Dabur India Ltd. – BUY

Recommended PriceRs 500
Target (Rs)Rs. 592
Upside18%
Investment period 1 Year

Dabur India Limited (DIL), with a heritage of 139 years, and a leader in ayurvedic and natural healthcare globally. The company boasts a strong product lineup with eight major brands, including Dabur Chyawanprash, Dabur Honey, and Dabur Amla, spanning healthcare, personal care, and foods & beverages. Dabur products are distributed widely, reaching 7.7 million retail outlets across diverse urban and rural markets. Internationally, DIL’s presence extends to over 100 countries. The company’s vast product range includes over 400 items across 21 categories. DIL operates 22 manufacturing facilities in locations such as India, UAE, Sri Lanka, and several other countries. To enhance its market reach, the Company has organised its sales force by zones. Transitioning from a family-run business to a professionally managed corporation, it continues to grow and adapt in the competitive FMCG sector.

Why should we invest in Dabur India Ltd.?

Strong market position in the domestic FMCG space aided by strong brand, acquisition and market share gains

Strong brands like Dabur Chyawanprash, Dabur Honey, and Real juice, which are especially popular in the ayurvedic and herbal product market. This reputation served DIL well during the pandemic when demand for health-boosting herbal products soared. The company has managed to hold its own in a market filled with both large international and local competitors. To continue growing, Dabur actively pursues opportunities to buy other companies that can complement its existing product lineup. A recent example is acquiring a 51% stake in Badshah Masala, allowing DIL to venture into the branded spices and seasonings market, an area closely related to its core business. This move is part of DIL’s broader strategy to enter new food categories. The company’s focus on innovation and consumer needs has helped it expand and improve its market presence significantly, even with fierce competition.

New manufacturing facility approval in South India to meet the growing demand for products

DIL has noticed a big increase in demand for its products in South India, which makes up about 18-20% of its business within India. To respond to this rising demand, the company has decided to invest Rs. 135 crores to build a new plant in South India. This plant will focus on increasing the production of toothpaste, Odonil, and honey. This investment marks the establishment of DIL’s 14th manufacturing site in India. The new facility aims to boost DIL’s production capabilities in the region and support continuous growth by efficiently meeting the local demand for its products. This move is seen as a strategic step to strengthen DIL’s presence in South India and ensure long-term growth by being closer to the market and consumers there.

Valuation and Outlook

DIL is a leading player in India’s FMCG sector, known for its herbal and ayurvedic products. The company has a strong presence across various categories, with Health Care making up 38.8% of sales, Home & Personal Care 46%, and Food & Beverages 15% as of the third quarter of FY24. Despite challenges like high inflation and intense competition, the Company has managed to perform well financially, maintaining a steady operating margin around 20-21%. Its success is driven by strategic acquisitions, a focus on main brands, launching new products, and gaining more market share. DIL is expanding rapidly, especially in e-commerce and rural areas, while transforming its leading brands into versatile platforms. Given its strong market position and focus on innovation, we recommend buying Dabur’s stock. We predict a potential price increase of 18% over the next 12 months, estimating a target price of Rs. 592 based on future earnings projections

Shining Star Sansera Engineering Ltd

Recommended PriceRs.1007
Target Price Rs. 1243
Upside %23.43%
Investment Horizon 1 year

Sansera Engineering, based in Bengaluru since 1981, is a top-notch company that makes very specific and important parts for cars and other industries. They’re really good at making parts like Connecting Rods and Rocker Arms for motorcycles and light motor vehicles, and they’re known worldwide for their quality. They’ve got 17 places where they make these parts, mostly in India but also one in Sweden. Sansera is growing by making parts not just for regular cars but also for electric vehicles, defence, and aerospace industries. Their business is doing well, with their sales and profits growing steadily over the last ten years. They’ve managed to get a bunch of different customers, which means they’re not too dependent on just a few big ones for their income. Right now, most of their money comes from making parts for traditional cars, but they plan to make more from electric vehicles and other non-car stuff in the future.

Why do we need to invest in Sansera Engineering?

Strong order book provides revenue visibility

By December 2023, the company really stepped up its game by getting new orders worth Rs 2,040 crores annually, showing they’re moving beyond just making parts for traditional engines. Now, more than half of their new business, about 53%, is from areas other than the usual engine parts. This includes 12% from general car tech, 18% from electric vehicles (EVs), and 23% from industries outside of cars. The rest, 47%, still comes from traditional engine parts. Interestingly, only 15% of their entire order book is from the two-wheeler engine sector, which is the part of their business most likely to be affected as more people switch to electric vehicles. This shows the company is adapting well to changes in the market, focusing more on electric vehicles and other new areas.

Auto-Tech Agnostic, xEV, and Non-Auto products to help reduce portfolio risk and propel future growth

The company is making a big move to rely less on traditional car engine parts (ICE components) in the coming years. Right now, these parts make up 76% of their sales, but they plan to reduce this to 60%. To fill the gap, they’re looking to increase sales from tech-savvy car components, electric vehicle parts, and other non-car products to 20% each. Aerospace is already adding about 4% to their total income, and they’ve got a special production line for Aerospace and Defence that’s completely booked. To handle the growing number of orders, they’ve opened a new facility in Bengaluru, dedicating most of it to aerospace and some to defence. This new place, built on 10 acres at a cost of about Rs. 130 crores, started working in the first part of this financial year. It’s expected to bring in around Rs. 350 crores when it’s running full blast. With aerospace business orders reaching Rs. 121 crores, they’re aiming for aerospace and defence to make up more than 10% of their total sales, a big jump from the current 4%

Strong core portfolio to take advantage of the premiumization of products and the evolving regulatory landscape

Sansera has grown from focusing on just one customer and product area to being involved in a bunch of different sectors like aerospace, defence, and electric vehicles (EVs). They’re known for making important parts like Connecting Rods, Rocker Arms, and Crankshafts for car companies in India and around the world. By using its skills in design and engineering, Sansera has moved into new areas such as making parts for airplanes, military equipment, and EVs. They’re also creating new types of car parts that aren’t just for traditional engines, aiming to get a bigger slice of the car market. As cars start to use more lightweight materials, Sansera sees a chance to use more aluminium in their products. They’ve just finished building a new place in Bidadi to make these aluminium parts, with plans to start making stuff there by the second quarter of the next financial year. This includes making big parts for farm equipment and other industries. Sansera is also making a name for itself in the EV market by getting orders from several car makers, showing they’re staying ahead in the fast-changing car world.

