Kotak Stock Investment Ideas Dec 14

PREFERRED PICKS - FUNDAMENTAL
ALLCARGO LOGISTICS
BUY
Last report on 17-Nov-14 (Price:310)
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
Shares Outstanding (Mn)
323
390
358 / 102
40,713
126
INVESTMENT ARGUMENT
Volumes for MTO business in TEUs (Nos)
Allcargo has a strong presence in the MTO business through

wide network of ECU Line.
It also has a strong hold on domestic MTO business and
continues to perform strongly in the MTO segment despite
sluggish container shipping market
We estimate the MTO segment to grow at ~24% in FY15 and
~7% in FYY16
Strong relationships will help the company to report stable
volumes in the CFS segment in FY15E and FY16E.at around
200,000 TEUs per annum
We estimate PES division to continue to report volatility in
revenue and profitability
Source: Company
Allcargo is well-placed to derive maximum benefits from any

potential recovery in global trade.
RISKS & CONCERNS
Volumes for CFS business in TEUs (Nos)
Deterioration in Exim trade

Competition in the CFS segment
BACKGROUND
Allcargo is the 2nd largest global player in LCL (less than
container load) consolidation business.
The company operates primarily in three segments, viz. MTO,
CFS/ICDs operation and Project & Engineering Solution
FINANCIALS (RS MN)
Sales
Growth %
EBITDA
EBITDA margin %
PBT
Net profit
EPS (Rs)
Growth %
CEPS
Book Value (Rs / Share)
Dividend per Share (Rs)
ROE %
ROCE %
Net cash (debt)
Net working capital (Days)
VALUATION PARAMETERS
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
PRICE PERFORMANCE (%)
FY14
48,513
23.8
3,912
8.1
1,961
1,491
11.8
(11.0)
25.7
133.7
1.5
8.8
8.6
(4,874)
22.5
FY14
27.3
2.4
0.9
11.7
1M
29.7
FY15E
54,450
12.2
4,741
8.7
2,801
2,101
16.7
40.9
30.2
148.9
2.5
11.2
10.5
(5,865)
24.0
FY15E
19.4
2.2
0.9
9.8
3M
33.0
Source: Bloomberg, Company, Kotak Securities - Private Client Research
FY16E
59,810
9.8
5,322
8.9
3,322
2,492
19.7
18.1
33.5
166.5
2.5
11.8
11.3
(5,710)
25.0
FY16E
16.4
1.9
0.8
8.7
6M
56.5
Source: Company, Kotak Securities - Private Client Research
Share Holding Pattern (%)
Source: Bloomberg
Investment Strategist December 2014
14

CARBORUNDUM UNIVERSAL LTD
BUY
Last report on 25-Nov-14(Price:174)
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
173
240
221 / 123
32,510
188
INVESTMENT ARGUMENT
Sales (Rs bn)
Leadership position in the domestic abrasives market; strong

positioning in global electrominerals and industrial ceramics
market
Geographically diversified operations: Recovery expected in
overseas business; business uptrend across verticals.
Sustained emphasis on research & development initiatives
provides competitive edge to the company
We project growth at 54% CAGR in EPS from Rs 5.1 in FY14 to
Rs 12 in FY16. Recovery in operating margins likely to aid to free
cash flow generation.
Current valuations appear attractive vis--vis the potential growth
in profits. We value CUMI stock at 20x FY16E (11x EV/EBITDA)
earnings and arrive at a target price of Rs 240 per share
Source: Company
RISKS & CONCERNS
Revenue mix (Rs bn)
Delayed recovery in global manufacturing activity
BACKGROUND
Incorporated in year 1954; company is a global supplier of
abrasives, ceramics and electro minerals. CUMI was founded as
collaboration between the Murugappa Group
FINANCIALS (RS MN)

