Interest in India is fairly high, with specific focus on bottom-up ideas for 2016. Jefferies discusses 5 key sector themes playing out, with focus on Gateway Distriparks, Cummins, ABB, Voltas and NTPC, says a report.
2015 has been a difficult year across emerging markets. Disappointment was exhibited on the overall picture in India taking time to settle down. Despite this, interest in India is fairly high, with specific focus on bottom-up ideas for 2016. Jefferies discusses 5 key sector themes playing out, with focus on Gateway Distriparks, Cummins, ABB, Voltas and NTPC.
- MNC Engineering: driven by cost competitiveness and patent enforcement in India
- Railways: Dedicated Freight Corridor (DFC) seeing sharp pick-up in execution
- Operating leverage: companies benefitting from sweating expanded capacities in a gradually upticking economy
- Defence: Indigenisation focus continuing
- Renewables: On-ground progress being well ahead of expectations.
MNC Engineering received strong interest with valuation push-back being discussed at length, the report stated. Railways came as a positive surprise to investors.
Following is an extract from the Jefferies report:
L&T - Investor skepticism on a high: L&T, which began as an industry favourite, has been weak in 2015. We downgraded L&T in July 2014, and focussed on alternate names within the sector during 2015. From here on, in our minds, we believe a lot of the concerns have played out, and are now closely watching for early indications of stability/improvement.
Voltas – 2% AC penetration surprised most: Air-conditioner (AC) industry is a segment we have been positive on in 2015 and believe will remain strong in 2016. Most investors were surprised that AC penetration in India is only 2% and only 7% even if one considers only mid-income and above households. India needs 25%+ CAGR for the next 10 years to reach penetration levels similar to China of 20%+. Strong 3QFY16 can be expected post it seeing a 38% YoY volume growth in October 2015 and 15-20% in November 2015.
Gateway – still a name to be known: The upside potential that Gateway Distriparks holds due to DFC commissioning in FY18E-19E, is not a fully known story among investors. It is interesting to note that at one-tenth of Container Corporation (Concor) size in terms of volumes, it has 66% higher profitability per TEU. Also it has increased its market share from 5.3% in FY12 to 7.3% in FY15. Rail volumes should see a 20% CAGR over FY15-25 taking into account DFC commissioning and some market share gains to 10% by FY21. Our investor interactions are leading to interest picking-up in the company, as the fundamentals are being viewed positively.
Cummins and ABB - valuations have not stopped stock appreciation in the past: Most investors agree that India is increasingly becoming an attractive manufacturing destination v/s China given rupee depreciation and lower hourly compensations. Among MNCs, Cummins has the clearest path and ABB listed will benefit from the entire parent manufacturing push.
Following is an extract from the Jefferies report:
L&T - Investor skepticism on a high: L&T, which began as an industry favourite, has been weak in 2015. We downgraded L&T in July 2014, and focussed on alternate names within the sector during 2015. From here on, in our minds, we believe a lot of the concerns have played out, and are now closely watching for early indications of stability/improvement.
Voltas – 2% AC penetration surprised most: Air-conditioner (AC) industry is a segment we have been positive on in 2015 and believe will remain strong in 2016. Most investors were surprised that AC penetration in India is only 2% and only 7% even if one considers only mid-income and above households. India needs 25%+ CAGR for the next 10 years to reach penetration levels similar to China of 20%+. Strong 3QFY16 can be expected post it seeing a 38% YoY volume growth in October 2015 and 15-20% in November 2015.
Gateway – still a name to be known: The upside potential that Gateway Distriparks holds due to DFC commissioning in FY18E-19E, is not a fully known story among investors. It is interesting to note that at one-tenth of Container Corporation (Concor) size in terms of volumes, it has 66% higher profitability per TEU. Also it has increased its market share from 5.3% in FY12 to 7.3% in FY15. Rail volumes should see a 20% CAGR over FY15-25 taking into account DFC commissioning and some market share gains to 10% by FY21. Our investor interactions are leading to interest picking-up in the company, as the fundamentals are being viewed positively.
Cummins and ABB - valuations have not stopped stock appreciation in the past: Most investors agree that India is increasingly becoming an attractive manufacturing destination v/s China given rupee depreciation and lower hourly compensations. Among MNCs, Cummins has the clearest path and ABB listed will benefit from the entire parent manufacturing push.
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