Investing in cutting edge platforms of the modern era

Sansera has just made a big move by investing Rs. 20 crores in MMRFIC Technology Pvt. Ltd., a company based in Bengaluru that’s all about creating cool tech for the future, like parts for advanced radars and sensors that use AI and machine learning. This investment could increase Sansera’s ownership in MMRFIC from 21% to 51%, depending on certain conditions. MMRFIC is into some serious high-tech stuff, making components that can be used in cutting-edge areas like defence, space, self-driving cars, and security systems. Sansera’s main reason for putting money into MMRFIC is to dive into these high-tech fields and work with a team that’s really good at research and engineering. This could open new doors for Sansera in markets that are all about the technology of tomorrow.

Valuation & Outlook

Sansera has been doing really well lately, bouncing back strong in different parts of the world. They’ve smartly moved into booming areas like aerospace, defence, and electric vehicles (EVs), using their top-notch design and engineering skills. This shift has made them a key player, especially with their new tech-savvy auto parts increasing their role and earnings per vehicle. They’ve also started a new plant in Bidadi for Aluminium Forging & machining, aiming to meet growing demands in farming and other heavy-duty vehicle markets. They’re aiming to boost their aerospace and defence earnings from 4.6% to over 10% in the next few years, showing they’re pretty confident about making it big in these sectors. Plus, with a good chunk of their sales coming from overseas, they’re not too worried about ups and downs in the Indian market. Looking ahead, Sansera’s well-placed for continued growth thanks to its strong engineering, new opportunities beyond auto, and smart financial management. They’re planning to spend Rs. 200-250 crores each year on growing their business, funded by the money they make themselves. They’re also shifting more towards non-traditional car parts, which should make the company more valuable. We expect their profits to get better, driven by a mix of more sales in non-auto and better efficiency. Given all these good points, we think the stock will go up to Rs. 1,243 in a year, offering a pretty solid return for investors.

Shining Star: The Federal Bank Ltd. – BUY

CMPRs.150
Target Price Rs.192
Upside %28%
Investment Horizon 1 year

Federal BankLtd. (FBL), founded in 1931 in Kerala, is one of India’s oldest and largest private banks, especially big in Kerala with around 1,418 branches nationwide. It’s well-known for getting a lot of its money from Indians living abroad, mainly in the Middle East, which helps the bank grow. The bank cares a lot about its customers, employees, and shareholders, aiming to grow in a balanced way. Recently, they opened about 65 new branches, showing they’re keen on expanding and adapting to changes. Federal Bank offers a bunch of services like savings accounts, home loans, personal loans, auto loans, and even helps with banking for people living outside India. They also help small businesses and farmers with loans. A cool thing about Federal Bank is that almost 90% of their banking tasks are done online, thanks to their partnership with over 75 tech companies, making banking super easy for everyone. All this shows Federal Bank is aiming to keep growing and staying relevant in today’s digital world.

Why do we need to invest in The Federal Bank Ltd.?

Strategic Approach to Enhance Return Ratios

Federal Bank (FBL) is working hard to make more money and become more efficient in a banking world where it’s tough to increase profits. They’re aiming to achieve a Return on Assets (RoA) of over 1.5% and a Return on Equity (RoE) of 18-19% in the future. Thanks to sticking to strict lending rules, the bank’s financial health looks good with no major loan problems, which means they might not have to spend much on unexpected loan losses soon. They’re trying to boost their earnings by focusing on making more from interest on loans and saving money by getting more people to use current accounts, which are cheaper for the bank. They also plan to lend more to businesses that bring in higher interest rates while keeping their loan quality high. The bank’s efforts are paying off, as shown by their increasing RoA and RoE from 2019 to 2024. Even though running the bank is costing more, they believe that investing in technology and better managing their resources will help them make more money and stay competitive.

Focus on High-Yielding Loan Segment to Improve Profitability

Federal Bank (FBL) is working smart in the current environment where people and businesses are borrowing more. They’re focusing on loans that earn them more money, like retail loans and gold loans, even though their profit from interest has dropped a bit recently. In the third quarter of the financial year 2024, they made their highest profit ever at Rs. 1,007 crores and also had their highest income from interest at Rs. 2,123 crores, despite the interest they earn on loans (net interest margin) going down because more people are choosing term deposits over current and savings accounts. They’re getting better at giving out loans that make more money, like credit cards, personal loans, loans to small businesses, and loans for commercial vehicles, which now make up a bigger part of their loan book. The bank is also trying to keep its costs down and make more money from fees, like from selling insurance, which they think will keep growing and help boost their income even more.