Sales
Growth (%)
EBITDA
EBITDA margin (%)
PBT
Net profit
EPS (Rs)
Growth (%)
CEPS (Rs)
BV (Rs/share)
DPS (Rs)
ROE (%)
ROCE (%)
Net cash (debt)
NW Capital (Days)
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14
21,253
9.5
2,514
11.8
1,542
950
5.1
5.5
9.9
59.0
1.3
8.8
6.4
(3,015)
89.7
FY14
33.9
2.9
1.5
12.9
1M
(7.6)
FY15E
23,929
12.3
2,871
12.0
1,750
1,243
6.6
30.8
11.9
63.7
1.7
10.8
8.3
(2,917)
87.4
FY15E
26.2
2.7
1.4
11.3
3M
(13.2)
FY16E
26,028
9.0
4,295
16.5
3,161
2,245
12.0
80.6
17.4
72.1
3.0
17.6
13.4
(2,388)
90.9
FY16E
14.4
2.4
1.2
7.6
6M
0.3
Source: Bloomberg
15

GEOMETRIC LTD
BUY
Last report on 21-Oct-14(Price:124)
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
131
146
174 / 84
8,381
64
INVESTMENT ARGUMENT
Revenues - Customer Segments (%)
The scale-down in the large account is complete and should not

impact FY15 revenues.
Also, the management has undertaken several restructuring
initiatives to improve growth, bring in predictability as well as
sustain margins.
These initiatives are expected to lead to improved revenue
growth over the next few quarters.
The order booking over past three quarters and the strong pipeline
make us optimistic on future growth prospects.
RISKS & CONCERNS
Source: Company
INR appreciation beyond our assumed levels and slower-thanexpected

revival in user economies pose downside risks to our
Estimates.
Geographical Revenue Break up (%)
BACKGROUND
Set up as a division of Godrej and Boyce in 1984, geometric
currently provides engineering services, PLM solutions, and
outsourced product development services
FINANCIALS (RS MN)

Sales
Growth (%)
EBITDA
EBITDA margin (%)
PBT
Net profit
EPS (Rs)
Growth (%)
CEPS (Rs)
Book value (Rs/share)
Dividend per share (Rs)
ROE (%)
ROCE (%)
Net cash (debt)
Net Working Capital (Days)
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14
10,955
7.4
2,163
19.7
1,106
530
8.4
(23.4)
13.9
52.8
2.0
17.7
29.9
1,759
43.6
FY14
15.7
2.5
0.6
7.4
1M
5.1
FY15E
11,277
2.9
1,767
15.7
1,469
779
12.2
45.7
18.0
63.1
2.0
21.1
33.2
2,137
46.9
FY15E
10.8
2.1
0.6
3.7
3M
0.2
FY16E
12,595
11.7
2,085
16.6
1,817
980
15.3
25.8
21.4
76.8
2.0
21.9
34.8
2,787
46.4
FY16E
8.6
1.7
0.4
3.0
6M
0.1
Source: Bloomberg
16

ICICI BANK
BUY
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
351
364
366 / 189
2,023,392
5765
INVESTMENT ARGUMENT
Trend in earnings (Rs bn)
We like the quality of liability franchise - CASA mix at 43.7% (Q2FY15),

one of the best in the industry.
NIM has been on the improvement trajectory on back of strong
accretion to low cost deposits as well as better ALM. NIM improvement
has been contributed by both domestic as well as overseas operations.
Lower risk arising from the SME portfolio, as it constitutes only ~5% of
total portfolio. While retail piece has witnessed insignificant net
slippage, corporate segment continues to perform well.
Management has slightly hiked the credit cost guidance to 90bps,
going forward. We believe healthy NIM and moderate rise in opex are
likely to cushion its earnings profile by absorbing marginal rise in the
credit costs during FY15/16.
Source: Company
RISKS & CONCERNS
Trend in Asset Quality
Retail book stands at ~40% of total book, highly vulnerable to

systemwide deterioration in retail asset quality.
BACKGROUND
Largest private sector banks (3815 branches in Q2FY15) with 4.2%
market share in domestic loans.
FINANCIALS (RS MN)

