Techno Funda Pick
SiScrip IDiI-Direct Co de AiAction Target UidUpside Maruti Suzuki MARUTI Buy in the range of 5770-5910 6640.00 14% Eicher Motors EICMOT Buy in the range of 23300-23600 27450.00 17% Time Frame: 6 Months Research Analysts Dharmesh Shah [email protected] Nishit Zota [email protected] January 27, 2017 Techno Funda Pick: Maruti Suzuki (MARUTI) Time Frame: 6 Months
CMP: | 5885. 00 BiBuying R ange: | 5770-5910 Tt|Target: | 6640. 00 UidUpside: 14%
Stock Data Key technical observations Recommended Price 5770-5910 The share price of Maruti has remained in a secular uptrend since 2014 as it continues to form higher peak and higher Price Target 6570 trough in all time frame and has consistently generated superior returns for investors over the long term. Within this structural bull run, the stock has undergone periodic phases of consolidation providing fresh entry opportunities for 52 Week High 5974 medium term players to ride the uptrend. We believe the consolidation over the last three months has approached 52 Week Low 3193 maturity and the stock provides a good entry opportunity for medium term investors. 50 days EMA 5474 The stock rebounded from a major support area ... 200 days EMA 4995 The stock after hitting a life-time high of | 5974 in the first week of November 2016 has entered a corrective 52 Week EMA 4888 consolidation phase to work off the excesses post the breakout rally from March 2016 low of | 3185 to the life-time *Recommendation given on i-click to gain on January high of 5974. It is a healthy phenomenon as stock forms a higher base before continuing its larger up move. The 27, 2017 at 11:23 hrs corrective decline got arrested ppyrecisely near the important support area of | 4800, which is the confluence of the Stock price vs. BSE Sensex following technical observations : 6,200 30,000 ¾ The medium term rising trendline support joining major lows since March 2016 currently placed at 5150 levels 5,700 ¾ 38.2% Fibonacci retracement of the entire 2016 rally placed at | 4860 levels 28,000 5,200 ¾ The long term 52 weeks EMA currently placed at | 4880 levels 4,700 26,000 ¾ The high of 2015 placed at | 4776 levels has reversed its role and acting as major support for the stock as can be 4,200 seen in the adjacent chart. This indicates the Change of Polarity principle, which says that a significant resistance 24,000 3,700 once taken out, reverses its roleand acts as support for future price action 3,200 22,000 Breakout from Bullish Flag pattern signals continuation of uptrend..... The stock witnessed a sharp rebound in the last two months from the support area of | 4800. The sharp up move and Jul-16 Oct-16 Apr-16 Feb-16 Jan-16 Jan-17 Jun-16 Sep-16 Dec-16 Nov-16 Mar-16 Aug-16 the sideways consolidation of the last two weeks has taken the pictorial shape of a bullish Flag pattern. A Flag May-16 Maruti BSESensex formation is a bullish continuation pattern, which marks a temporary pause in momentum after a strong rally as the bull takes a breather before continuance of the uptrend. The strong up move in the current week has seen the stock Price performance in last four years register a resolute breakout from the Flag pattern, thus providing a fresh entry opportunity for medium term investors
89% Momentum indicators validate underlying positive trend 70% 62% The weekly MACD (E-12/26/9) has generated a buy signal moving above its nine period’s average indicating strength 39% and augurs well for continuance of bullish momentum over medium term 18% 20% 15% Conclusion Based on the above technical parameters we believe the stock has resumed upward momentum and is set to extend -30% the up move towards | 6640 in the medium term as it is the measuring implication of the breakout from the Flag 2012 2013 2014 2015 2016 pattern bibeing price paritywith theprevious up move from | 4765 to 5795 (5795-4765=1030 poit)ints) adde d to the ltlast Year two weeks low of | 5610 (5610+1030=6640). Source: Bloomberg, BSE, ICICIdirect.com Research
2 Techno Funda Pick: Maruti Suzuki (MARUTI) – Weekly Bar Chart
Measuring implication of Bullish Flag breakout offers fresh entry opportunity for medium the Flag breakout @ 6630 term investors to ride the next up move in the stock