Robust Asset Quality Showcases Effective Underwriting Practices

FBL saw a slight increase in bad loans this quarter, going up to Rs. 479 crores from Rs. 365 crores last quarter, mainly because of one corporate account that didn’t do so well. Despite this, the bank’s overall health didn’t really suffer—bad loan rates are stable, and they’ve kept a good chunk of money aside just in case (72.3% to be precise). Even though the cost of handling these bad loans went up a bit, the bank’s bosses think things will stay under control and are sticking to their plan for the year. They’re especially hopeful about fixing the issue with the troubled corporate account soon, possibly even next quarter. This situation shows that Federal Bank is pretty good at handling risks and keeping things steady, even when there are a few bumps along the way.

Business Growth Through Traditional and Modern Partnerships

FBL has teamed up with various Fintech companies to boost its business, using these modern tech firms to bring in more customers while still keeping a tight check on loan quality. The bank has really benefited from offering unsecured loans, thanks to efficient tech-driven processes. These collaborations have also made things smoother for customers, speeding up sales and strengthening relationships. A big win from going digital is getting around 381 schools to use its fee payment system and handling a huge Rs. 22,000 crores in mobile banking transactions every month, with an impressive 94% of all transactions done online. FBL hasn’t just gone all-in on digital; it’s also been opening 100 new branches every year outside its main area, Kerala, which has helped grow its deposits from other places. This blend of new tech partnerships and traditional branch growth shows FBL’s smart strategy to grow in today’s changing financial world, keeping it on track for ongoing success.

Valuation & Outlook

FBL has been focusing on making more money by lending to businesses and financing vehicles, while also keeping up its deposits from Indians living abroad. Even though the profit they make from interest dropped a bit this quarter, they still made a good profit thanks to lending money at higher interest rates. They saw a huge jump in lending money to small businesses and for buying vehicles. This helped the bank spend less compared to how much it earned. There was a small dip in how well the bank’s loans were doing, with a few more loans not being paid back on time, which they’ll need to keep an eye on. Despite this, the bank has been doing well overall and continues to grow, especially in providing banking services to non-residents and opening new branches, particularly in Tamil Nadu. They’ve gone beyond their goal by opening 140 branches instead of 100 this year. The bank is aiming to do even better by focusing on a mix of loans that earn more money and expanding its services, hoping to attract more customers, especially from among Indians living outside the country. This strategy is expected to help the bank grow its profits and its presence in India’s banking sector. On the valuation front, the bank is valued at 1.3 times the estimated book value for the FY26E. This valuation methodology suggests a target price of Rs. 192, representing a potential upside of 28% from the current market price and a 12-month investment horizon.

7 Super Stocks for April 2024

Healthy order book driving growth prospects of the company

Cochin Shipyard Ltd., a major shipbuilding company, has orders worth Rs. 21,500 crores to build ships, with most of these orders coming from the defence sector. Additionally, they have repair work orders totaling Rs. 800 crores, mainly involving projects for the Defence Ministry, expected to be finished by the financial year 2025. This means the company has a lot of work lined up, which should keep their earnings strong and help them maintain their profit margins in the coming years. Essentially, Cochin Shipyard is in a good position for continued growth, thanks to a steady stream of orders for both building and repairing ships, especially from government and defence contracts.

Capacity expansion nearing the completion stage

Cochin Shipyard is spending Rs. 1,790 crores to make their Dry Dock bigger and Rs. 970 crores on a new International Ship Repair Facility, all set to be ready by mid-2024. This upgrade will basically double the shipyard’s ability to work, meaning they can build and fix bigger ships like LNG carriers and modern aircraft carriers. Looking ahead, we’re expecting the company’s earnings to grow strongly and keep a good profit margin. This optimism is because of their broad range of services, including both fixing ships and building them, which should help the company make more money in the long run.

Havells India Ltd.

Favourable base and seasonal factors to drive growth in summer products

Unexpected rain and low stock levels last summer (CY23) have created a good starting point for selling summer products like air conditioners, refrigerators, coolers, and fans in CY24. Havells India, known for its wide range of products and push towards selling more expensive, high-quality items, is in a great spot to make the most of this expected increase in sales. More people are moving from buying cheaper, less-known brands to well-known, organised brands, especially for premium products, and this works in Havells’ favour. This shift is likely to boost Havells’ sales and profits soon.

Beneficial impact of commodity deflation leading to margin expansion

Falling prices for big commodities like aluminium, copper, and steel, along with stable costs for other materials, are good news for companies like Havells India. This situation means they can save money on making their products. Havells can use these savings to spend more on marketing and making their brand stronger, which helps them stand out in the market. This strategy can lead to more sales and higher profits. Additionally, with overall inflation going down, people are feeling better about spending money, which could mean they’re more likely to buy what Havells is selling. This overall trend of lower material costs and happier consumers is a big plus for Havells’ business looking forward.

Kalyani Steels Ltd.

Focusing on growth through strategic acquisition

Kalyani Steels, currently capable of producing 250,000 tonnes of steel, plans to ramp up its production to a million tonnes by the financial year 2028. They’re boosting their growth by acquiring Kamineni Steel and Power through an online auction, a smart move that shows they’re serious about growing bigger in the steel industry. On top of that, they’ve made a deal with the Odisha government to build a new manufacturing facility, investing Rs. 11,750 crores. This new site in Odisha will focus on creating titanium metal and aerospace parts, as well as specialising in high-quality steel and car parts. This expansion is a big step for Kalyani Steels as it aims to strengthen its role in the market and widen its product range.

Effective procurement strategies for raw materials benefits input cost

Kalyani Steels buys its main materials like coke, iron ore, and ferro alloys from both inside India and other countries. Interestingly, they choose not to make long-term buying agreements with their suppliers. This strategy gives them the flexibility to change their buying plans as needed, which is pretty smart considering how often prices can go up and down. Even though the cost of imported coal and coke has been changing a lot, affecting their profits, Kalyani Steels has managed well by having a variety of places to buy from. They’ve also been good at dealing with these cost changes by adjusting their selling prices quickly, so they don’t lose money. This approach helps them keep a stable business even when material costs fluctuate.

