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Thermax, Gabriel India, Cairn India & Power Grid Corporation

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THERMAX
Reco price/date: Rs 507/July 4;
Current/target price: Rs 504.05/Rs 575
Working capital in FY12 continued to remain higher than the historical trend on weakness in order inflows and increase in receivable days. Receivable days were at 84, in line with the highest levels in the past 10 years. Customer advances days declined to 47 (from 69) as order inflows in FY12 were at Rs 40.3 billion, down 24% year-on-year (y-o-y). However, absolute cash and cash equivalents were comfortable at Rs 7 billion (33% of the consolidated balance sheet). The management expects the power business to continue to be weak in FY13E and FY14E, as order inflows are likely to be weak in H1FY13E. However, the commentary on the Boiler and Heater business is relatively positive on account of expected revival of captive power plants. To counter the decline in power projects business, the company has increased focus on the power services business, but the scale is fairly small. In our opinion, order inflows/earnings are unlikely to surprise positively in H1FY13E. Maintain Buy.

Religare India

GABRIEL INDIA
Reco price/date: Rs 55/July 3;
Current/target price: Rs 56.40/Rs 72
Following a robust growth in the auto sector in the past three years (22 per cent compound annual growth rate, or CAGR), management expects subdued 9.9 per cent growth in FY13. However, Gabriel should grow faster than the sector, as it is likely to augment its OEM sales with market-share gains and commencement of supplies to new customers. Gabriel expects strong growth in exports, at 40 per cent in the next two years. This is after registering over 100 per cent growth in the two previous years. Similarly, replacement sales are another high-growth potential segment. The management expects these two segments together to constitute 25 per cent of overall revenue in the next two-three years (from 14.3 per cent currently). We introduce FY15 earnings per share (EPS) estimates at Rs 10.4, a 15.1 per cent y-o-y growth. We lower FY13E EPS 14.2 per cent to factor in lower OEM growth and a softening margin. Gabriel’s earnings CAGR over FY12-15E is 18.1 per cent (37.3 per cent in the past two years). We lower our price target to Rs 72 (from Rs 74), based on a target enterprise valure /Ebitda (earnings before interest, taxes, depreciation, and amortisation) multiple of 5.7x EPS Rs 13 (a 15 per cent discount to its nine year average). At our target price, the stock would trade at 8x FY14e EPS, compared to the current 6.1x PE. Maintain Buy.

Anand Rathi Research


Reco price/date: Rs 313/July 3;
Current/target price: Rs 315/Rs 320
Deutsche Bank has lowered its oil price outlook by 12-13 per cent on weaker oil demand, resulting in a nine per cent cut in its target price for Cairn India. They have, however, increased their FY13/14 EPS estimates by 4-9 per cent to align their assumption of tax incidence to lower management guidance. Analysts have lowered their income tax assumption for FY13 and FY14 to 12 per cent to align with management guidance. Deutsche Bank has also increased its dollar/rupee assumption by 6 per cent to 53 in FY13 and to 51 from FY14 onwards. Maintain Hold.

Deutsche Bank

POWER GRID CORPORATION
Reco price/date: Rs 112/July 3;
Current/target price: Rs 113.30/Rs 133
PGCIL has already commissioned assets worth Rs 2.500 crore in the first two months of FY13E and is likely to commission Rs 1,500-2,000 crore in June 2012. It is also targeting capitalisation of Rs 20,000 crore for FY13. Huge investment approval over the last two-three years (Rs 36,000-40,000 crore), huge capital work in progress and regulatory support gives confidence on the improved capitalisation trend. It also highlighted that renewable and sub-transmission network for state building would provide additional opportunity in the 12th plan. The company is also confident of winning projects even through the ICB route due to the inherent advantage of low funding cost and presence through the country. Maintain Buy.

