Ambit Capital one of the best Indian Institutional Research House has initiated Coverage on 12 Small Caps which can ride the recovery wave,
Bajaj Electricals - The firm trades at 13.4x FY13 P/E Compared to peers’ - Havells and V-Guard - it trades at a discount of 31%, and 24%. Compared to its four year average, the company trades at a premium of 6% and 25% based on FY13 P/E and EV/EBITDA multiples respectively
Balkrishna Industries - BKT earns significantly better RoICs v/s peers due to its much better margin profile. DCF model values the core OHT business at `315/share, implying 11% upside and 8.5x FY14 net earnings (a premium of 10% to Apollo Tyres). BKT is trading at a premium of 14% to the average multiple of the company over last six years.
Elgi Equipments - The firm trades at 15x FY13 P/E, 2.8x FY13 book value and 9.3x FY13 EV/EBITDA. Compared to its own four year averages, these estimates are at a 33% premium, 18% premium and 42% premium respectively. Ingersoll Rand (India) and Atlas Copco - trade at 16x FY13 P/E and 12.3x FY13 P/E respectively.
Greaves Cotton - BUY - DCF assumes a WACC of 14% and terminal growth of 3% which translates into a valuation of `94 implying 25% upside. At CMP, the stock trades at 11.3x FY14 earnings which is a discount of 34% compared to Cummins.
Heidelberg Cement - Heidelberg is currently trading at 6.9x 1-year forward EV/EBITDA on consensus EBITDA estimates. Whilst on EV/tonne the stock is trading at a US$55, a 39% premium to its 5-year average (but a significant discount to the large cap cement plays)
ICRA - ICRA trades at 17.6x FY13E P/E and 15.6x FY14E P/E based on consensus estimates and is at 33% discount respectively to its closest peer CRISIL on 1 year rolling forward PE ratio. Increased competition in the segment leading to pressure on growth and margins is the key risk to the company.
Kirloskar Oil Engines - The firm trades at 12.2x FY13 P/E, 2x FY13 book value and 7.4x FY13EV/EBITDA. Compared to peers’ (Cummins and Greaves Cotton), these estimates are at a 28%, 50% and 30% discount respectively
Motilal Oswal - BUY - Given the cyclical nature of the business, expect earnings multiples to expand. Our DCF model assumes a cost of equity of 15.0% and terminal growth of 5%. This translates to a valuation of `143 implying 32% upside and a FY14 P/E multiple of 11.0x
Sadbhav Engineering - BUY SOTP value of `175 implies 2x FY14 book. The firm’s relatively rich valuation is justified given its more realistic EPS and BVPS vs. peers’ inflated metrics & second rung management teams. DCF based construction business valuation implies 7x FY13 EPS, a discount to most peers.
Supreme Industries The stock is currently trading at 13X FY13 PE on consensus EPS of `21/share. Whilst the valuations appear to be at all time high, we highlight that present valuation is not demanding given this firm’s long history of positive free cash flows, ~25% RoCEs and ~40% RoEs
WABCO India - WABCO is trading at 15x one-year rolling forward EPS which is at a premium of 18% to the four average P/E but at a discount of 16% to the peak P/E multiple commanded by it in the last four years. Compared to other auto OEMs, it trades in-line with Bharat Forge but at a discount of 25% to Bosch India’s multiple.