PB Fintech Ltd.

Insurance industry tailwinds and digitization to drive growth

The insurance sector is expected to grow by 13-16% in the next five years, and PB Fintech, a digital platform, is set to grow even faster. In the third quarter of the financial year 2024, the company’s revenue from annual renewals jumped to Rs. 454 crores from Rs. 317 crores the same quarter last year. PB Fintech also saw a 44% increase in new insurance premiums for health and term life insurance during this period. These areas, focusing on health and life insurance rather than car insurance, promise more profit in the coming years because they offer long-term benefits. This shows that PB Fintech is doing really well, especially in parts of the insurance market that could bring in more money over time.

Diversified product offering mitigates concentration risk

PB Fintech is doing well because it sells many different types of products. This strategy helps them not to be too affected if one area of the insurance industry faces problems. For example, while companies that sell life insurance are having a tough time growing their value from non-participating policies this year, PB Fintech can make up for it by selling Unit-Linked Insurance Plans (ULIPs) and health insurance. Having a variety of products means that issues with one type of insurance won’t hurt the company’s overall business too much. PB Fintech is also leading in the market because it operates very efficiently and has a wide reach across India, covering more than 90% of the area with services available in 17,100 postal codes. This broad coverage helps them attract more customers from different parts of the country.

Sobha Ltd.

Strong pipeline to aid robust sales momentum

Shobha is in a great spot to increase its sales over the next few years, thanks to having 16.8 million square feet of real estate ready for development, especially in areas where the market is doing well. They are also planning to add another 20 million square feet to their development projects, with 8-10 million of that coming from a big piece of land they own in Hoskote. This smart planning means Shobha doesn’t have to worry too much about finding new land to build on. Given this strong setup for future projects, it’s expected that Shobha’s sales bookings will grow by 20% annually in the next few years. This growth is good news for the company and shows they’re set up well for future success.

Premium projects leading to improved realisation and strong growth

Shobha has been making more money from its properties because it started selling more expensive, premium projects. This move to more luxury offerings means they’re able to charge higher prices. Also, their new projects are priced higher than the older ones they replace. This strategy has led to strong early sales and increased earnings per sale, showing that the Shobha brand is doing well and holds a strong place in the market. These good early sales numbers are important because they bring in more cash for the company. This extra money helps Shobha keep growing by investing in new projects and other areas of the business. In simple terms, by focusing on more expensive properties, Shobha is earning more and strengthening its business for the future.

Tata Power Company Ltd.

Rooftop solar segment to witness robust growth

The Indian Government recently launched a plan called PM Surya Ghar Muft Bijli Yojana, aiming to install solar power setups on the roofs of about 1 crore houses. Because of this initiative, we’re expecting a big increase in the demand for rooftop solar systems, likely adding 30 to 40 gigawatts of solar power in the next 2-3 years. This boost is great news for companies in the solar power business, as it means more sales and profits. With the renewable energy sector growing fast and companies setting ambitious goals for earning more from green energy, those involved in providing rooftop solar solutions stand to gain significantly in the near future. This government scheme not only helps the environment but also opens up a lot of business opportunities in the green energy space.

Strong financials and robust order book key drivers for growth

In the third quarter of the financial year 2024, the company did really well, showing a big increase in profits mainly from its main activities, unlike before when it used to make a lot of money from side businesses like coal. They have several renewable energy projects coming up, which should help increase their earnings and profit margins. Next quarter, they’re expected to reach a milestone of 10,000 MW in renewable energy, making up half of their total energy production. This strong performance, along with the hopeful success of their new investments, suggests the company is on track for long-term benefits. Basically, they’re making more money from what they’re best at and are set to grow even more with their focus on renewable energy.

Vedanta Ltd.

Aluminium division to be the next growth driver

Vedanta Ltd. is making big changes to its aluminium business to cut costs. They are expanding their aluminium smelter capacity at Balco by 414-kilo tonnes per year and are working on making more of their materials themselves, including expanding their refinery and focusing on products that add more value. They’re spending money on this expansion to increase their alumina refinery output to 5 million tonnes per year from the current 2 million tonnes, doing this bit by bit over the next few quarters. Vedanta is also planning to open their own coal and bauxite mines to get these materials directly, aiming for 34 million tonnes per year of coal and 6 million tonnes of bauxite. Right now, they get 40% of their alumina and 14-15% of their coal on their own, but after this expansion, they’ll get all their coal and 65% of their alumina themselves, which should make each tonne of aluminium cheaper to produce.

Steel asset sale and expansion strategy in the ferrous segment

The company is planning to sell some of its assets soon to pay off debts, with the sale expected to happen in the next few months. They’re also looking at iron ore mining as a new area to grow their business. In the field of ferro-alloys, they have big plans to increase their production from 67 thousand tonnes a year to 500 thousand tonnes in the next four years, aiming to become the top Ferrochrome producer in India by 2027. They’re also starting to make ferro-chrome as part of their plan to get into the stainless-steel market. To avoid the risk of changing prices in pig iron, they’re expanding into making DI (Ductile Iron) Pipes. This diversification is a strategy to make the company stronger by not relying on just one type of product.

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Shining Star: Shriram Pistons and Rings Ltd. – BUY

Recommended PriceRs. 1,960
Target PriceRs. 2,392
Upside %22%
Investment Horizon1 year

Founded in 1972, Shriram Pistons and Rings Ltd. (SPRL) is a big name in making pistons, piston rings, and other important parts for vehicles. They’re not just selling in India but also in over 45 countries worldwide, with a strong network of 1,200 spots in India alone for sales after the vehicle’s initial purchase. They make their products in plants located in Ghaziabad, Pathredi, and have a place in Coimbatore for making electric motor parts, and another in Neemrana for special components. They’re even setting up a new spot in Pithampur. With over 50 years in the business, SPRL has become a go-to for about 40-45% of the market in their main products, showing they’re a big deal in their field. They’ve managed to keep their business steady by selling to different kinds of customers and markets, which helps them not to rely too much on any single type of demand.

