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BUY BUY
JSW Steel CMP `931 Talwalkars Better Value Fitness CMP `234
Topline growth boosted by strong volume growth Market leader with >100 health clubs in 52 cities
Q4 FY11 standalone revenue of `71.1bn was quite higher than Talwalkars Better Value Fitness (TBVF) is amongst the largest
our estimate of `66bn. The outperformance was on account of domestic fitness chains, operating over 100 health clubs (~68
both better realizations as well as volume. The company managed owned while rest housed in JVs and franchisees) with over
to sell 1.73mn tons in Q4 FY11, boosted by purchase of HRC 100,000 members. Incorporated in April ’03, the company offers
from Ispat and rerolling at its Maharashtra units. Excluding the diverse suite of services including gyms, spas, aerobics and health
trial production of 0.08mn tons from the new facilities during the counseling. Although company operates in a highly fragmented
quarter; production was flat on a qoq basis and 2.9% higher on a and competitive market, it has ample room for growth on account
yoy basis. Blended realizations jumped sharply from `36,457/ton of 1) under-penetrated membership rates (0.4% vs Asia-Pac avg of
in Q3 FY11 to `41,000/ton. Share of semis in steel sales declined 3.7%) 2) favourable demographic factors and 3) pan-India footprint
from 4.8% in Q3 FY11 to 4.3%. covering 52 cities and towns as of May 2011.
EBIDTA/ton jumps to US$210 from US$140 in Q3 FY11 Introduces ‘HiFi’ gyms to capitalize on rural demand
EBIDTA/ton of saleable steel jumped from `6,279/ton in Q3 In order to capitalize on the rural demand, TBVF has introduced
FY11 to `9,546/ton in Q4 FY11 on account of higher realizations. ‘HiFi’ gyms, a sort of ‘no-frills’ basic gym facilities in Tier III towns
Manufacturing costs per ton increased by 4.2% qoq, quite lower and beyond which would sit alongside existing Talwalkars chain.
than the 12.5% increase in realizations. Raw material costs per Membership fees are priced 25-30% lower while capex at ~`7.5-
ton of saleable steel increased 4.7% qoq to `24,502 slightly higher 10mn is also half of that of existing Talwalkars gyms. TBVF targets
than our estimate on account of consumption of HRC from Ispat. 25 such gym openings in current year with another 50 to be added
Increase in consumption of fines aided the company in maintaining next year. HiFi gym rentals are likely to be much lower (~4-6%
its iron ore costs. Operating profit of `16.5bn was higher than our of sales vs current rate of 10-12%) which can provide upside to
estimate of `14.2bn. EBIDTA margin.
US Subsidiary managed EBIDTA positive performance Owned gym base set to double over FY11-13
US subsidiary continued to report its EBIDTA positive performance Talwalkars added ~25 owned gyms in FY11 and is likely to add
even though utilization rates declined on a qoq basis. In Q4 FY11, another 11 in the current quarter. We factor in 30 gym adds each
it managed to register an operating profit of US$4.6mn, marginally in FY12 & FY13, down from our earlier estimate of 35 gyms, which
higher than the US$1.7mn reported in Q3 FY11. It expects capacity would take owned count to 129. In addition, we assume another
utilizations rates to increase from 10% in FY11 to 40% in FY12. 20 ‘HiFi’ gyms (vs guidance of 25) to be opened in the current
fiscal. FY12 capex guidance stands at `850mn across both the
Valuations attractive; Maintain Buy brands and board has created enabling resolution to raise up to
JSW Steel’s stock price has been under pressure over the last `1bn via QIP.
few months on concerns over acquisition of Ispat, sharp decline in
global steel prices and on expectations of an increase in imports. Trades at attractive valuation: recommend BUY
We believe that concerns over the stock are over down as JSW We model in gross steady-state revenues of `20mn/`10mn
was able to turnaround the operations at Ispat in its first quarter for Talwalkars/ HiFi gyms; assume 50% of HiFi gyms would be
after acquisition itself. The management would manage to maintain owned and rest housed in franchisees although company is yet
+US150/ton of EBIDTA/ton in FY12 on the back of 1) superior to finalize the exact distribution. Driven by a near doubling of gym
product mix 2) commissioning of beneficiation and pellet plant 3) base (ex-HiFi) to 129 from 69 in FY11, TBVF is likely to report
commencement of iron ore operations in Chile and coking coal in 62% EPS cagr over FY11-13. At 14.5x FY13 earnings, the stock is
US. On our revised FY13 earnings, the stock is currently trading attractively priced which supports our BUY.
at attractive valuations of 4.6x FY13 EV/EBIDTA. We maintain our
BUY recommendation on the stock with a nine month price target
of `1,105.
Indian markets has been reeling under a series of bad news lately. FII & MF activity (` cr)
It started with RBI with a 50 bps rate hike. Later on earnings from Date FII Net Investment MF Net Investment
RIL and Bharti failed to impress and this week, disappointing Q4
12-May (877) (89)
numbers from SBI aggravated the pain. But L&T's better-than-
expected order inflow and positive guidance for FY12 lifted the 13-May (3,706) 15
mood on the last two days. A drop in food inflation also aided the 16-May (242) (76)
sentiment. Finally, the Nifty and the Sensex fell 1.1% each on the 17-May - (632)
week.
18-May (260) (130)
Total 2011 (3,517) 1,201
S&P CNX NIFTY
Sensex Nifty Dow Nasdaq* Hang Nikkei Shanghai Future Venture Pantaloon B 34.7
Jones* Seng Aptech Ninad Karpe B 420.3
* As per previous close
2
India Infoline Weekly Wrap
Technical ideas
BUY SELL
Aditya Birla Nuvo CMP `859 Praj Industries CMP `74
Aditya Birla Nuvo has given a breakout from the downward Praj Industries on the medium term chart has formed ‘Head &
sloping resistance line on the daily chart. Weekly line chart shows Shoulder top’ pattern and prices have crossed below the neckline
a breakout from a falling wedge pattern. Such back to back support of `74 in Thursday’s trading session.
confirmation on short term and medium term chart supports our
buying argument at current levels and provides better risk-reward The amplitude of ‘Head & Shoulder’ pattern projects downside
ratio. target of `66 in the near term. The 200-DMA for the counter was
placed at `75 and hence move below same has reinforced bearish
The rally was accompanied with a positive crossover in RSI, trend on the long term charts.
earmarking inherent strength in the counter. Based on above
observations, we recommend traders to BUY the stock above The RSI has convincingly dipped below the support of 50 Mark and
`860 with stop loss of `840 for target of `910. every rally is likely to met with stiff resistance. We advise going
short in Praj Industries May Fut in the range of `74-75 with
stop loss of `78 for Target of `67.
3
India Infoline Weekly Wrap
Mutual fund round-up
IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013
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