Interest income
Interest expense
Net interest income
Growth (%)
Other income
Gross profit
Net profit
Growth (%)
Gross NPA (%)
Net NPA (%)
Net interest margin (%)
CAR (%)
RoE (%)
RoAA (%)
EPS (Rs)
Adjusted BVPS (Rs)
P/E (x)
P/ABV (x)
FY14
441.8
277.0
164.8
18.8%
104.3
165.9
98.1
17.8%
3.1
1.0
3.2
17.7
14.0
1.7
23.0
85.0
605.2
FY14
4.1
0.6
1M
9.8
FY15E
500.3
310.6
189.7
15.1%
118.1
193.2
114.6
16.8%
3.0
1.1
3.3
20.4
14.8
1.8
25.0
99.2
667.1
FY15E
3.5
0.5
3M
15.0
FY16E
575.0
352.4
222.5
17.3%
133.8
225.2
135.9
18.6%
2.8
1.0
3.4
19.6
15.8
1.9
27.0
117.6
750.7
FY16E
3.0
0.5
6M
23.0
Source: Bloomberg
17

IDFC
BUY
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
159
172
175 / 88
252,853
1590
INVESTMENT ARGUMENT
Trend in earnings (Rs bn)
It is present in the niche infrastructure financing space and is well

positioned to benefit from Indias large infrastructure opportunity.
Asset quality is best in class - GNPA/NNPA at 0.62%/0.42%
(Q2FY15). Moreover, it carries sufficient provision buffer (3.6% of
loans) to provide for any likely future increase in GNPA.
Average spread (rolling LTM) has remained stable at 2.2-2.3% as
management took the conscious decision of not growing the loan
book when funding costs spiked during recent times.
In prevailing macro-environment, higher non-power assets and
strong capitalization makes it a lower-risk play. We believe, falling
wholesale funding rates along with improvement in the outlook on
capital market related business are future catalyst for the stock.
Source: Company
RISKS & CONCERNS

Continued moderation in infrastructure capex cycle and delay in
project commissioning due to policy/approval delays or due to
lack of fuel-availability can impact the lending business.
Trend in Return Ratios
BACKGROUND
Established in 1997 as a specialized Infrastructure financier to
encourage private sector investments in the infrastructure space.
FINANCIALS (RS MN)

Net Interest Income
Growth (%)
Non-Int Income
Total Income
Operating Profit
Net Profit
Growth (%)
Gross NPA (%)
Net NPA (%)
NIMs (%)
RoA (%)
RoE (%)
DPS (Rs)
EPS (Rs)
BV (Rs)
Adj. BV (Rs)
P/E (x)
P/ABV (x)
FY14
27,040
5.5%
10,020
37,060
31,910
18,030
-1.8%
0.6
0.4
4.0
2.8
14.0
2.5
13.4
100.6
99.1
FY14
11.9
1.6
1M
4.0
FY15E
25,500
-5.7%
13,040
38,540
31,519
14,367
-20.3%
0.8
0.5
3.7
2.3
10.8
2.5
9.0
108.8
106.8
FY15E
17.6
1.5
3M
13.1
FY16E
27,519
7.9%
11,000
38,519
33,128
17,444
21.4%
1.0
0.6
3.8
2.5
11.7
2.5
11.0
116.8
114.7
FY16E
14.5
1.4
6M
18.5
Source: Bloomberg
18

KANSAI NEROLAC PAINT LTD
BUY
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
2016
2250
2105 / 826
108,646
54
INVESTMENT ARGUMENT
Volume in million litres for KNPL
KNPL is the market leader in the Industrial Paint Segment with

42% market share, with automotive segment contributing 75% of
the industrial segment revenues.
Company which currently has 15% market share in the
decorative paint segment is also looking to expand aggressively
in the segment.
We expect revival in auto sales and capex cycle to pick up from
here
We estimate margins of the company to improve over FY14 to
FY16E by 70 bps
The company has no major near term capex.
Source: Company
RISKS & CONCERNS

Prolong slowdown in the automotive segment
Prolong slowdown in the economy leading to weak capex cycle
impacting industrial demand
Average price increase for KNPL in %
BACKGROUND
Kansai Nerolac Paints Ltd. (KNPL), a subsidiary of Kansai Paint,
Japan, is one of Indias leading paint companies and the largest
player in the industrial segment.
FINANCIALS (RS MN)

