A host of brokerages have come out with updates on their tracked stocks. Kotak visited JSW Steel’s Dolvi steel plant and was impressed. Nirmal Bang visited JB Chemical’s oral and injectable facilities in Gujarat. Motilal Oswal reviewed Titan Company’s progress while Kotak, in a separate note, talked about developments at Phoenix Mills. Among the four stocks, JB Chemicals and Titan Company received buy ratings, JSW Steel ‘Sell’ rating while Phoenix Mills received a ‘ ADD’ rating from analysts.
JSW Steel | Kotak Institutional Equities | Sell | Target Rs 685
Kotak said it visited JSW Steel’s Dolvi steel plant situated in Maharashtra on the West coast of India. JSW Steel has
impressively turned around a loss-making 3.3 mtpa steel plant acquired in 2010 to a mega 10 mtpa integrated steel plant in the past 12 years. The plant is connected to Dharamtar Jetty (cargo handling capacity of 28 mtpa) and has a total area of 1,400-plus acres. The company has plans to increase capacity by further 4 mtpa in the future, and is currently working on project configuration and land acquisition. JSW Steel commissioned the 5 mtpa phase II in Q3FY22, which has Rs 4,500 per tonne lower conversion cost versus phase I, and impressively ramped up production to rated capacity within one year.
“This drives our 4-5 per cent volume upgrade for FY2024-25E,” Kotak said.
“The company, at through-cycle margins, would generate FCF (pre-growth capex) of Rs 60,000 crore over FY2023-25E, mainly led by strong volume growth and deleverage, despite significant growth capex. We have increased our Ebitda by 9.6 per cent/6.7 per cent for FY2024-25E, factoring higher volumes and increase fair value to Rs 685 from Rs 630). We maintain SELL, given rich valuations at 7 times EV/Ebitda FY2024E,” Kotak said.
JB Chemicals | Nirmal Bang Institutional Equities | Buy | Target Rs 2,427
Nirmal Bang Institutional Equities said it recently visited JB Chemicals and Pharmaceuticals’ oral solid (T20) and Injectable (IV17) facilities at Panoli, Gujarat and interacted with the operation and production heads across all plants to understand the company’s manufacturing capacity and capability. While the T20 facility is USFDA approved and it is utilised for the US, South Africa (SA) and Indian markets, the IV17 facility is mainly for RoW markets, the brokerage said.
The company is adding a separate Eye Drops line in the IV17 facility for the US market and is expected to start validation batches from April 2023, the brokerage pointed out.
“We like the company’s idea of having a uniform production policy and almost similar compliance standard across all geographies. About capacity, as per the management, the company has sufficient capacity and expansion space in
the existing plants for at least the next five years of production requirement. On the Ranzel brand acquisition, we believe that the deal complements the company’s existing cardiac segment and the management believes that it is a strategic fit to enhance focus on the domestic market,” Nirmal Bang Institutional Equities said.
JB Chemicals will utilise its existing field force to market these brands, but Nirmal Bang expects that JB Chemicals will need to add more field strength to promote these brands.
“Hence, we believe that the deal would be margin-accretive but earning-neutral. JB Chem remains our preferred pick in the Pharma sector mainly due to its aggressive growth focus in the domestic market, strong financials and healthy FCF. We maintain a “BUY” recommendation on JB Chem with a revised target price (TP) of Rs2,427, valuing it at 20 times September 2024E EV/Ebitda,” it said.
Titan Company | Motilal Oswal Securities | Buy | Target Rs 2,910
Motilal Oswal said Tanishq is performing extremely well and the Titan company management has deliberately taken a value focused approach, which is serving them well. The brokerage said the company management did not pass on the entire effective import duty increase of 4.25 per cent in July to customers. In the Jewellery, despite a change in the geographical mix, the management said there is a good possibility that the proportion of Studded sales will be back to pre-Covid levels.
The Wearables business will be a critical driver of the targeted 20 per cent CAGR in the Watches and Wearables segment, Titan told Motilal Oswal Securities.
“While the healthy growth in overall revenue and earnings in the preceding five years is likely to continue over the next five years, the management indicated that expansion in return ratios is unlikely to be sharp in the first few years due to higher upfront investments,” it said.
Motilal Oswal said Titan remains an attractive investment case in the largecap consumption space in India, with strong earnings growth visibility and compounding 20 per cent for an elongated period of time.
“Aside of our expectation of possibly slower growth in 3QFY23 on a very high base in the Jewellery business, there are no concerns beyond that, especially with the geopolitical situation stabilizing. Expensive valuations in the near term will be
burnished by its rapid pace of growth. We maintain our Buy rating with a target of Rs 2,910 (60 times September 2024 EPS),” it said.
Phoenix Mills | Kotak Institutional Equities | ADD | Target Rs 1,640
Phoenix Mills has completed the acquisition of a 7.2 acre land parcel in Surat—the second largest city in the state of Gujarat and is likely to set up a mall (1 million square feet) that will be commissioned by FY2027. The management had highlighted in the Q3FY22 earnings call potential opportunities in Surat, which now adds another leg of growth after its acquisition in Kolkata and brownfield expansion (Project Rise) at High Street Phoenix in Mumbai, Kotak said.
Kotak said Phoenix Mills has four malls in construction stage—with a project cost of Rs 4,000 crore (Rs 3,350 crore spent until September 2022), of which Phoenix Citadel Indore has been recently commissioned.
In addition, the company has partnered with CPP IB for two more projects. The company has received approvals for the Kolkata asset and has completed demolition work for on-site structures. The acquisition of the Surat land parcel
lends further visibility for growth, Kotak said. The brokerage said Phoenix Mills currently trades at 14 times EV/Ebitda with Ebitda likely to compound at 45 per cent between FY2022 and FY2025E.
“Further, the commissioning of assets at Kolkata/Phoenix Rise in Mumbai and other commercial office space will likely keep the earnings trajectory in strong double-digits. Maintain ADD with a fair value of Rs 1,640/share,” it said.