Wednesday, July 30, 2008
High dividend yield, low valuations and a strong business model make Tamil Nadu Newsprint & Papers an attractive long-term investment bet
TAMIL NADU Newsprint and Papers (TNPL) is one of the leading manufacturers of printing and writing paper and newsprint in India. The paper sector is one of the most fragmented industries in
the country. The price of wood pulp — which is the raw material for making paper — is rising sharply, squeezing the margins of companies. Environmental laws prevent forestation on degraded land. This prevents paper companies from attaining self-sufficiency in raw materials. Moreover, the production of bamboo — another raw material for manufacturing paper — has fallen sharply, thereby pushing up its prices. In addition, almost all large players are in expansion mode, adding and seeking new sources of raw materials.
The state government-promoted paper major, TNPL, was one of the first to initiate major capacity expansion in this industry. In the past three years, the company has spent nearly Rs 500 crore to increase its capacity. Going forward, TNPL plans to hike its capacity by another 70% to nearly 400,000 tonnes per annum by FY10.
BUSINESS:
The company’s business model is unique as it manufacturers paper from bagasse, which is the waste from production of sugar. It has an arrangement with sugar mills in Tamil Nadu for procurement of bagasse. This insulates TNPL from the fluctuations in prices of wood pulp.
For procurement of wood, the company has entered into a long-term agreement with Tamil Nadu Forest Plantation Corp. To meet its future raw material requirements, the company has set up a captive plantation. This backward integration has helped TNPL to become selfsufficient in raw materials, unlike many of its large competitors. The company also uses waste heat and baggase to produce enough power to meet its entire requirement.
TNPL has strategically changed its product mix over the past 7-8 years to match the market requirements. For instance, in FY01, newsprint constituted 33% of the company’s total production, while in FY07, newsprint accounted for only 1% of its total production.The demand for paper is increasing at a similar rate as the economy. As the level of industrialisation and education increases, the per capita consumption of paper is also set to increase in the country. The ongoing capacity expansion by domestic paper manufacturers is unlikely to hurt prices due to rising domestic consumption and exports. This bodes well for companies like TNPL.
FINANCIALS:
Financially, the company is one of the best-managed paper companies in the country. Its sales have been on a secular upside as TNPL has been able to change its product mix. The company’s sales and net profit have registered a compound annual growth rate (CAGR) of 13.6% and 20.1%, respectively, in the past four years. These growth rates are higher than that of other paper companies. The company’s EBITDA (earning before interest, depreciation, tax and amortisation) margin improved to 23.8% in FY08 from 16.7% in FY04, on the back of improved product mix and cost-containment measures.
TNPL has been successful in reducing the cost of its debt by swapping costlier debt with cheaper one. This is evident as its interest expense was more than Rs 50 crore in FY00, while it stood at less than Rs 25 crore in FY08. Moreover, the company has consistently paid dividends. In the past three years, TNPL’s dividend payout has witnessed a CAGR of 18%. Its current dividend yield is close to 5%. As profit growth is expected to remain strong in future, the company’s dividend payouts are also likely to follow suit.
VALUATIONS:
The stock is trading at a price-to-earnings (P/E) multiple of only 5.5, which is almost equal to the average P/E of domestic paper manufacturers. The company’s return on capital employed (RoCE) is in line with that of its peers. However, its consistency in sales growth, profit growth and RoCE is far better than that of its competitors. TNPL’s dividend yield is also the highest in the industry. All these factors make it an interesting long-term bet for investors.
MAKING THE WRITE CHOICE
Tamil Nadu Newsprint and Papers (TNPL) has spent nearly Rs 500 crore to increase its capacity in the past three years
It plans to hike its capacity by another 70% to nearly 400,000 tonnes per annum by FY10
The company’s business model is unique as it manufacturers paper from bagasse, which is the waste from production of sugar
Backward integration has helped TNPL to become self-sufficient in raw materials, unlike many of its large competitors
The company’s sales and net profit have registered a CAGR of 13.6% and 20.1%, respectively, in the past four years, which are higher than that of its peers
TNPL is one of the most widely held stocks in the paper industry
Institutional investors like Goldman Sachs and Templeton India Equity fund hold stake in the company
Wednesday, July 30, 2008 0
Tuesday, July 29, 2008
Report Date: July 29, 2008.
