaged in the business of manufacturing and selling milk products and nutrition beverages, prepared dishes, cooking aids, chocolates and confectionery. Today, it operates through seven production facilities spread across the country and four branch offices one each in Delhi, Mumbai, Chennai and Kolkata. The company is the best known for its coffee products. The brand equity is such that its coffee range, marketed as Nescafe has almost become synonymous with the word coffee. The company’s beverages include Nescafe Classic, Nescafe Cappuccino, Nescafe Sunrise Premium, Nescafe Sunrise and Nestea iced tea.

In June 2015, Nestle had to face a ban on its one of the flagship products, Maggi, due to higher lead content above permissible limits. In this connection, Nestle had to stop selling the product and destroyed its inventory after the government’s ban on the product. Maggi was very well accepted instant food in India and had been a dominant brand in the instant noodles space for over 32 years, enjoying a market share of over 70 per cent. It was the number one brand in noodles compared to ITC (Yipee), Nissin (Top Ramen), HUL (Knorr) and GSK Consumer (Foodles).

Due to the Maggi fiasco, Nestle posted first time ever loss of Rs 64.4 crore during latest quarter Q2 CY15. The total income of Nestle dropped down by 19.53 per cent to Rs 1,957 in Q2 CY15 crore compared to Rs 2,432 crore in Q2 CY14. However, its expenses rose by 18.64 per cent to Rs 1634 crore on yearly basis. Nestle's EBITDA decreased by 22.2 per cent to Rs 394.63 crore against Rs 507.24 crore and its EBITDA margin contacted by 69 basis points to 20.16 per cent year on year.

According to Nestle’s recent exchange filling, the company reported the test results from all three laboratories mandated by the Hon’ble Bombay High Court to test Maggi Noodles samples. All the 90 samples, covering six variants, tested by these laboratories are clear with lead much below the permissible limits. According to the company, Nestlé India has conducted over 3,500 tests representing over 200 million packs in both national as well as international accredited laboratories and all reports are clear. Hence the company can be expected to reintroduce its beloved Maggi noodles at the earliest. The clean chit given to Maggi noodles is likely to reinstate Nestle’s brand equity which was hit post the June 2015 ban and also affected sales of other Nestle products. The re-launch would also shore up the company’s topline and bottomlinegiven that Maggi noodles contributed almost Rs 2,500 crore i.e. almost 25 per cent of its CY14 sales.

The fast moving consumer goods (FMCG) segment is the fourth-largest sector in the Indian economy. The market size of FMCG in India is estimated to grow from USD 30 billion in 2011 to USD 74 billion in 2018. Food product is the leading segment, accounting for 43 per cent of the overall market. While benefitting from this huge opportunity, the Nestle has posted net sales 5 year CAGR of 9.34 per cent. Further, its five-year CAGR for EBITDA and net profit too stood at healthy rate of 9.92 and 7.67 per cent respectively. Additionally, the company’s EBITDA margin remained above 20 per cent for the last five years consistently with an expansion of 43 basis points from CY10.

After the ban of Maggi product, Nestle’s stock has corrected more than 22 per cent a week’s time. The investors became nervous on the stock as the company expected to post revenue loss of almost 25 per cent due to the ban. Further, the ban also created negative sentiments over other Nestle products, leading to lower consumption. However, the recent clean chit by Nestle will reinstate its brand equity and its sales of banned Maggi and other products in the coming few quarters. With a recent correction in the stock along with re-launch of its flagship product Maggi, the Nestle stock looks quite an attractive buy in the Indian FMCG segment, which is considerably stretched in valuations over high revenue visibility.