Rating – Buy
CFHL is one of the best placed housing finance companies (HFCs) with best in class asset quality and strong return ratios. It is also the fastest growing HFC with a strong loan book CAGR of 38% over FY12-17. With high-quality management, the company has consistently been reporting healthy growth numbers. CFHL offers ~24 loan products, under housing and non-housing, tailor-made for its niche customer segment. The products basket covers individual housing loans for construction, purchase, extension, repairs & renovation, site purchase, composite loan, loans for rural housing, loans for urban housing etc and non-housing loans like mortgage loans, personal loans to existing customers, loans for commercial property, loans for rent receivables etc.
Indian economy would require an investment of around $1 trillion over the next five to seven years to meet the increasing infrastructure and housing demand, at current growth levels. Around 70%–80% of the demand is expected to come from the housing sector especially from the small ticket affordable housing segment and Tier-II/III cities. CFHL is well placed to exploit huge growth opportunities as it is well capitalized with stable asset quality and has also marketing & distribution network in Tier I and II cities across India. CFHL has a strong marketing and distribution network of 170 outlets spread across 19 states comprising of 124 branches, 10 affordable housing loan centres (AHLCs) and 36 satellite offices. Notably, the company started branch expansion aggressively since FY12 under the leadership of Mr C. Ilango as compared to no branch addition in the preceding decade. The company’s branches are strategically located outside cities to focus on small ticket customers (below Rs2mn). As a result, the company’s sanctions and disbursements grew at a strong CAGR of 37.6% and 41.0%, respectively over FY12-17. We believe that the renewed vigour to expand balance sheet and new branch additions in recent months will help the company to sustain a loan book growth of ~25% CAGR over FY17-19E.
CFHL has delivered healthy operating performance backed by strong business growth along with steady asset quality over the last five years. Given the strong traction in loan book expansion and sustained healthy asset quality (Gross/Net NPA at 0.2%/0.0% as of FY17), we expect the return ratios to improve further in the medium term. We project CFHL to deliver ~2%+ RoA over FY17-19E. Given the strong growth rate, excellent asset quality and superior return ratios, its premium valuations within the HFC space is justified. We have a BUY rating on CFHL and assign a target price (TP) of Rs612 (P/ABV of 4.0x for FY19E).
Analyst: Kaushal Patel, Dion Global Solutions Ltd., INH100002771
General Disclosures and Disclaimers: Can Fin Homes Ltd http://bit.ly/2ypsCMj
Rating: Buy
NBCC Ltd (NBCC) is a Navaratna Enterprise under Ministry of Urban Development. Its business verticals include: Project management consultancy (PMC), Engineering Procurement & Construction (EPC) and real estate business.
NBCC signed the MoU with the ministry of Housing and Urban Affairs outlining the targets on various performance parameters for the Company during FY18. Further, NBCC also entered into Shipyard Ltd and India Habitat Centre to develop state of the art centers, undertake redevelopment projects, and promote green buildings, capacity building and development of green building resources.
NBCC’s current order book backlog is of Rs750bn (including re-development project of 3 colonies in Delhi worth Rs250bn). Order book consists of 92% PMC including large re-development project. EPC & Real estate forms 5% & 3% of the order book. Management expects the marketing work of the 3 colonies will be completed by Q3FY18E. Further, management has guided Rs25000cr of order intake in FY18E. NBCC is at sweet spot considering its huge order book, limited competition and expertise in executing large projects. More potential opportunities are in the pipeline from Dharvi, Railway station redevelopment and irrigation project in Maharastra. We factor revenue to grow at 38% CAGR over FY17-19E. However, given large order backlog we continue to maintain cautious view on the execution.
Q1FY18 revenue growth was flat at 0.2% YoY at Rs1,261cr. The PMC business grew by 3%, while real estate and EPC business declined by 49% & 10%. Revenue growth in PMC business was lower largely due to lower execution of large redevelopment projects due to time lag for preparatory works. Whereas, real estate business continues to be impacted by slow down.
The EBITDA margins in Q1FY18 improved by 160bps YoY to 5.1% led by higher PMC margin. PAT grew by 24% YoY supported by decline in interest cost. With pick-up in execution in FY19E EBITDA margin is expected to improve led by operating leverage. Considering this, we upgrade our EBITDA margin estimates for FY19E by 40bps to 7%. Going forward, with pick-up in execution of large redevelopment projects we factor earnings to grow at 42% CAGR over FY17-19E.
Mammoth order book provides strong visibility for next 5yrs. Execution from large redevelopment is likely to improve from H2FY18E which will add impetus for re-rating. Considering the asset light PMC segment, less leveraged balance sheet and robust opportunities in the pipeline, NBCC will command premium valuation in the construction space. We value NBCC’s core business at a P/E of 32x on FY19E and book value of land parcel at Rs29/share to arrive at SOTP target price of Rs282 and assign Buy rating.
Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd., INH200000345
General Disclosures and Disclaimers: NBCC http://bit.ly/2yv0rJH
Rating: Buy
UPL is a leading manufacturer of crop protection products and ranks among the Top 5 generic agro-chemical companies globally. It offers a wide range of crop protection products, such as herbicides, insecticides, fungicides. Merger with Advanta has helped UPL to expand its agri value chain to seeds business.