Company Name: V.S.T. Tillers Tractors Ltd.
Recommendation: BUY
CMP – Rs. 140
Target Price – Rs. 210/-
Mkt. Cap. Rs. 80.61 crore
Investment Rationale
Ø VST, Bangalore based farm equipment manufacturer of Power Tiller and low HP tractors, has come out withencouraging performance for Q1 FY09. Net Sales increased by 57.9% to Rs.59.40 crore. However, OPM% declined to 10.4% (11.5%). There was sharp rise in raw material cost to 70.3% (65.7%) of Net Sales, however operational efficiencies restricted fall in margins. Higher Sales aided by higher other income led to 63.8% spurt in PBT to Rs.6.37 crore and 54.6% rise in PAT to Rs.3.85 crore.
Ø Company has a technological tie-up with Mitsubishi Heavy Industries, which holds 3.78% stake in the country.
Ø VST is a leading player in the Power Tiller industry. The growth of tiller industry is dependant on availability of Government Subsidies and Bank Finance to small farmers. Due to overnment’s focus on agriculture, demand forpower tillers will be on a high. To tap lower-end tiller market and to accelerate sales, company has been importing Chinese Power Tillers in completely knocked down (CKD) form, assembling them and marketing under the brand name “ Dragon Shakti”. Along with this, company offers its own indigenously designed products with a longer
lifespan on the same platform.
Ø In Tractors, VST makes 18.5 HP tractors which are compact in size and cheaper than normal tractor. These tractors are also better than normal tractors and gives better results for farming. Company plans to aggressively market these tractors. Its Precision Components Division at Mysore produces the components, 40% of production is used for captive use in Power tillers and balance 60% is for catering to export market.
Ø Company has formed a JV with Mitsubishi, Japan to manufacture a range of multi diesel engines up to 50 HP for varied applications. VST will be holding 10% stake and balance 90% to be held by Mitsubishi. Technology and finance will be provided by Mitsubishi, Japan, while strategy and planning, marketing and day to day affairs will be handled by VST. Capex of Rs 41 Cr to be incurred for 30,000 units of small diesel engines plant at Mysore
Ø Market for power tillers and tractors is expected to grow steadily with Government’s focus on agriculture, easier and cheaper availability of credit, growth in organised retail in food products and revival of monsoon. Company is all set to exploit emerging opportunities and maintain its leadership position. Investments are being planned to upgrade technological capabilities and create additional capacity and attention is currently focused on strategies that would help further reinforce company’s market share by expanding dealer network.
Valuation
Ø At CMP, stock is trading 4 times FY 2009 expected EPS of Rs. 35 and 3.2 times FY 2010 expected EPS of Rs.43.
Hence, we recommend to “Buy” the share at CMP.
Source: Geojit Members Research Desk
Tuesday, July 29, 2008 0
Wednesday, July 23, 2008
Company Profile:
Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The largest and one of the best known Financial Institutions of the country, UTI has promoted Axis Bank. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. Presently, the Bank has a very wide network of branches and it has one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is one of the most technology driven banks in the country.
Financial Position:
For the first quarter of the FY'09 (ending 30th June, 2008), Axis Bank reported a stellar set of numbers with the net income growing up by 81.9% at Rs 1435.2 crore and the net profit registered a growth of 89% yoy to Rs 330 crore (including depreciation on bank's investment portfolio of Rs 225.2 crore) compared with Q1FY08.
This is excellent growth by any standards and we expect this momentum to continue in the next few years. Its NII (Net Interest Income) grew by 93% yoy in the current quarter to Rs 810, due to credit growth and improvement in NIMs (Net Interest Margins). On a sequential basis there has been a decline in the NIMs mainly on account of rising cost of funds and lower proportion of demand deposits in Q1 as compared to the last quarter. Asset growth has been strong across all the broad segments including retail, corporate and SMEs. Retail assets have grown by 52% yoy to Rs 14,638 crore, which constitutes 59% of the housing loan. The total net advances grew by 48% yoy to Rs 61,160 crore. The demand deposits constitute 40% of total deposits. The fee income during the quarter has grown by 80% to Rs 484 crore, particularly in the capital markets and corporate banking. Trading income has also grown during the quarter amounting to Rs 52.78 crore. Total investments have grown by 34% yoy r ising to Rs 35,718 crore. Axis Bank has witnessed a sharp increase in NPAs (Non performing Assets) as the net NPAs% has grown from 0.36 in Q4FY08 to 0.47 in Q1FY09.
