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MidCap Picks – NCC + Anant Raj + Shriram by Motilal Oswal

November 16, 2009

Motilal Oswal has picked the following 3 midcaps for investment and here is the review of all the thre.

Nagarjuna Constructions:
During 2QFY10, NCC reported revenues of Rs10.7b & net profit of Rs439m (up 3.8%YoY). EBITDA margin during 1HFY10 stood at 10.3% vs FY09 margins of 9.0%, and the management is confident of maintaining margins at 10-10.5% in FY10.NCC has witnessed a meaningful traction, with order intake of Rs46b in 1HFY10, vs initial guidance of FY10 order intake of Rs65b.

NCC’s order book as at end 2QFY10 stood at Rs143b, book to bill 3.4x TTM revenues. Including L1 projects, order book increases to Rs174b, Book to Bill of 4.1x TTM revenues. Maintain Buy rating on NCC with target price of Rs184/sh (core business at Rs142/sh, 12x FY11 and BOT/RE investments at Rs43/sh).

Anant Raj Industries Ltd:
ARIL has a robust business model with multiple revenue streams and high monetization visibility. We expect revenues to increase at 50% CAGR over FY09- 12 and net profit to increase at 18.2% over FY09-12.

ARIL has ridden the current RE cycle well since FY06. While Several RE companies bought expensive land and projects during FY06-08 and are now selling assets cheap in the downturn (FY09-10) to de-leverage.

ARIL’s rental income is expected to increase from Rs150m in FY09 to ~Rs1.7b by FY11. Maintain a target price of Rs194.

Shriram Transport Finance:
For 2QFY10, STFC reported PAT growth of 25% YoY to Rs2.08b on back of 15% YoY growth in AUMs, 18% growth in total income and controlled operating expenses (down 13% YoY and 20% QoQ). Net NPA stood at 0.7% and coverage of 72%. Disbursements grew 10% QoQ, highlighting improved business environment.

NII grew strong 30% YoY and 12% QoQ to Rs5.3b (led by decline in funding cost). Overall AUMs grew by 15% YoY and Overall disbursements grew 10% QoQ.

Expect STFC to report EPS of Rs. 37 in FY10 & Rs 49/- in FY11 and maintain a BUY with target of Rs 490.

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