a recovery in cash flow. In terms of the utilisation theme, our equity analysts believe that
Bharat Forge Ltd (which is benefiting from a recovery in both the local and overseas markets) and ILFS are key stocks to play this theme. ILFS does have a significant degree of leverage but most of the leverage is structured around toll roads and annuity incomes.
* Bharat Forge ( CMP: R320, OW and TP: R380): BFL is one of the largest forging companies in the world and, as a standalone entity, enjoys cost leadership and a track record of efficient operations. Our analysts believe the company has one of the best management teams in the engineering space and its focus on managing its human resources is one of the best in the industry, resulting in higher efficiencies and better cost management. Further, its ability to source raw materials from its sister companies also enables it to manage costs better.
* IL&FS Transportation Networks Ltd ( CMP: R138, OW and TP: R172): ILFT is poised to make seven projects operational in 2014e. Three of these will be among ILFT’s top four assets; it has 26 road assets in total. With the launch of these seven projects, our analysts expect ILFT’s average daily cash collection to increase threefold to around R60m by FY15e. This will likely ease investors’ main concern about the company and the sector—namely, potential delays in cash flow generation—limiting developers’ ability to cut leverage.
(iii) Strong earnings momentum with reasonable valuations: On the theme of strong growth at reasonable valuations, our analysts highlight three names in the mid-cap space: (i) LIC Housing which is in the resilient mortgage finance business, (ii) Power Trading Corp, and (iii) Prestige Estates.
* Prestige Estates Projects Ltd (CMP: R157, OW(V) and TP: R190): Prestige maintains a very high level of corporate governance/disclosure standards and has been able to meet its guidance successfully since listing. Despite some weakness in key markets like Bangalore, its sales momentum continues apace, driven by strong presales and a strong brand. The company has