Investment Positives:
Rapid growth in the bank's core business.
In the current quarterly report Axis Bank has shown great strength with increase in NIIs, net advances and fee income.
A dominant player in handling debt issues.
Axis bank has a wide network. It has added another 42 branches and extension counters and 140 ATMs during the quarter making the total to 713 branches and 2,904 ATMs. It has increased its coverage covering 433 centers.
Progressive globalization and achieving international standards.
Axis Bank adopts Misys tech to support growth in derivatives and boost risk management.
Concerns:
NPAs are growing. But its level of NPAs is below 1 %.Also among the new private banks Axis has the least exposure to the retail segment and this cushions against the bad debts.
Risk associated with the financial sector due to increase in the rate of interest. This is a real threat but the results for this quarter are still excellent considering that we saw the worst interest rate scenario in the last few months. Going forward we expect interest rate to soften.
Valuation:
Axis Bank has shown a strong growth in income and profits during a period which has been tough for all financials. The Bank is expected to have an EPS of around Rs 40 per share for FY09. At CMP of Rs 697.60, it trades at a P/E of over 15.75, which is very attractive. The PEG ratio ( PE/growth in NP) comes to a mere 0.18 which shows good scope for appreciation. The stock has corrected appreciably from the high of Rs 1150 earlier this year. We recommend stock as an excellent investment in the beaten down financial space with a target price of Rs 900.
Wednesday, July 23, 2008 0
Report Date: July 23, 2008
Company Name: Elantas Beck India Limited (EBIL)
Recommendation: BUY
CMP – Rs. 241.30
Target Price – Rs. 310/-
Mkt. Cap. Rs. 191.3 crore
Investment Rationale
Ø EBIL, 88.55% subsidiary of Elantas Gmbh (electrical insulation division of 1.4 billion Euro Altana group), has reported decent performance for Q2 CY 2008. Net Sales increased by 15.1% to Rs. 49.38 crore led by 18.3% increase in sales of Electrical insulation business of Rs. 41.86 crore (Rs. 35.4 crore). Engineering & Electronic Resins and Material turnover remained stagnant at Rs. 7.9 crore. OPM% improved to 16.3%. Consequently, PBT rose by 24% to Rs. 8.67 crore and PAT by 29.1% to Rs. 5.85 crore.
Ø H1 CY 2008 performance was affected by slowdown witnessed by the company in Q1 CY 2008. Net Sales grew @ 7.8% to Rs. 93.81 crore. OPM% enhanced to 16.5%. As a result, PBT increased by 8.4% to Rs. 16.25 crore and PAT to Rs. 10.82 crore, growth of 6.5%.
Ø EBIL manufacture wide range of electrical insulation material and epoxy & polyurethane resins based construction chemicals.
Ø Increasing requirement of power by India’s growing economy is far in excess of supply. Augmentation of India’s power generation capacity with significant private sector participation and reforms of the power sector is a key focus of the government, which augur well for electrical equipment industry, ensuring sustained growth in demand for EBIL’s electrical insulation business.
Ø In view of optimistic outlook for electrical insulation business, company continues to plan for increasing volume of sales. Key projects have been initiated to enhance capacities and modernize production processes. Besides, acquisition of electrical insulation business of Sanmar Specialty Chemicals has improved company’s market position in secondary insulation systems.
Ø In order to better serve electrical industry, company has commissioned new laboratory for testing of electrical equipment and components, for certification on behalf of Underwriters Laboratory of USA standards. This laboratory is autonomous of company, but will provide intangible benefits to the company.