UPL has a strong global presence across US, Europe, Latam, India & RoW and these markets contributed 18%, 13%, 33%, 18% & 18% respectively, towards its consolidated FY17 sales. On the back of its superior R&D capabilities & product innovation, UPL has been able to consistently rollout new products every year. Has launched more than 55 products in last two years and has registered 4,692 products internationally. Led by back ward integration, higher contribution from branded products and through various cost saving initiatives, UPL enjoys superior EBITDA margin of 18%-20% compared to industry average of 12%-15%. Despite facing adverse weather conditions and subsequent slowdown in demand, UPL maintained a Revenue & PAT growth of 15% & 24% CAGR over FY15-17. UPL’s long-term prospects remain intact, led by its focus on branding, new product launches; Synergy from Advanta merger and increasing share in global agrochemical market.
During Q1FY18, UPL reported a stable volume growth of 10% YoY, driven by steady performance across ROW and North America. However, revenue growth was muted by 6% YoY to Rs37.2bn due to adverse currency movements and lower realizations. EBITDA grew by a mere 3% YoY to Rs 6.9bn, owing to higher employee cost & other expenditure, which was up by 13% & 10%YoY. Whereas, PAT grew by 26% YoY to Rs 4.9bn led by 50% YoY decline in interest cost and higher other income, was up by 39% YoY.
UPL is well poised to post stronger growth from Q2 onwards on the back of pickup in demand post GST and healthy performance of Glufosinate in Americas along with higher acreages of key crops like cotton. Management has indicated that commodity prices in Latin America has started to inch upwards which is positive for farmers and will result in better demand in the coming quarters. UPL has launched 3 new products in India in Q1FY18 and is expected to launch 4 more products in Q2. Better than expected monsoon this year will result in higher crop acreages which will aid agro business going ahead. Further, the seed business which was facing some challenges due to low prices has witnessed a revival post June and it is expected to improve revenue visibility. Management has guided 12%-15% revenue growth for FY18 and 50-70bps improvement in EBITDA margins. Going forward, we expect revenues to grow at 14.4% CAGR, while led by backward integration & better product mix, EBITDA margin to hover in the range of 20%-21% during FY17-19E.
UPL has been outperforming its global peers led by strong presence across geographies, well diversified product portfolio, rising market share in high-growth countries like Brazil & India and new product launches. We expect EBITDA/PAT to grow at a strong CAGR of 17%/14% over FY17-19E led by backward integration & better product mix. We value UPL at P/E of 17x on FY19E with a target price of Rs887 and we have BUY rating for the stock.
Analyst: Rohit Joshi, Dion Global Solutions Ltd., INH100002771
General Disclosures and Disclaimers: UPL http://bit.ly/2xNGyAl
Rating: Buy
TAMO is India’s largest commercial vehicle player with 52 per cent market share and the fourth largest player in the Passenger Vehicle market with products in compact and mid size cars and utility vehicle segments. Through subsidiaries and associate companies, the company has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, the business comprising 2 iconic British brands Jaguar and Land Rover.
Tata Motors Q1FY18 consolidated revenue de- grew by 11.2% due to the fall in revenue from JLR by 11% and other Tata vehicles brands by 8%. Margin contracted by 192bps due to higher raw material and marketing cost. The company reported a consolidated PAT of Rs 3200cr which grew by 42%YoY due to one time gain of Rs 3609cr related to changes made in JLR pension plans. JLR sales were up 30%YoY in China and 16% in North America and 14% fall in UK.
We project JLR (ex-China) volumes to witness a healthy CAGR of 10% during FY17-19E driven by successful launches (F-pace & new Discovery) & strong product pipeline. We expect double digit growth in JLR profitability on the back of 1) strong product cycle, Land Rover will recover in FY18 with the ramp up in new Discovery & Velar 2) long term benefit of modular strategy-more models on fewer platforms (from 11 models on six platforms to 17 models on four platforms) will reduce cost 4) ramp up in China JV and 5) new production capacity in Slovakia. The company will launch its electric vehicle I-Pace in CY18 & E- Pace later this year. Retail sales for Jaguar Land Rover totalled were 65,097 vehicles in September, up 6.6% compared to September 2016, primarily reflecting continued solid sales of the F-PACE as well as the introduction of the Range Rover Velar, Jaguar XF Sport brake and long wheel base Jaguar XFL in China.
During Q2FY18 Commercial vehicle segment registered a sales volume growth of 21%YoY and Passenger vehicle grew by 13%YoY and we expect this the trend to continue owing to good monsoon rains buoying consumer sentiments in the ongoing festive seasons. The cumulative sale of passenger vehicles for the domestic market for the period of April-September 2017 was 81,417 units. This is a growth of 12 %compared to 72,665 units sold during the same period last year. PV segment has witnessed traction with the success of recent launches including Tiago, Tigor and Nexon. TAMO is aiming to increase its market share in M&HCV (>16 T) from 55% to 60% in two years on the back of six new launches and four new launches in ILCV segment in FY18. Further, the company has received 50% order of the total 500 electric cars issued by Government of India in the 1st phase and remaining 9500 cars are expected in the 2nd phase. We project overall revenue & PAT growth of 13% and 33% CAGR over FY17-19E, given the strong launch pipeline in both the businesses.
The strong product pipeline for JLR and successful launches in the standalone business have enabled our positive stance on TAMO. We value the stock on SOTP basis, ascribing separate values to JLR (3.5xEV/EBITDA), China JV (3.5x EV/EBITDA), Standalone (8x EV/EBITDA) & investments in subsidiaries (using P/E, P/BV), recommend Buy rating with a TP of Rs508.
Analyst: Saji John, Geojit Financial Services Ltd., INH200000345
General Disclosures and Disclaimers: Tata Motors http://bit.ly/2hMKO8c
