Parag Milk Foods Ltd
16/04/2018 Initiating Coverage
Parag Milk Foods (PARAG) is one of the leading dairy products companies in India. The company has been successful in creating strong brands like GO, Gowardhan and in introducing new products like Whey Protein. It has become the 2nd player in processed cheese (after Amul) in a short span of 10 years and commands 33% market share. Rising revenue share of high-margin value added products (VAP) is likely to boost its margins in coming years. Outlook and valuation: We expect PARAG to report net revenue/PAT CAGR of 13%/27% respectively over FY2018-20E. The stock currently trades at a P/E of 14.9x FY2020E EPS. It is increasingly becoming a stable brand strory while it is still valued as commodity business. We feel that the company should somewhere start enjoying the valuation of FMCG companies. We initiate coverage on the stock with a BUY recommendation and Target Price of `333 (20x FY2020E EPS), an upside of 34% from the current levels.
   GMM Pfaudler Ltd
06/04/2018 Initiating Coverage
GMM Pfaudler Limited (GMM) is the Indian market leader in glass-lined (GL) steel equipment used in corrosive chemical processes of agrochemicals, specialty chemical and pharma sector. The company is seeing strong order inflow from the user industries which is likely to provide 20%+ growth outlook for next couple of years. Outlook & Valuation: GMM is likely to maintain the 20%+ growth trajectory over FY18-20 backed by capacity expansion and cross selling of non-GL products to its clients. The stock is currently trading at 16.5x FY2020 EPS, which offers good opportunity to enter the stock. We are initiating coverage on GMM with a Buy recommendation and Target Price of `861 (20x FY2020E EPS), indicating an upside of ~21% from the current levels.
   Angel Top Picks – April 2018
03/04/2018 Top Picks
Market continued to fall for the second consecutive month ( YTD return (-)5%) in the month of March amid various macro concerns like rising US bonds yield and oil prices etc. Further, LTCG concerns also led to profit booking towards the end of FY2018. However, this correction has also come after a decent rally we had seen in January 2018. Moreover, BSE 100 benchmark returns have been decent 11% in the past 1 year, which cooled off from 21% annual return given in FY2017. Now, the focus will be turned on Q4 earnings and the growth in earnings is slated to revive in coming financial year which is likely to keep the positive buoyancy in market sentiments in FY2019. Our top picks have generated a total return of 68.5% since inception (i.e. October 2015), an outperformance of 39% over BSE 100. We recommend our top picks as the good bets to utilize this opportunity which are offering healthy returns in the next 1 year. All of our top picks are backed by sound business model and are likely to do well in coming years. Our top picks have generated a CAGR return of 24% since inception, a outperformance of 13% over BSE 100 on annual basis. On absolute basis, it has given absolute return of 68.5% since inception.
   Lemon Tree Hotels Ltd.
23/03/2018 IPO/FPO note
Started in 2002, Lemon Tree Hotels Ltd. (LTHL) is India’s largest hotel chain in the mid-priced hotel sector and the third largest overall, on the basis of controlling interest in owned and leased rooms. As of January 31, 2018, Lemon Tree operated 4,697 rooms in 45 hotels (including managed hotels) across 28 cities in India. Outlook & Valuation: It has seen turnaround in M9FY2018 by posting a PAT of `2.9 cr which was achieved at sort of peaked occupancy and 9% price hike (taken after September 2017). Hence, any further improvement in margins have to largely come via price hikes, which looks difficult specially in the lower range hotels, amid intense competition. At the upper end of the price band, the EV/EBITDA multiple works out be 44.5x EBITDA of FY2017 and ~38.6x on its FY2018 annualized EBITDA, which appears on the higher side even when compared to large listed hotel players like Indian Hotels (available at 33x FY2018 EV/EBITDA, others are available at 20-25x). We recommend ‘Neutral’ on the issue for a mid-to-long term period.
19/03/2018 IPO/FPO note
Incorporated in 1973, with an aim of achieving self-reliance in research and development, and supply of critical alloys and products of national security, MIDHANI is one of the leading manufacturers of special steels, super alloys and the only manufacturer of titanium alloys in India. These are high value products which cater to niche end user segments such as defence, space and power. Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 30.9x 1HFY2018 annualized earnings (at the upper end of the issue price band), which is high considering MIDHANI’s historical two year CAGR top-line & bottom-line growth. Further, MIDHANI has an undersized order book which lacks revenue visibility, coupled with lower return ratios. Considering the above factors, we recommend NEUTRAL rating on the issue.
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