Ø Application of chemicals in civil construction and repair of civil structure is relatively new in India, particularly in Industrial building and infrastructure construction such as dams & bridges. Construction chemical is therefore rapidly growing sector. EBIL is firmly entrenched as a key player in niche areas of high and industrial floorings for auto, pharma and electronics / electrical sectors. During CY 2007, company introduced water-based acrylic / polyurethane wall coating products for both exterior and interior applications.
Ø Thus, EBIL, with its R&D capabilities, access to global technologies and innovation skills in technical & application areas, is all set to explore emerging opportunities in growing markets.
Valuation
Ø At CMP, the share (Rs. 10/- paid up) is trading at 8 times CY 2008 expected EPS of Rs. 30/- and 6.4 times CY 2009 expected EPS of Rs. 37.50. In view of bright future prospects, we recommend to “BUY” the share at CMP.
Monday, July 21, 2008
Monday, July 21, 2008 0
Sunday, July 20, 2008
It is very strongly advisable for long term investors to BUY the following Scrips at current price for Long Term Investments.
1. Gujarat NRE Coke Ltd
2. Chennai Petroleum Corporation Ltd
3. Sasken Communication Technology Ltd
4. Max India Ltd
Some Financial Informations:-
Gujarat NRE Coke Ltd ( Rs. 113.65 ) :
Net profit of Gujarat NRE Coke rose 120.46% to Rs 94.40 crore in the quarter ended June 2008 as against Rs 42.82 crore during the previous quarter ended June 2007. Sales rose 153.64% to Rs 377.64 crore in the quarter ended June 2008 as against Rs 148.89 crore during the previous quarter ended June 2007
Chennai Petroleum Corporation Ltd ( CMP Rs. 304.95 ) :
Net profit of Chennai Petroleum Corporation rose 117.63% to Rs 703.27 crore in the quarter ended June 2008 as against Rs 323.15 crore during the previous quarter ended June 2007. Sales rose 77.10% to Rs 11151.10 crore in the quarter ended June 2008 as against Rs 6296.61 crore during the previous quarter ended June 2007.
Sasken Communication Technology Ltd ( CMP Rs. 139.45 ) :
Net profit of Sasken Communication Technology rose 389.30% to Rs 9.15 crore in the quarter ended June 2008 as against Rs 1.87 crore during the previous quarter ended June 2007. Sales rose 25.31% to Rs 110.72 crore in the quarter ended June 2008 as against Rs 88.36 crore during the previous quarter ended June 2007.
Read: Sasken Communications:Buy recommendation
Max India Ltd ( CMP Rs. 154.80 ) :
Net profit of Max India rose 257.22% to Rs 13.61 crore in the quarter ended June 2008 as against Rs 3.81crore during the previous quarter ended June 2007. Sales rose 89.64% to Rs 91.52 crore in the quarter ended June 2008 as against Rs 48.26 crore during the previous quarter ended June 2007.
Sunday, July 20, 2008 0
Friday, July 18, 2008
Report Date: July 17, 2008
Excel Crop Care Limited (ECCL)
Recommendation: BUY
CMP – Rs. 135/-
Target Price – Rs. 200/-
Mkt. Cap. - Rs. 148.58 crore
Investment Rationale
Ø ECCL has reported excellent result for Q1 FY 2009. Net Sales shot up by 59.8% to Rs. 217.9 crore because of 99.4% spurt in exports of Rs. 68.8 crore. Domestic business registered 42.8% growth in sales of Rs. 167 crore. OPM% improved considerably to 15.1% (11.4%), mainly due to increase in prices of agrochemicals. Consequently, PBT more than doubled to Rs. 28.71 crore and PAT zoomed to Rs. 18.9 crore, growth of 105.9%.
>> Excel Crop Care manufactures the finest quality of internationally accepted agrochemicals, which includes insecticides, herbicides, fungicides, fumigants, and rodenticides. It is amongst the world's leading manufacturers of Endosulfan, Glyphosate, Chlorpyriphos, Aluminium Phosphide and Zinc Phosphide, which are made to the highest purity.
Ø Shortage of area under cultivation, increasing population, higher demand from emerging markets, usage of land to produce biofuels & feeds for animals etc. has led to food shortage. To improve food output, there will be increased focus on improving land productivity. Moreover as food prices continue to remain high, farmers will invest more in fertilisers and agrochemicals. All these spell vast growth potential for Agrochem industry, which is showing signs of buoyancy after several years of sluggishness.