Prabhudas Lilladher

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Analysts' corner

Thermax, Gabriel India, Cairn India & Power Grid Corporation

Working capital in FY12 continued to remain higher than the historical trend on weakness in order inflows and increase in receivable days. Receivable days were at 84, in line with the highest levels in the past 10 years. Customer advances days declined to 47 (from 69) as order inflows in FY12 were at Rs 40.3 billion, down 24% year-on-year (y-o-y). However, absolute cash and cash equivalents were comfortable at Rs 7 billion (33% of the consolidated balance sheet). The management expects the power business to continue to be weak in FY13E and FY14E, as order inflows are likely to be weak in H1FY13E. However, the commentary on the Boiler and Heater business is relatively positive on account of expected revival of captive power plants. To counter the decline in power projects business, the company has increased focus on the power services business, but the scale is fairly small.

THERMAX
Reco price/date: Rs 507/July 4;
Current/target price: Rs 504.05/Rs 575
Working capital in FY12 continued to remain higher than the historical trend on weakness in order inflows and increase in receivable days. Receivable days were at 84, in line with the highest levels in the past 10 years. Customer advances days declined to 47 (from 69) as order inflows in FY12 were at Rs 40.3 billion, down 24% year-on-year (y-o-y). However, absolute cash and cash equivalents were comfortable at Rs 7 billion (33% of the consolidated balance sheet). The management expects the power business to continue to be weak in FY13E and FY14E, as order inflows are likely to be weak in H1FY13E. However, the commentary on the Boiler and Heater business is relatively positive on account of expected revival of captive power plants. To counter the decline in power projects business, the company has increased focus on the power services business, but the scale is fairly small. In our opinion, order inflows/earnings are unlikely to surprise positively in H1FY13E. Maintain Buy.

Religare India

GABRIEL INDIA
Reco price/date: Rs 55/July 3;
Current/target price: Rs 56.40/Rs 72
Following a robust growth in the auto sector in the past three years (22 per cent compound annual growth rate, or CAGR), management expects subdued 9.9 per cent growth in FY13. However, Gabriel should grow faster than the sector, as it is likely to augment its OEM sales with market-share gains and commencement of supplies to new customers. Gabriel expects strong growth in exports, at 40 per cent in the next two years. This is after registering over 100 per cent growth in the two previous years. Similarly, replacement sales are another high-growth potential segment. The management expects these two segments together to constitute 25 per cent of overall revenue in the next two-three years (from 14.3 per cent currently). We introduce FY15 earnings per share (EPS) estimates at Rs 10.4, a 15.1 per cent y-o-y growth. We lower FY13E EPS 14.2 per cent to factor in lower OEM growth and a softening margin. Gabriel’s earnings CAGR over FY12-15E is 18.1 per cent (37.3 per cent in the past two years). We lower our price target to Rs 72 (from Rs 74), based on a target enterprise valure /Ebitda (earnings before interest, taxes, depreciation, and amortisation) multiple of 5.7x EPS Rs 13 (a 15 per cent discount to its nine year average). At our target price, the stock would trade at 8x FY14e EPS, compared to the current 6.1x PE. Maintain Buy.

Anand Rathi Research

CAIRN INDIA
Reco price/date: Rs 313/July 3;
Current/target price: Rs 315/Rs 320
Deutsche Bank has lowered its oil price outlook by 12-13 per cent on weaker oil demand, resulting in a nine per cent cut in its target price for Cairn India. They have, however, increased their FY13/14 EPS estimates by 4-9 per cent to align their assumption of tax incidence to lower management guidance. Analysts have lowered their income tax assumption for FY13 and FY14 to 12 per cent to align with management guidance. Deutsche Bank has also increased its dollar/rupee assumption by 6 per cent to 53 in FY13 and to 51 from FY14 onwards. Maintain Hold.

Deutsche Bank

POWER GRID CORPORATION
Reco price/date: Rs 112/July 3;
Current/target price: Rs 113.30/Rs 133
PGCIL has already commissioned assets worth Rs 2.500 crore in the first two months of FY13E and is likely to commission Rs 1,500-2,000 crore in June 2012. It is also targeting capitalisation of Rs 20,000 crore for FY13. Huge investment approval over the last two-three years (Rs 36,000-40,000 crore), huge capital work in progress and regulatory support gives confidence on the improved capitalisation trend. It also highlighted that renewable and sub-transmission network for state building would provide additional opportunity in the 12th plan. The company is also confident of winning projects even through the ICB route due to the inherent advantage of low funding cost and presence through the country. Maintain Buy.

Prabhudas Lilladher

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