Capital
Market
BASF
BASF India, 71.8% subsidiary of Euro 50 billion German
Chemical giant BASF Ag, has diversified business profile comprising of
agrochemicals (contributing > 50% of PBIT), performance products (leather, textile,
paper, water treatment, specialty and dispersion
chemicals) and plastics.
BASF Ag plans to grow faster than the market in Asia Pacific.
BASF Coatings is one of the top automotive coating players
in the country and BASF Construction supplies products to construction industry
for use in making concrete, industrial flooring, tile adhesives and other
specialized applications. Merger of
these two companies would add over Rs.400 crore to
BASF revenue.
The merger clearly demonstrates that BASF India is going to
be the main vehicle for driving growth in
Agrochemical business will be major growth driver in view of :-
Global alliance with
Continuous introduction of new products (thanks to strong
parentage) - plans to launch 7 products (herbicides
& fungicides) over next 3 years, thereby sustaining strong position in soyabean, fruit & vegetable market and foray in cereals
& commodity segments.
Excellent demand– Due to natural disasters i.e. heat waves, draught
& excess rains in major food producing countries, there is fall in food
output; while demand for food is rising at brisk pace particularly from growing
middle class from emerging markets.
With acquisition of Ciba and now Cognis,
parent company is strategically focusing more on high margin specialty chemical
products for driving future growth. This augurs well for BASF India’s
performance product business (contributes ~ 40% of consolidated PBIT).
Plastics business comprises of Expandable Polystyrene (Styropor) and Performance Polymers (Engineering Plastics), which
are in growth phase. Key sectors driving plastics business growth are consumer
durables, automotive, electrical & electronics, construction and packaging.
Overall outlook for Plastics business is favourable.
Thus, topline is expected to grow @
CAGR of > 25% for next 2-3 years on back of growing domestic demand for
agrochemicals as well as performance products. With improved profitability, bottomline will be growing at faster pace for next few
years.
Company is cash rich (net surplus cash of Rs 170 crore on March 31, 2010). Moreover,
its capex requirements are also moderate and hence, it
will keep on augmenting surplus cash. “Excellent BUY” at CMP
from long term perspective.
Mahindra Lifespace Development Ltd (MLDL)
Mahindra Lifespaces,
the real estate development arm of $6 billion Mahindra
Group is a subsidiary of Mahindra & Mahindra Limited. Formerly known as Mahindra
Gesco Developers Ltd, it has been in the forefront of
Urban Development in the country.
A part of $6.3 billion Mahindra
Group, the company enjoys a reputation of being a pioneer in the development of
integrated business cities & delivering quality living spaces. The company
has developed premium residential & commercial properties in Mumbai, Pune,
Mahindra Lifespace
Development Ltd (MLDL) has reported total revenue of Rs.350 crore
and net profit of Rs.79 crore for FY10. EPS is at Rs.19.
For the second quarter FY11, revenue is at Rs.100 crore
with net profit of Rs.24.66 crore, an increase of 42%
over the same quarter of the previous year. Quarterly EPS is at Rs.6.
The company’s current projects in Mahindra
Eminente at Goregaon-Mumbai,
Mahindra Splendour at Bhandup-Mumbai, Mahindra
Royale at Pune & Mahindra Chloris at
Mahindra Aura at Gurgaon NCR.
Construction of Phase I of Aqualily,
a premium residential development at Mahindra World
City-Chennai launched in Nov’09 was initiated.
Mahindra Lifespace
Development Ltd (MLDL) has completed 10 residential & 8 commercial projects
in Mumbai/ Pune/ Chennai/
Upcoming projects are Mahindra
Aura Phase II in Gurgaon & a project in MIHAN SEZ
Nagpur.
At current valuation the stock looks attractive for
investment with a time horizon of 1 year or more. The near term concern could
be surplus in commercial & residential premises, but this could be short
term negative as the projects of MLDL are at locations where there is land
shortfall for development.
The demand for commercial & residential premises in
metros is likely to see an uptick with revival in the
economy in both domestic & global, more and more foreign firms setting up
offices and improving demand for residential property for expats.