Why do we need to invest in SRPL?

Core product portfolio and R&D prowess to drive performance

Shriram Pistons and Rings Ltd. (SPRL) has been a big deal in making car parts like pistons and valves for over 50 years, controlling about 40-45% of the market in India for these products. They work with big vehicle makers, making about 64% of their money from these partnerships in 2023. They’re not just big in India but also sell their products worldwide to famous companies like BMW and Cummins, making them the top exporter of pistons and rings from India. SPRL is also getting ahead by focusing on cleaner engine technologies like CNG and hydrogen, dominating the CNG market with over 90% share. They’ve teamed up with some global giants since as far back as 1965 to keep bringing new, high-tech products to the market. Their big research centre in Ghaziabad, with more than 150 engineers, is where they create these innovations. Financially, they’re outperforming others in their field, grabbing two-thirds of the revenue share in the market and showing strong profits and financial health, which puts them at the top of the game in the automotive sector.

Evolving global landscape in ICE provides further headroom for growth

As the world shifts from traditional car engines to electric vehicles (EVs), Indian companies like SPRL, known for their expertise in engine parts, find themselves at a turning point. With India’s cost-effective manufacturing and innovative engineering, backed by government initiatives like ‘Make in India’ and special incentives, there’s a big chance for growth. The global move to diversify supply chains away from China (‘China+1’ strategy) also works in India’s favour. SPRL is getting ready to make the most of this change, aiming to be a key player in engine parts as long as these engines are still around. While electric cars are becoming more popular worldwide, the change is happening at different speeds in different places. Some places are slowing down on going fully electric and are more interested in hybrid cars, which still need engines. In India, electric two-wheelers are catching on faster than cars. This situation offers both challenges and opportunities for companies focused on engine parts, as they figure out how to fit into this changing car world.

Well-rounded approach by enhancing EVs and powertrain-agnostic technology capabilities through inorganic route

SPRL is getting ahead of the game by branching into the electric vehicle (EV) world while still strengthening its main products. They’ve started by buying a big part of EMF Innovations (EMFI) in Coimbatore for Rs. 78 crores. EMFI makes key parts for electric cars, like motors and controllers, and relies a lot on local suppliers. In just over five years, EMFI has made about Rs. 17 crores. SPRL made this purchase through a company they own, showing how serious they are about the EV market. They didn’t stop there; SPRL also bought 62% of Takahata Precision India, stepping into a broader range of products that aren’t just for traditional or electric cars. Takahata, which is really big in Japan, makes a variety of items, not just car parts, and brings in about Rs. 210 crores in sales. SPRL’s move to own more of Takahata by 2028 shows their big plans to grow in different tech areas, not just sticking to car engines.

Multiple drivers in place for robust financial performance going ahead

SPRL has been doing really well financially, with their earnings jumping from Rs. 2,064 crores to Rs. 2,609 crores in just a year, thanks to more people buying passenger and commercial vehicles, strong sales abroad, and in the parts replacement market. They kept this momentum going, with sales growing between 15.3% and 20.4% across the first three quarters of the following year. They’re looking at a 16-17% increase in sales for the whole year, driven by ongoing demand, new export customers, and an expanding parts market. Their profit margin before interest, taxes, depreciation, and amortisation (EBITDA) also improved significantly, thanks to smarter operations, cost cuts, automation, and selling a better mix of products. Even though the cost of materials has been going up, SPRL has managed by adjusting their prices. One of their companies, EMFI, didn’t do as well, but it’s not big enough to mess up SPRL’s overall profits. Looking ahead, SPRL is set to keep growing profitably, thanks to more production, smarter spending, and keeping up with market changes.

Valuation & Outlook

SPRL has been a big name in making car parts like pistons and engine valves for over 50 years, making it a top choice in India and helping it grow faster than others in its field. By working closely with major car makers in India and around the world, SPRL has seen a lot of success. Looking forward, it’s diving into the electric vehicle (EV) world by buying companies that specialise in EV parts, showing it’s ready to keep up with car industry changes. SPRL is also big on creating new things in-house and working with tech experts worldwide to stay ahead in the game. With India’s knack for cost-effective engineering and support from government initiatives, SPRL is well set to grow more, especially in selling abroad. Financially, it’s doing great, with expectations to keep increasing sales and profits in the coming years, thanks to its smart business moves and strong position in both the traditional and EV markets. This makes SPRL an appealing option for investors looking for a solid and forward-thinking company in the automotive sector. Based on these positives, we value the stock at 21x/18x its FY25E/FY26E earnings to arrive at a target price of Rs. 2,392 (22% upside from CMP) on a 12-month investment horizon.

Engineers India Ltd. – BUY

Recommended PriceRs 202
Target PriceRs 235
Upside %16.3%
Investment Horizon1 year

Engineers India Ltd., founded in 1965, is a major Indian company that works mainly with the oil, gas, and petrochemical sectors. They’re experts in designing equipment for heating and transferring materials, solving environmental problems, choosing the right materials for jobs, and making sure plants run smoothly and safely. They’ve expanded their skills to include projects like building infrastructure, managing water and waste, and working on solar and nuclear energy, as well as fertilisers. The company isn’t just big in India; it also works in places like the Middle East, Africa, and parts of Asia. They offer a full range of services, from the initial design to the final steps of building a project, making sure everything meets top-notch quality and safety standards. Essentially, they help turn big project ideas into reality, overseeing everything from start to finish.