5974
4776 4765
Research Analyst
Dharmesh Shah The stock in strong uptrend recently [email protected] rebounded taking support at the confluence of: 3185 - 52 weeks EMA Nishit Zota -The medium term rising trendline support [email protected] -The 38.2% retracement of the 2016 rally
Weekly MACD has generated a buy signal indicating inherent strength and augurs well for the stock going forward
Source: Bloomberg, ICICIdirect.com Research
3 Techno Funda Pick: Maruti Suzuki India (MARUTI)
Fundamental View Stock Data Maruti Suzuki (MSIL) is India’s largest passenger vehicle manufacturer with a market share of 46% & annual sales of 14.3 lakh units as on FY16. Maruti has a combined production capacity of 1.4 million vehicles per annum at its Particular AmountGurgaon and Manesar plants. The company has a wide dealership network of 1,619dealersacrossIndia.Ithasa Market Capitalization (| Crore) | 178227.2 Crorestrong presence in the small car segment with well recognized models such as Alto, Swift, Wagon R & Celerio. Total Debt (FY16) (| Crore) | 77.4 Crore Cash and Investments (FY16) (| Crore) | 912.1 Crore Plenty of catalysts for long term growth EV (| Crore) | 177392.5 Crore 52 week H/L (|) 5972 / 3202MSIL has plenty of catalyst for its long term growth such as 1) The Indian PV segment will have positive impact of Equity capital (| crore) | 151 CroreSeventh Pay Commission which is likely to result in incremental growth of ~16% on YoY over the next two years. Face value (|) | 5We believe MSIL will be the biggest beneficiary, as it has >50% market share in the first-time buyer segment & a new model pipeline. 2) The demonetization of currency will also have least impact on passenger vehicle space (PV) as ~80% of vehicles are financed & cash transactions are minimal. Further MSIL volumes would be protected as the company has extended waiting period for most of its models. 3) MSIL has been first mover in terms of adding more Key Metrics content in car (airbags /ABS in base models), launched ‘smart hybrids’ variants (expected to launch the same in petrol fuel, which will make the cars competitively priced) & automatic transmission option in its existing & newer FY15 FY16 FY17E FY18E models. 4) More content per car at aggressive pricing is creating a pull-strategy favouring MSIL. MSIL’s strong P/E (x) 48.0 39.0 22.6 19.2 market share gain in the premium segment (market share in cars >8 lakh at ~25% in H1FY17 vs. ~6% in FY15) EV/EBITDA (x) 26.6 19.8 15.9 13.0 makes it a strong contender to benefit from premiumization. Thus we expect MSIL to register strong volume & P/BV (x) 7.5 6.6 5.3 4.4 revenue CAGR of 12% & 16% over FY16-18E. RoNW (%) 15.7 16.9 23.6 22.8 RoCE (%) 17.3 22.7 25.1 24.9 Strong margins to sustain We expect the company to maintain strong margins of 16% for FY17E, FY18E on the back of 1) reduced exposure Financial Highlights to JPY due to increased exports to Japan and royalty payment on new products in rupee, 2) lower discounts led by better product mix & overall volume recovery 3) savings in logistics cost post commissioning of Gujarat Plant, 4) positive operating leverage led by strong demand and 5) a better product mix. | Crore FY15 FY16 FY17E FY18E Net Sales 48,606 56,350 67,633 81,911 EBITDA 6,606 8,979 11,041 13,396Export to have larger growth ;post Suzuki’s Gujarat plant! Net Profit Profit 37113 ,711 4 ,571 571 78757 ,875 92899 ,289 SkiSuzuki isaiiiming to let MSIL grow as a low-cost bdbrand to target markets such as Afr ica. MSIL aldlreadycontributes EPS (|) 122.9 151.3 260.7 307.5~45% to Suzuki’s global profits. As such, Suzuki’s strategy to make MSIL its global export hub for low priced products is logical. At present, exports form ~9% of total sales for MSIL. However this is gradually expected to pick up going forward, on the commissioning of Gujarat plant which is expected in Q4FY17.
Entering robust growth phase In the past seven years, MSIL’ s average one-year forward multiple was 16x with peak multiple of 27x. We believe strong earning visibility (revise revenue, earning estimate by 1%, 10% for FY18E considering strong demand Source: Company, ICICIdriect.com Research outlook), should command premium valuation. Hence, we remain positive on the stock.