Merck
India Limited (MIL)
Merck
Pharma business is expected to grow in
line with or better than pharma industry growth of 13-14%
for next few years because of :-
• Enhanced
thrust on faster growing life style related therapeutic segments like
Cardiovascular (Concor brand), Metabolic (Metformin brand), CNS and Oncology.
• Continuous
launch of new products (either from parent’s basket or through in-licensing
agreement) to enrich product portfolio.
• Pursuing
aggressive marketing strategy, company is focussing
on fast growing rural market with franchise field force (~ 450) catering only
to this market.
• Switching
over from DPCO (60% of sales is still under DPCO) to non-DPCO products is
expected to improve profitability. For eg.
Company is promoting Vitamins (Polybion,
Neurobion, which is under DPCO) through
combination products (i.e. plus brands), which place them out of DPCO and also
have better margins.
Accordingly, company has set up ambitious target of
achieving Pharma Sales of Rs.
700-800 crore (Rs. 352.55 crore in CY 2009) in next 4-5 years @ CAGR of 15-18%.
Merck
• Increasing
domestic demand from segments like auto, metal, paints, mining, etc.
• Plans to
launch “Candurin” pigment used for colour coating of food & pharmaceuticals. While focus
is on decorative effect in food sector, pharmaceutical coatings are used to
help patients better identify medications and prevent counterfeiting of drugs.
• Parent
company is looking at shifting production from
MIL is a debt free company having surplus cash of approx. Rs. 220 crore and is looking for
acquisition. In a nutshell, the company is concentrating on profitable growth
and the stock is an excellent long term investment.
TVS
Srichakra Tyre
TVS Srichakra, one of the largest
suppliers of two & three wheeler tyres in India
and part of the US $ 2.2 billion Auto Ancillary group TVS, is poised for
accelerated growth in the next few years in view of impressive off take from
OEMs, coupled with increased demand from replacement market and expected
recovery in overseas markets.
Company manufactures complete range of two and three wheeler
tyres & tubes for domestic OEMs such as TVS
Motors, Hero Honda, Bajaj Auto, Yamaha Motors etc. It
also manufactures Industrial Pneumatic Tyres, Flotation,
Motorgrader, Farm & Implement Tyres,
Skid Steer Tyres, Multipurpose Tyres,
Vintage Tyres and off-the-highway tyres.
Demand for tyres is going to
remain buoyant in view of
• Strong
volume growth of ~20-25% in 2 wheeler industry (led by sustained economic
growth and stepped up investment in road infrastructure) as evident from the
fact that all OEMs are on expansion spree.
• Rural and
semi-urban market is expected to become new growth engine for not only vehicles
but also for farm inputs.
Company, with continued thrust on retaining respective share
of business with major OEs and making further in-roads
in new OEs through continued thrust on innovation in
new product development, is expected to garner larger share of this growing
market.
2 wheeler tyres come up for
replacement within 2-3 years. After Sales / Replacement segment will witness
high growth (in view of continuously growing 2/3 wheeler population) and
lucrative market, as profit margin is better. Company derives as much as 65% of
its revenue from this segment. With massive brand building exercise and
continued focus on enhancing dealer network (> 2,050 dealers and 23 depots
across the country), company is well set to capitalize
on the opportunities provided by sustained growth in replacement demand.
TVS Srichakra exports large tyres meant for off-the-highway vehicles to companies like
Caterpillar, John Deere, etc. In fact, it is a global player exporting to
• TVS is
looking at introducing new technologies including radialisation
of two wheeler tyres, tubeless tyres,
and newer segments in off-road tyres, exclusively
targeted at export market.
• Since trade
stocks have come down during the recession period, there will be buying spree
in the next few quarters.
Buoyed by impressive off take from all segments, company is
augmenting its capacity further by 25%. EPS is expected at Rs.52 for FY11 and
is expected to grow to Rs.61 in FY12. In view of excellent future prospects, we
recommend to “BUY” the share at CMP.