Why do we need to invest in Engineers India?

Strong order book backed by a healthy track record

As of December 31, 2023, Engineers India Ltd. had a total of Rs. 79,906 million in orders waiting to be completed. This includes Rs. 47,510 million worth of consulting jobs and Rs. 32,396 million in big project contracts. In just nine months, they managed to get new orders worth Rs. 30,465 million, with consulting and turnkey (complete package) projects making up the new additions. This big list of orders means the company can expect steady income for a while. Most of these orders, about 62%, come from the oil and gas industry, which remains the company’s main focus. Given their earnings of Rs. 33,300 million in the financial year 2023, it looks like they have enough work lined up for over two years. It’s clear that Engineers India Ltd. has the skills and experience to handle these orders on time.

Focus on consultancy segment by entering into new segments provide strong growth visibility

Engineers India Ltd.’s consulting part of the business is expected to grow because it’s getting back on its feet with lots of new and ongoing orders from both India and other countries. The company is diving into new areas like green hydrogen, ammonia, biofuels, coal gasification, and defence projects, which should make the consulting side even more profitable. They’re also aiming to win more contracts from places far and wide, including South America, the Middle East, and Africa. This move to work in new markets and different parts of the world means Engineers India Ltd. is likely to see good results from its consulting work soon.

Valuation and Outlook

Engineers India Ltd., known for its top-notch engineering and project delivery, especially in the oil & gas industry, is broadening its horizons. The company’s strong performance in complex projects has set it up for growth, particularly with the government boosting infrastructure projects. It’s stepping into new areas focused on reducing carbon emissions, like project management for future energy technologies. Factors like a strong financial standing, good returns on investments, a solid lineup of projects, moving into new business areas focusing on environmental sustainability, and expanding into new places are all driving the company towards hitting a revenue target of Rs. 5,000 crores soon. Given the company’s knack for winning new contracts and its reputation for delivering quality projects, we recommend buying its stock. We predict a 17% increase in its stock price over the next 12 months, setting a target price of Rs. 235, based on our financial analysis.

Auto Wholesale Update – March 2024

Lacklustre growth on high base; Exports fared better

In March 2024, the car industry saw mixed results: passenger vehicles (PVs) did well, especially utility vehicles (UVs), but commercial vehicles (CVs) and tractors didn’t do as good because of the election year and other reasons.

Car sales overall didn’t meet what people thought they would, except for CVs. Car sales went up by 9% from last year, mainly because of UVs. Two-wheeler (2W) sales inside the country dropped by 2% due to the Navratra festival happening later, but sales to other countries went up by 30%. CVs saw a 5.5% drop, with heavy trucks down by 8.5% and light trucks by 1%.

Tractor sales fell by 24% because of not-so-good feelings in farming and the festival timing. Looking ahead, the 2W sector might grow the most in the next financial year, especially bikes over 125cc. Cars and trucks might see a small growth, and tractors will grow a little after adjusting for the previous drop.

Passenger Vehicles

In March 2024, the car market in India did well, especially the part that sells utility vehicles (UVs), which saw a huge 26% increase in sales. Overall, car sales went up by 9% compared to last year, thanks to people liking UVs more and companies stocking up before the Navratra festival.

However, the actual sales in stores went down a bit. Some big car makers, like Maruti Suzuki (MSIL) and Tata Motors, might have more cars in stock than usual, especially cheaper models. Still, Maruti Suzuki’s sales went up by 15% because they sold a lot of SUVs, even though they sold fewer sedans. Tata Motors and Mahindra & Mahindra (M&M) also saw their sales go up.

Tata Motors is doing really well with electric cars (EVs) and cars that run on compressed natural gas (CNG), with sales in these areas growing much faster than the overall car market. They expect this trend towards cleaner cars to keep going, which could change what kinds of cars people want to buy. Looking forward, they think the car market will grow a little bit next year, with even bigger increases for eco-friendly cars.

Two Wheelers

In March 2024, two-wheeler (2W) sales in India had mixed results, with a 7% increase from last year but still not meeting the high expectations for some brands, mainly because last year’s sales were already high. However, sales to other countries jumped by 30%. Overall, 2W sales for the year grew by 9%.

The growth slowed down a bit because the Navratra festival was moved to a later date. Electric two-wheeler (EV 2W) sales, on the other hand, shot up by 61% because people were buying them before expected cuts in government support. While Hero MotoCorp (HMCL) saw a 6% drop in sales, TVS Motors and Bajaj Auto did really well, with 12% and 25.5% increases, mainly thanks to strong domestic demand and good sales abroad.

Royal Enfield’s sales were up by 5%, driven by a rise in domestic sales, despite a drop in sales abroad. TVS Motor’s electric model, iQube, hit record sales in March, even as they prepared for changes in EV incentives. The electric vehicle market is getting more attention, especially after Ola cut prices, shaking up the market. Future growth looks promising with stable incomes and normal discount levels, though exporting could face challenges, like higher shipping costs due to problems in the Red Sea area.

Commercial Vehicles

In March 2024, the commercial vehicle (CV) market in India saw a decrease in sales, dropping by about 8.5% for heavy and medium-sized vehicles (MHCV) and 1% for light commercial vehicles (LCV) compared to last year. This drop is partly because many people bought vehicles in March 2023 before new stricter emission rules started.

Over the whole year, MHCV sales went up slightly by 3%, but LCV sales fell by 4%. Big companies like Tata Motors, Ashok Leyland, and VE Commercial Vehicles all sold fewer vehicles than they did last year. Tata Motors especially saw a big decrease in truck sales but sold a lot more buses. The slowdown in the latter part of the year is being blamed on state elections and the anticipation of national elections.