Ø To grab large chunk of this growing market, company has been taking various steps like launching new products & formulations (has introduced formulation for weed control), combination of products, improving processes to enhance yield & quality, reducing costs, etc. It is also finding applications of its products for newer crops thereby widen the coverage of existing products, etc. Company has begun marketing of bio products such as soil enrichers, bio pesticides and plant growth promoters.
Ø Excel has reported good growth in weedicide segment. In this segment, Glyphosate (broad spectrum post emergence weedicide highly effective on several annual and perennial grasses and broad leaf weeds) is in great demand. India and most part of the world have been experiencing acute shortage of this widely used chemical. To meet the increasing demand, company augmented capacity by setting up additional 3,000 tpa plant in Gujarat.
Ø Apart from domestic market, company has been strengthening its presence in overseas markets by promoting existing and new products especially branded products. It continues to make efforts to strengthen its presence in existing export markets and penetrate new markets. Excel has been exporting to SAARC, East Asian countries, Brazil, etc. Besides, plans to foray into countries like Europe, Australia with the help of Nufarm, its strategic partner (who holds 14.69% stake in ECCL). Company forayed in the Chinese market by setting up a representative office there. The size of Chinese market is bigger than that of Indian market.
Valuation
Ø Thus, ECCL is set for substantial improvement in its performance led by increasing demand for agro chemicals. Accordingly, sales are expected to grow @ ~ 20% (+) and with improved profitability bottomline is expected to grow @.CAGR > 35%.
Ø At CMP, the share (Rs. 5/- paid up) is trading at 3.4 times FY 2009 expected EPS of Rs. 40.2 and 2.6 times FY 2010 expected EPS of Rs. 51.8. In view of excellent future prospects, we recommend to “BUY” the share at CMP.
Friday, July 18, 2008 0
ABC Bearings Limited (ABCL
Report Date: July 18, 2008.
CMP – Rs. 68/-
Target Price – Rs. 100/-
Mkt. Cap. Rs. 78.5 crore
Investment Rationale
Ø ABC, leading supplier of cylindrical roller & tapered roller bearings to commercial vehicles and tractor segment, has put up an encouraging performance in Q1 FY09. Net Sales grew by 25.8% to Rs. 45.28 crore mainly led by volume growth. Despite sharp spurt in steel prices (major raw material), company was able to almost maintain its OPM% at 21.6% (22%) due to operational efficiencies. Interest cost was substantially higher at Rs.2.24 crore on account of exchange loss of Rs.1.32 crore arising on Foreign Currency Loan/Credit availed (gain of Rs.26 lakh in Q1 FY08).
After providing for higher interest cost, PBT (before extraordinary items) was up by 13.9% to Rs.6.72 crore. In absence of any extraordinary expenses in Q1 FY09 (Rs.1.02 crore on account of VRS in Q1 FY08), PAT rose by 33% to Rs.4.15 crore.
With a view to reduce its dependence on CV and tractor segment and derisk its business, ABCL has initiated a varietyof measures.
1. Diversification into industrial bearings and expansion of product range: Company has decided to go for industrial bearings, which is small in volume, large in size and more profitable than automotive bearings. Company will also manufacture slew bearings which have an application in Windmill, Cement plant and steel mills. It has signed technical collaboration and will house facility in existing vacant structure. Production is expected to start by early FY 2010. Company is also planning to enter into railway bearings.
2. Focus on exports: ABCL also plans to increase its presence in international markets and has been able to make some breakthrough in England market. Currently, exports constitutes negligible portion of its total revenues. However, company plans to increase its share of exports to 20% of total revenues in future.
3. Strengthening its Aftermarket (AM) sales: AM accounts for only 12-15% of ABCL’s revenue and company aims to increasing the same in next few years.
Ø In next 3 years company is looking for revenue of 60% from Auto bearings (larger share of exports and after market) and others 40% (that includes industry and slewing bearings).