Sales
Growth %
EBITDA
EBITDA margin %
PBT
Net profit
EPS (Rs)
Growth %
CEPS
Book Value (Rs / Share)
Dividend per Share (Rs)
ROE %
ROCE %
Net cash (debt)
Net working capital (Days)
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14
31,866
10.8
3,480
10.9
2,905
1,948
36.1
5.0
48.4
274.1
11.0
13.2
13.2
1,724
43.2
55.8
FY14
7.4
2.0
17.9
1M
6.4
FY15E
40,396
26.8
5,130
12.7
4,644
3,251
60.3
66.9
73.0
322.8
11.0
18.7
18.1
3,287
42.2
33.4
FY15E
6.2
(0.2)
(1.9)
3M
17.0
FY16E
48,325
19.6
6,234
12.9
5,709
3,996
74.1
22.9
87.6
385.4
11.0
19.2
18.7
5,663
43.4
27.2
FY16E
5.2
(2.4)
(18.4)
6M
50.6
Source: Bloomberg
19

L&T LIMITED
ACCUMULATE
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
1639
1762
1777 / 952
1,521,373
928
INVESTMENT ARGUMENT
Order intake Rs bn
Diversified play on the Indian infrastructure and Industrial sector.

Order backlog of Rs 2.14 trn remains strong providing visibility of
34 months of trailing four quarter revenue.
The company has given guidance of 20% growth in order intake
in FY15.
Stock performance would be contingent on newsflow on larger
order wins, commodity price trends and general economic and
policy datapoints (interest rate cuts and mining and power sector
reforms), we opine.
We expect stock to respond favourably to any reforms moves to
address the issues that have plagued the power sector.
RISKS & CONCERNS
Source: Company
Mainly project execution and commodity price risks.

Project investments has slowed down in recent quarters, which
may impact order flow in the coming quarters.
Order Backlog mix (%)
BACKGROUND
Professionally managed engineering company.
Presence across Middle East and Central Asia
FINANCIALS (RS MN)

Sales
Growth (%)
EBITDA
EBITDA margin (%)
PBT
Net profit
EPS (Rs)
Growth (%)
CEPS (Rs)
ROE (%)
ROCE (%)
Net cash (debt)
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14
851,284
14.3
107,543
12.6
74,830
49,020
49.5
(0.3)
65.1
406.8
14.3
12.8
4.2
(760,563)
136.4
FY14
33.1
4.0
2.6
20.6
1M
(1.3)
FY15E
936,556
10.0
115,778
12.4
70,593
46,743
50.4
1.9
77.5
440.4
15.0
11.9
3.7
(862,199)
128.9
FY15E
32.5
3.7
2.4
19.3
3M
2.9
FY16E
1,077,039
15.0
138,577
12.9
88,536
58,623
63.2
25.4
94.3
485.8
16.0
13.7
4.0
(986,974)
127.2
FY16E
25.9
3.4
2.1
16.6
6M
(2.3)
Source: Bloomberg
20

SHREE CEMENTS
ACCUMULATE
CMP
Target Price
52 wk High/Low
Market Cap (Rs Mn)
8977
9688
9298/4100
311,478
35
INVESTMENT ARGUMENT
Volume growth of Shree Cements (MT)
Companys revenues during July-Sep quarter were marginally

ahead of our estimates led by improvement in cement volumes.
Cement volumes registered a growth of 19% YoY for the quarter
led by demand improvement as well as commissioning of its new
plants. Cement realizations were up by nearly 10% YoY.
Cement prices stood fairly strong during the quarter till midAug,14 due to late onset of monsoons and witnessed a decline
only after mid-Aug. Northern region witnessed sharper falls
during August as compared to other regions and correspondingly
companys average realization were down by 8.8% sequentially..
We expect company to benefit from volume expansion as well as
pricing improvement going forward and hence we remain positive on
the company.
Source: Company
RISKS & CONCERNS