4 Techno Funda Pick: Eicher Motors (EICMOT) Time Frame: 6 Months
CMP: | 23400. 00 BiBuying R ange: | 23300-23600 Tt|Target: | 27450. 00 UidUpside: 17%
Stock Data Key technical observations Recommended Price 23200-23600 Eicher Motors, the makers of commercial vehicles and the iconic Royal Enfield motorcycle has been in a secular Price Target 27450 uptrend consistently forming higher highs and higher lows on the long term price charts. The stock has rewarded investors with superior returns over the long term horizon. Within the structural uptrend, the stock has witnessed 52 Week High 26641. 3 periodic phases of secondary correction that have provided fresh entry opportunities for investors to ride the secular 52 Week Low 15844.1 up move. We believe the stock has undergone a healthy corrective phase over the four months since October 2016 50 days EMA 22465 and is attractively poised with a favourable risk-reward for medium term investors to ride the next up move 200 days EMA 21540 Accumulation at key value area provides buying opportunity 52 Week EMA 21198 After hitting an all-time high of | 26641 in September 2016, the stock entered into a corrective phase. The price wise *Recommendation given on i-click to gain on January correction got arrested near the key value area of 19700 as it is the confluence of following technical parameters: 27, 2017 at 11:08 hrs ¾ The 80% retracement of the last up move from between June to September 2016 (18000 to 26641) is placed at Stock price vs. BSE Auto 19700 region 26,000 25,000 ¾ The neckline of the bullish cup & handle pattern from which the stock had registered a strong breakout in July 24,000 23,000 2016 was also placed around 19800 region 22,000 21,000 The stock formed a long legged Doji candle on weekly chart towards mid November 2016 highlighting strong demand at the major value area. Thereafter the stock witnessed a steady base formation above the 19700 value over the last 20,000 19,000 two months as it has consolidated between the broad range of |23700 to 19900 levels. Time wise the stock has 18, 000 17,000 completed four months under corrective phase against its last up move which also consumed four months whereas 16,000 15,000 price wise it has formed a steady base at the 80% retracement of the preceding up move. Based on these observations we believe the secondary corrective phase has approached time wise and price wise maturity
Jul-16 Breakout from overhead trendline and two month base formation signals resumption of upward momentum Oct-16 Apr-16 Feb-16 Jan-16 Jan-17 Jun-16 Sep-16 Dec-16 Nov-16 Mar-16 Aug-16 May-16 Eicher Motors BSE Auto The up move in current weeks trade has seen the stock register a resolute breakout above the key overhead falling trendline that had acted as resistance in the entire corrective decline over the last four months. The stock has also Price performance in last four years registered a breakout from the two month base formation range thereby signalling conclusion of the healthy corrective phase and sets the stage for the next directional up move within the larger uptrend. 203% Momentum indicators validate underlying positive trend 200% Among oscillators, the 14 week RSI has registered a bullish crossover above its 9 week average along with the breakout on price front highlighting strength in the current up move and augurs well for continuance of upward 100% 95% 71% momentum going forward. 12% 29% 0% Conclusion 2012 2013 2014 2015 2016 We expect the stock to resolve higher from here on and head towards target of |27500 levels over the medium term. Year The measuring implication of the two month base formation range (23700 to 19900 = 3800 point) projects upsides Source: Bloomberg, BSE, ICICIdirect.com Research towards 27500 levels (23700 + 3800) over the medium-term.
5 Techno Funda Pick: Eicher Motors (EICMOT) – Weekly Candlestick Chart
Measuring implication of two month base formation projects target @27500
Conclusion of four month corrective phase signals resumption of primary 26641 uptrend and provides fresh buying opportunity for medium term perspective
23700
Research Analyst
18000 Dharmesh Shah [email protected] ¾ Neckline of previous Cup & Handle pattern breakout area @ 19800 Nishit Zota ¾ 80% retracement of last up move @ [email protected] 19700 ¾ Long Legged Doji Candle formed at key value area highlighting strong demand
Positive crossover on 14 week RSI higgghlights strength in the price breakout
Source: Bloomberg, ICICIdirect.com Research
6 Techno Funda Pick: Eicher Motors (EICMOT)
Fundamental View Stock Data Eicher Motors (EML) is a dual play on sustained strong growth from its motorcycle business and Volvo Eicher Commercial Vehicles (VECV) which is well placed to capture the CV recovery in India. The company owns the iconic Particular Amountbrand “Royal Enfield - RE” which caters to premium & niche segment in India. On the other hand, VECV is a 54:46 Market Capitalization | 66984.8 Crorejoint venture (JV) between Eicher Motors and Volvo group which over the years has gradually increased its market Total Debt (FY16) | 85.9 Croreshare in Light Medium Duty trucks (5-15 Ton) to 33.9%, Heavy Duty trucks (4%), and in (15.8%) the buses segment Cash and Investments (FY16) | 582.7 Croreas of FY16.