Demand for vehicles related to cement, oil & gas, and construction is expected to be low until the second quarter of the next financial year, with the national elections also causing people to hold off on buying. Bus sales are doing okay, though, and big companies are getting discounts. With inventory levels indicating that sellers have about 4-5 weeks worth of vehicles on hand, it shows that people are being careful with their purchases due to uncertain political and economic situations.

Tractors

In March 2024, the tractor industry in India saw a big drop in sales by more than 15% compared to last year. This happened mainly because the Navratra festival was moved to a later date and there were delays in harvesting. Big companies like M&M and Escorts saw their tractor sales go down by 26% and 17%, respectively. While demand from farmers is expected to drop a bit but stay pretty steady, demand for commercial use is predicted to fall sharply.

The buildup of tractor stocks for the Navratra festival began late in March, so it didn’t really help March’s sales. Right now, there are about 35-40 days worth of tractors waiting to be sold.

Worries about unpredictable weather and low water storage might keep farmers cautious. However, the outlook for the next few months is still positive, thanks to expectations for a good harvest season, better earnings for farmers, and government help.

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Torrent Pharmaceuticals Ltd. – BUY

Recommended PriceRs 2,595
Target PriceRs 3,063
Upside %18%
Investment Horizon1 year

Torrent Pharmaceuticals is a big name in the pharma world, especially known for focusing on long-term treatments. It makes most of its money in India, but also does well in the US, Germany, and Brazil, which are its main markets. The company leads in making medicines for heart and brain health and also has strong products for stomach issues, diabetes, infections, and pain relief. 

Recently, they bought Curatio, a company doing great in skin care. Most of Torrent’s sales in India come from medicines that people need for a long time. They work in over 50 countries and are top-ranked in Brazil and Germany among Indian pharma companies. 

Torrent has eight places where it makes drugs, and the US has approved five of these for meeting high standards. They also put a lot of money into research, with over 750 scientists working on new medicines, showing they’re serious about staying ahead and growing both in India and internationally.

Why invest in Torrent Pharmaceuticals?

Strong chronic focused portfolio to lead India’s business growth

Torrent Pharmaceuticals has been doing really well in India, growing faster than the overall pharmaceutical market, and it looks set to keep up this double-digit growth. Most of its sales, about 75%, come from medicines for long-term health conditions, like heart disease or diabetes, which are becoming more common because of lifestyle changes and better healthcare. 

From 2017 to 2023, their sales in India for these kinds of medicines grew by 17% every year. They’re aiming to sell more in this area by adding new products and focusing on certain cities to grow their market. 

They also plan to launch ten new cancer treatments in the next four years, showing they’re serious about innovation and meeting healthcare needs. By concentrating on generic brands, long-term care, buying other companies, launching new products, having a strong sales team, and investing in research, Torrent Pharma has become a top player in the health industry. This strategy should keep them on the path of growth, especially in selling medicines for chronic conditions.

Curatio acquisition provides an entry into the lucrative dermatology segment

Torrent Pharmaceuticals bought Curatio Healthcare to grow its business and enter the fast-growing skin care market. Curatio is known for its skin care products, including popular brands like Tedibar and Atogla, which are among the top sellers in their categories. This move adds 600 salespeople and 900 stockists to Torrent’s network, making it a big player in dermatology, especially in cosmetic skin care. 

The purchase has already made Torrent more profitable, with Curatio’s top brand, Tedibar, making over Rs. 100 crore in sales and still growing. Curatio’s sales for the last financial year were Rs 224 crores, and its profit margins have improved by 7% since being bought by Torrent. Dermatology makes up 82% of Curatio’s sales, with cosmetic dermatology being a major part. 

The cosmetic skin care market has been growing really fast, and Curatio has been a strong competitor there. With this acquisition, Torrent jumps from the 21st to the 7th spot in dermatology rankings, strengthening its position in the market and expanding its range of products in a segment that’s seeing rapid growth.

Brazil, Germany and US markets provide ample opportunities for sustainable growth

Torrent Pharmaceuticals operates globally, doing well in Brazil and Germany but facing challenges in the US. In Brazil, it’s the top Indian pharma company with a strong lineup of products for brain, heart, and diabetes treatments. It plans to release new products each year to grow its business there. 

Germany sees Torrent as a major player too, thanks to smart product launches and strategies to win more contracts. However, the US market is tough due to dropping prices and waiting for new products to be approved by the FDA. Despite these issues, Torrent aims to keep its business profitable in the US by getting approvals for new drugs and focusing on treatments for chronic diseases. Overall, Torrent is working on expanding its product range and increasing its presence in these key markets to ensure long-term growth.

Strong operational performance and debt reduction to drive financial performance

Between 2018 and 2023, Torrent Pharma’s revenue grew by 10.1% yearly, thanks to its successful branded products, introducing new products, expanding its sales team, and making strides in Brazil and the US markets. They’ve also improved in selling generic drugs, won contracts in Germany, and got approval from the USFDA for their facility, setting them up for future success. 

The company is making more profit now because they’re spending less on materials, their sales team is doing better, and they’ve found ways to save money. Their return on capital increased because of these higher profits, and they’ve also managed to significantly lower their debt, making their financial situation stronger. This puts Torrent Pharma in a good spot to buy other companies or merge, showing they’re ready to grow and continue succeeding.