Ø Company has entered into 25:75 JV with NSK Japan to form NSK-ABC Bearings Ltd. (NABL). The plant located at Chennai was inaugurated on February 2008 and will manufacture bearings to cater to the automobile industry. This JV will broaden ABCL’s existing product portfolio with addition of HUB bearings (where value addition is high) and bearings for transmission & magnetic clutches. The JV will provide new opportunities to increase sales to company’s
existing customers for those bearings, which are not manufactured by ABCL. Company would also be able to offer a wide range of products and services to OEMs in India.
Ø Outlook of CV segment appears to be positive going forward. Moreover, export of assemblies from India is expected to grow substantially which will help the bearings industry. Industrial bearings demand is also expected to be strong which will augur well for the company. In addition, ABCL’s de-risking strategy and expanding product range for automotive and industrial growth will drive growth in the future.
Valuation
Ø In view of above mentioned factors, company is expected to grow topline @ CAGR of 15% (+) and bottomline @ CAGR of 22% (+) over next few years. However, rapid and unabated increase in steel prices remain a cause of concern.
At CMP of Rs.68, the share is trading at 3.9 times FY 2009 expected EPS of Rs 17.5 and 3.2 times FY 2010 expected EPS of Rs 21/-. In view of good future prospects, we recommend to “BUY” the share at current price.
Thursday, July 17, 2008
1)Scripscan:Glenmark Pharmaceuticals
Cmp:612
Target:900
Duration:6-9 months.
Traded in:NSE-Bse
Story:At the
end of FY07, the company had 13 products in the US market and 36 ANDAs pending approval.These will help sustain its growth in the US market.The company has acquired seven pharmaceutical brands in Poland from Iceland-based Actavis and its affiliate Biovena for an undisclosed sum.The acquisition will give Glenmark an entry point into Poland and apart from opening up newer geographies, it will allow the company to replicate its domestic product portfolio in the region.Glenmark estimates sales of $15 million from the seven brands for 2008-09 with a 20 per cent growth in 2009-10.The changing business mix will also help improve its margins, going forward.The company is expected to deliver an EPS of Rs 52 for FY09.I am quite bullish on the company and this is one of the few pharma stocks which i like a lot.One of the best and safest pharma dose to prove a world of good for your portfolio.
2)Scripscan:-SAAG RR Infra Ltd
Code:-531374
Cmp:39
Target:80
Duration:12-15 months
Story:-SAAG RR Infra Ltd is engaged in execution of infrastructure projects like water and sewer works and construction of specialised buildings (industrial, commercial and residential), roads and oil & gas pipeline construction and has positioned itself to take advantage of the growing demand in the oil & gas sector. The company has recently bagged a huge order of 288crs from ONGC for its charter hire of offshore modular workover rig 'SAAG Pacific' and for charter hire of offshore modular workover rig 'SAAG Saffron' to be executed over the next 3years.The company reported a revenue of about 66crs in all over fiscal 07-08.These order alone covers the sales by more than 4 times and gives a robust revenue visibility going foreward.The company has also has won projects from prestigious public sector and MNC clients including ISRO, NTPC, ICMR, BEML, HPCL, CMWSSB, B Braun Medical India and Degremont.The company is currently executing projects for puravankara projects,hiranandani realtors and mantri developers which are multi million dollar development projects in real estate.The company has been very aggresive in acquiring companies and if the sources are to be beleived then it has lined up few more major acquisitions in the coming few months.The company hasnt been an institutional fancy but there are news of research head of brokerages and mfs being in active talks with the management.Once gets covered may just go beyond reach.SAAG has been long overlooked in the bourses and virtually it never had a run over the last 3 years bull run.With these latest developments the company is sure to buzz a lot.A solid company to go for.
3)Scripscan:-Karuturi Global Ltd
Cmp:23
Target:40
Duration:12-15 months.
