Brokerage house Sharekhan is bullish on Sutlej Textiles Industries, Kalpataru Power Transmission and PTC India Financial Services in the present market scenario.
Brokerage house Sharekhan is bullish on Sutlej Textiles Industries, Kalpataru Power Transmission and PTC India Financial Services in the present market scenario. It believes shares of Sutlej Textiles are available at an attractive valuations and can give good return to investors going forward. Further, it has revised its target for Kalpataru to Rs 320. For PTC India Financial Services, Sharekhan believes that the business has positives in the long run, but in the near term challenges will continue.
Sutlej Textiles Industries
Investment Rationale: Sutlej Textiles Industries is the largest spun dyed yarn manufacturer and a leading textile player in india with the largest presence in yarn. The company is also present in the home textiles vertical. It has a total spindles capacity of 3,77,000 with a capacity to produce around 1.1 lakh metric tonne (MT) yarn, spread across three states (Rajasthan, Jammu and Kashmir and Himachal Pradesh). Despite a challenging business environment and lower yarn realisations, the company has grown its topline at CAGR of 10 per cent in the past seven year, on account of organic volume as well as inorganic acquisition. In 2015-16, Sutlej Textiles acquired a yarn facility with 83,376 spindles capacity from Chambal Fertilizers for Rs232 crore. At the current price, shares of the company are trading at 8.5 times its FY2016 earnings and around 5.5 times its FY2018 earnings. Good management, well-managed balance sheet, high return ratios at over 20 per cent, and a consistent dividend payment record are the key strengths of the company. Shares of the company are available at an attractive valuation and can deliver 20-25 per cent returns in the next few quarters.
Kalpataru Power Transmission
Investment Rationale: The company reported a strong earnings growth of 50 per cent year on year at Rs 65 crore in April-June 2016 quarter, as weak revenue was offset by margin expansion and lower finance cost. The soft revenue performance for the quarter was attributed to weak order book position of last year. Apart from healthy margin in the T&D business, Sharekhan believes that the infrastructure business also witnessed margin improvement in the first quarter of 2016-17. Weak order book position of 2015-16 affected the company’s revenue performance during Q1FY2017. However, due to strong order inflows in the last one year Kalpataru Power is now sitting on a very healthy order book position of Rs 11,000 crore. The management expects order inflows of around Rs 8,000-9,000 crore in 2016-17. Sharekhan expects KPTL (standalone) to witness 20-25 per cent topline growth and notch operating profit margin of 10.5 per cent in 2016-17. Sharekhan revised the target price to Rs 320 from Rs 290 earlier.
PTC India Financial Services
Investment Rationale: PTC India Financial Services has posted Q1FY2017 results that were below expectations, with muted growth in total revenue and increase in bad loans despite traction in the loan book. The decline in net interest margin (NIM) was primarily due to reversal of interest income related to non-performing assets (NPAs), as PFS saw around Rs 17 crore interest reversals. A significant amount of efforts have been taken by the RBI as well as the government, to revive or facilitate stalled projects in the past few months. These steps, along with an overall economic pick-up will be beneficial to PFS going forward. Sharekhan expect PFS’ loan book to grow at a compounded annual growth rate (CAGR) of around 31 per cent over FY2016-FY2018E, leading to healthy return ratio. Also, a high capital adequacy ratio of 21 per cent would help the company to meet its growth requirements in the medium term. Sharekhan believes that the business has positives in the long run, but in the near term challenges will continue. It has ‘Buy’ rating on PTC India Financial Services with a price target of Rs 55.