Decline in cement prices may put downward risk to our estimates
Decline in merchant power rates may also impact revenues from the
power division.
Cement EBITDA per tonne trend(Rs/tonne)
BACKGROUND
Shree Cements is one of the most efficient cement producers in
India and is best placed to capitalize on the growing cement demand
in northern india.
FINANCIALS (RS MN)

Sales
Growth (%)
EBITDA
EBITDA margin (%)
PBT
Net profit
EPS (Rs)
Growth (%)
CEPS (Rs)
ROE (%)
ROCE (%)
Net cash (debt)
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14
58,759
5.5
13,784
23.5
8,152
7,872
226.0
(21.7)
383.8
1,352.1
12.0
18.4
18.6
12,038
113.8
FY14
39.7
6.6
5.1
21.7
1M
(1.2)
FY15E
72,495
23.4
18,000
24.8
10,293
8,440
242.3
7.2
483.9
1,582.4
12.0
16.5
18.3
14,698
78.0
FY15E
37.1
5.7
4.1
16.5
3M
7.3
FY16E
90,150
24.4
24,800
27.5
15,862
13,006
373.3
54.1
652.8
1,943.7
12.0
21.2
23.2
25,255
78.0
FY16E
24.0
4.6
3.2
11.5
6M
25.2
Source: Bloomberg
21

Kotak Stock Investment Ideas Dec 14

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PREFERRED PICKS - FUNDAMENTAL

Market Cap (Rs Mn)

Shares Outstanding (Mn)

Volumes for MTO business in TEUs (Nos)

Allcargo has a strong presence in the MTO business through

Allcargo is well-placed to derive maximum benefits from any

Volumes for CFS business in TEUs (Nos)

Deterioration in Exim trade

Source: Bloomberg, Company, Kotak Securities - Private Client Research

Source: Company, Kotak Securities - Private Client Research

Share Holding Pattern (%)

Investment Strategist December 2014

PREFERRED PICKS - FUNDAMENTAL

Market Cap (Rs Mn)

Shares Outstanding (Mn)

Sales (Rs bn)

Leadership position in the domestic abrasives market; strong

RISKS & CONCERNS

Revenue mix (Rs bn)

Delayed recovery in global manufacturing activity

FINANCIALS (RS MN)

Source: Bloomberg, Company, Kotak Securities - Private Client Research

Source: Company, Kotak Securities - Private Client Research

Share Holding Pattern (%)

Investment Strategist December 2014

PREFERRED PICKS - FUNDAMENTAL

Market Cap (Rs Mn)

Shares Outstanding (Mn)

Revenues - Customer Segments (%)

The scale-down in the large account is complete and should not

RISKS & CONCERNS

INR appreciation beyond our assumed levels and slower-thanexpected

Geographical Revenue Break up (%)

FINANCIALS (RS MN)

Source: Bloomberg, Company, Kotak Securities - Private Client Research

Source: Company, Kotak Securities - Private Client Research

Share Holding Pattern (%)

Investment Strategist December 2014

PREFERRED PICKS - FUNDAMENTAL

Market Cap (Rs Mn)

Shares Outstanding (Mn)

Trend in earnings (Rs bn)

We like the quality of liability franchise - CASA mix at 43.7% (Q2FY15),

RISKS & CONCERNS

Trend in Asset Quality

Retail book stands at ~40% of total book, highly vulnerable to

FINANCIALS (RS MN)

Source: Bloomberg, Company, Kotak Securities - Private Client Research

Source: Company, Kotak Securities - Private Client Research

Share Holding Pattern (%)

Investment Strategist December 2014

PREFERRED PICKS - FUNDAMENTAL

Market Cap (Rs Mn)

Shares Outstanding (Mn)

Trend in earnings (Rs bn)

It is present in the niche infrastructure financing space and is well

RISKS & CONCERNS

Trend in Return Ratios

FINANCIALS (RS MN)

Source: Bloomberg, Company, Kotak Securities - Private Client Research

Source: Company, Kotak Securities - Private Client Research

Share Holding Pattern (%)

Investment Strategist December 2014

PREFERRED PICKS - FUNDAMENTAL