EV (FY16) | 66487.9 CroreRE business going from strength to strength! 52 week H/L (|) 26641 / 14800RE demand remains strong, with volumes in top 20 cities growing 15% plus and waiting period for its most Equity capital (| crore) | 27 Croresuccessful model Classic 350 cc model at three months. EML has said its current production rate of ~60,000/month Face value (|) | 10will continue till Q2FY18. Post the commencement of its third plant at Vallam Vadagal, its total capacity will go up to 900,000 units in FY19. With the dealership in smaller towns turning viable, the company continues to increase its dealer network. EML is looking to capture the under-penetrated 250-750 cc market globally and has already opened Key Metrics exclusive stores in Colombia, two in UK, one each in UAE, France, Spain and Indonesia. VECV to benefit from impending growth in distribution vehicles CY14 FY16 FY17E FY18E In FY14-16, the growth in the domestic MHCV industry has been driven by the heavy duty multi-axle vehicle (MAV) P/E (x) 109.2 52.6 38.0 29.0 Adj. EV/E (x) 205.1 141.3 79.9 35.4 and tractor trailer segment. VECV has underperformed industry growth mainly due to concentration of VECV’s Tgt.Adj.EV/E(x) 181.4 125.0 70.7 31.4 product portfolio towards intermediate commercial vehicle (ICV-7.5-12 tonne), which are mainly used as distribution P/BV (x) 26.7 19.4 14.1 10.3 vehicles. ICV forms ~39% of VECV’s product portfolio. Going ahead, we expect the next phase of growth in MHCV RoNW (%) 24.5 36.9 37.1 35.4 to come from medium duty vehicles due to the trickle-down effect, which will benefit VECV the most as it is a market leader in the ICV segment. RoCE (%) 24.5 42.4 42.0 41.5Strong overall financial performance Financial Highlights With an increase in competitive intensity amid cyclical weakness in the ICV segment of M&HCV, VECV’s performance has dropped off in the past two years. However, RE’s strong performance has offset the weakness in the truck & bus segment. In our view, VECV’s performance is likely to improve with the recovery in the domestic | Crore CY14 FY16 FY17E FY18EM&HCV industry. We expect the top-line to grow at ~15% CAGR in FY16-18E (FY16 is a 15 month fiscal) while PAT Net Sales 8,599 15,429 16,662 20,468is likely to grow at ~34% CAGR in FY16-18E as margins improve from 15.9% in FY16 to 19.5% in FY18E EBITDA 1,115 2,447 3,076 4,005 Strong growth & high margins demand rich valuations Net Profit 615 1,278 1,764 2,307EML has justifiably commanded a premium over other auto OEs as RE’s business is in full throttle and VECV reaps EPS (|) 227.1 471.5 653.0 854.2 the benefits of an economic revival. We maintain peer valuation parameters (relative valuation vis-à-vis HOG’s high growth phase). Thus, we have a BUY recommendation on the stock
Source: Company, ICICIdriect.com Research
7 Strategy Follow up
Open Recommendations: Rec. Dat e Scrip Nam e Rec Pri ce Target CMP Reeuturn till dat e(%)e (%) 10-Jan-17 VA Tech Wabag 479.00 575.00 500 4.4
Summary Performance - Recommendations till date Open Recommendations 1 Total Recommendations 82 Yield on Positive recommendations 18.0% Closed Recommendations 81 Yield on Negative recommendations -8.0% Positive Recommendations 66 Strike Rate 81%
8 Notes…
• It is recommended to enter in a staggered manner within the prescribed range provided in the report. • The recommendations are valid for six months and in case we intend to carry forward the position, it will be communicated through separate mail.
Trading portfolio allocation
• It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products • Please avoid allocating the entire trading corpus to a single stock or a single product segment • Within each pr odu ct segm en t it is advisable to allocate equ al am oun t to each recommendation • For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation
9 Recommended product wise trading portfolio allocation
Allocations Return Objective Product Product wise Max allocation in Number of Calls Duration Frontline Stocks Mid Cap Stocks allocation 1 Stock
Daily Calls 8% 2-3% 3-4 Stocks 0.5-1% 2-3% Intraday
Stocks on the Move 6% 3-5% 7-10 Per Months 7-10% 10-15% 3 Months
Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week
Weekly Technicals 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week
Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month
Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month
Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months
Gladiator Stocks 15% 5-10% 1-2 Stocks 15% and above 20% and above 6 Months
Cash 10% - 100%
10 Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai – 400 093 [email protected]
11 Disclaimer
ANALYST CERTIFICATION We /I, Dharmesh Shah, Nishit Zota Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990.ICICI SitiSecurities isawhllholly-owned subidibsidiary of ICICI BkBank which is Idi’India’s ltlargest pritivatesector bkbank and has itsvarious subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non- rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these recommendations. Nothing in this section constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed herein may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of these recommendations. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
12 Disclaimer ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compe nsatio n fofrom the compa n ies metioedentioned her ein digduring the per iod pecedigpreceding twelve months from the date of these recommendations for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensationforproductsorservicesotherthaninvestmentbankingormerchant banking or brokerage services from the companies mentioned herein in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI SecuSecuritiesrities oorriitsts assocassociatesiates oorriitsts AnAnalystsalysts ddidid nnotot rreceiveeceive aanyny cocompensationmpensation oorr ototherher bebenefitsnefits ffromrom tthehe cocompaniesmpanies mmentionedentioned in tthehe rreporteport oorr tthirdhird party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this reports. It is confirmed that Dharmesh Shah and Nishit Zota, Research Analysts giving these recommendations have not received any compensation from the companies mentioned herein in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the company/i/companies mentidioned hihereinasof the last day of themonth preceding thepublicat ion of these research recommendidations. Since Associates (ICICI group companies) of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned herein. It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies mentioned herein. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented herein. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
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