Valuation and Outlook

Torrent Pharma has seen its revenue grow thanks to its strong performance in India, particularly with long-term treatments, new product releases in areas like diabetes and heart health, and the expansion of its Curatio skincare brand. It’s also boosting its wellness products, planning to grow in Brazil with new treatments and more salespeople, and in Germany through winning more contracts. Looking to the future, Torrent aims to make a comeback in the US by launching new products from its Dahej plant starting from 2025. The company is working on being more cost-effective and expanding its over-the-counter (OTC) medicine range. With a solid base in the domestic market and strategies for growth both in India and internationally, Torrent Pharma is expected to keep improving its sales and profits. The company is considered a good buy by analysts, with predictions of an 18% increase in its share price.

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Maruti Suzuki India Ltd. – BUY

Recommend PriceRs 11,392
Target (Rs)Rs 13,124
Potential Upside (%)15.20%
Investment period12 Months

Maruti Suzuki India Ltd. - BUY

Maruti Suzuki India Limited (MSIL), founded in 1981, is the biggest car manufacturer in India, holding more than half of the market. It’s well-known for making affordable and fuel-efficient small cars, hatchbacks, sedans, and SUVs, dominating in eight out of 14 car categories.

With factories in Gurgaon and Manesar and a new one from Suzuki in Gujarat, MSIL can make about 2.25 million cars a year. They’ve also teamed up with Toyota, which helps them offer more car types like the popular SUV, Grand Vitara. For over 20 years, Maruti Suzuki has kept its top spot in the market by focusing on cars that are cheap to run and buy, making it the first choice for many new car buyers in India.

Why invest in MSIL?

Strategic business moves aimed at capitalising emerging trends in the automotive industry

MSIL is making big moves to keep up with changes in what cars people want in India, shifting focus towards SUVs and electric vehicles (EVs). In February, their sales went up by 14.6% to nearly 1.98 lakh cars, with a massive jump in cars sold abroad, hitting a record of almost 29,000 exports that month

They’re planning to launch six new EV models with Toyota in the next seven years, showing their commitment to greener cars. This strategy is expected to help them sell around 25 lakh vehicles by 2026, with prices and demand for their cars likely to rise, especially because they’re adding more SUVs and EVs to their lineup.

Maruti Suzuki is also becoming a top car exporter, beating Hyundai in shipping cars to over 60 countries. They’re expanding their factory in Haryana to make more cars, getting ready for more sales. Plus, with India’s new Scrappage Policy making older cars obsolete, MSIL is in a great position to sell more new cars, expecting a big boost in sales.

Fostering resilience through a multi-faceted tech-agnostic approach

MSIL is leading the car industry by quickly adapting to new technologies, making it a key player in the changing car market. Back in 2010, MSIL was the first in India to sell cars that come with a natural gas option, and sales for these cars have grown five times in the last five years.

Now, MSIL is focusing on various types of green technologies, like electric cars, hybrids, and cars that can run on biogas, showing its flexibility and readiness for the future. The company is planning to launch several hybrid car models soon, which could become more popular thanks to potential tax benefits and changing customer interests.

Even with the competition getting tougher and the company spending big on marketing (around 12-14 billion rupees in the next year), MSIL is expected to keep making a good profit. This is because of a mix of selling more high-end cars, stable prices for materials like steel, and recent price increases for its cars.

Valuation and Outlook

MSIL looks set to do well despite slow growth predictions for the car industry in the coming year. This positive view is due to MSIL’s strong orders, not much unsold stock, and continued interest in SUVs and cars that use compressed natural gas (CNG).

The company’s sales to other countries are also doing well, adding to its growth chances. MSIL is expected to see benefits from launching new products and a possible boost in small car sales because of increased demand from smaller cities and rural areas.

They’re also planning to start selling electric vehicles (EVs) in 2024 and focus on more upscale cars for both Indian and overseas customers. After buying Suzuki Motors Gujarat, the company’s profits are looking better than expected. With all these positive signs, including new car releases and more production, we suggest buying MSIL shares. We think the company’s share price could go up by 15.2% to Rs. 13,124 within a year.

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Chemicals Monthly Update – February 2024

Chemical Market Trends: Navigating Challenges and Opportunities

In February 2024, the chemical market showed signs of recovery, with most prices rising across different segments. The Chinese New Year played a role in this, as China sold products at lower rates, affecting prices in India and Europe. Meanwhile, the Red Sea crisis caused delays in shipments to the US and Europe, leading to increased freight costs and rescheduled orders.

Inventory levels in the global chemical industry are starting to normalise, indicating a shift towards stability. Production reports from Europe and the US suggest a reduction in inventory destocking and a decrease in Chinese dumping. However, consistent improvements are needed to confirm a global recovery. Despite China’s dumping, the industry expects inventory destocking to end soon.

Despite challenges, the chemical industry remains optimistic. Indian companies are well-positioned to capitalise on domestic and global opportunities. With supply constraints and higher input costs expected to normalise, most chemical companies should perform better from Q1FY25. Crude prices have been stable, and demand from sectors like dyes and pigments is starting to recover, keeping the long-term outlook positive.

In terms of pricing trends, soda ash spot prices in China have corrected after a short spike, while import prices into India remain weak. Prices of benzene, ethanol, and aniline have increased, while acetone and acetic acid prices have decreased. Phenol prices have modestly recovered, and in the refrigerant category, R-134a prices have increased, while R-32 prices have softened. Overall, most chemical prices have stabilised for now.

Companies like Aarti Industries, Archean Ltd., Bodal Chemical, Deepak Nitrite, Laxmi Organics, Sudarshan Chemical, and Tata Chemical could benefit from supply disruptions in the Red Sea. Specialty chemical companies like SRF and Navin Fluorine are likely to gain from a long-term perspective. The commodity chemicals segment may see traction as sectors like dyes and pigments recover. Moreover, many chemical companies are investing in backward integration and shifting their product mix towards value-added products. Those focusing on value-added products and moving up the value chain are expected to outperform in the long run.

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