Traded in:Nse-Bse
Story:Karuturi Global is the world's largest producer of roses, cultivating 585 million stems per annum.It has over a decade of experience in rose cultivation with operations in Ethiopia, Kenya and India.The growth of an organised retail industry in the country is currently in a nascent stage of development and that will lead to a robust growth for cut-rose producers.The global supply-demand mismatch is considered to be positive for rose producers. Rise in per capita income and strong demand during festivals and Valentine's Day are fuelling huge flower consumption in India.The Indian floriculture sector is expected to grow by 40% each year (significantly higher than the global average) and almost 85% of the demand is estimated to be from roses.All these factors are expected to catapult karuturi in the top league.The revenues are expected to clock a 38 per cent CAGR over FY08-FY10 to Rs 770 crore with operating profit CAGR of 40 per cent to Rs 280 crore and a profit after tax CAGR of 52 per cent to Rs 240 crore.At present price of 23 the company is quoting at less than 6 times its fy10 earnings.Considering the huge potential of the company,karuturi is a must have.
Thursday, July 17, 2008 0
Wednesday, July 16, 2008
RESEARCH: IL&FS INVESTSMART
RATING: BUY
CMP: RS 2,357
IL&FS Investsmart initiates coverage on L&T with a target price of Rs 2,904 (19x FY10E). L&T's core business of engineering and construction (E&C ) is likely to see domestic market opportunity of Rs 17 trillion over the next 5-7 years. L&T is set to become a Rs 51,000-crore enterprise by '10 with 33% CAGR in sales and 40% CAGR in PAT through FY08-10 E. L&T's ability to execute projects in different verticals puts it ahead of its competitors.
It is likely to maintain strong momentum, given its presence in growing sectors like hydrocarbon, infrastructure and power, along with a strong foothold in the Middle East market. L&T is also likely to sustain double-digit operating margins, given its margin-protected order book, increased outsourcing and high operating leverage. An existing order book of Rs 55,300 crore, 3x FY08 projected business, provides revenue certainty beyond FY10.
L&T's stock price has corrected 47% from its peak, de-rating from 28x 18-month forward earnings to the current 14x. The surge in commodity prices, worrisome macro-environment and hedging losses in FY08 have shaken investors' confidence in the stock. But L&T's future business prospects outweigh these negatives. So, the stock is likely to command a higher P/E.
SIEMENS INDIA
RESEARCH: JP MORGAN
RATING: NA
CMP: RS 469
Siemens India derives 80% of its revenues from projects and a smaller proportion from products. Around 15% of the company's revenues are generated from power generation, 25% from power T&D , 10.5% from industrial solutions and products, 12.5% from IT, 4% from transportation, and the rest from diverse segments including medical systems.
Its order book of Rs 9,500 crore provides 1.2 years' visibility, but the book has remained stagnant over the past five quarters, mainly due to the execution of the large Qatar T&D project, which once constituted 40% of the company's order book.
Siemens' recent performance track record has been chequered, mainly due to fixed price contracts and cost overruns on the Torrent and MUTP projects. The basic concerns remain the company's sustainability of revenue growth, penchant to disappoint on margins of large projects, and predominance of IT and large overseas project exposing the company to a slowdown in spending.
A key upside risk is that JP Morgan's target price is significantly below consensus and below the management's guidance to double revenue in three years.
SESA GOA
RESEARCH: GOLDMAN SACHS
RATING: BUY
CMP: RS 3,005
Goldman Sachs retains its positive stance and 'buy' rating on Sesa Goa with a 12-month target price of Rs 5,450. However, it has removed the company from its 'conviction buy' list, as Sesa Goa has breached stop-loss territory relative to the coverage universe.
Sesa Goa's share price has fallen 27% since May 22, '08, compared to a 20% fall in the Sensex. This decline is attributed to the weakness in the broader market and not to any failure on the company's part. The 'buy' rating on the stock is based on a positive view on the fundamentals of the iron ore sector, with sustained deficit in seaborne trade well into '09. The valuation suggests an NAV of Rs 4,189 per share for Sesa Goa.
Goldman Sachs has arrived at a target price of Rs 5,450 using a combination of DCF and EV/EBITDA multiple-based valuation. In the long term, the market assigns a premium to Sesa Goa's DCF-based NAV, given the positive sector fundamentals and the company's growth profile.
The stock is currently trading at 2.5x EV/EBITDA FY09E, and is at a 29% discount to DCF-based NAV. The risks include: 1) Weaker than expected iron ore prices on the back of a slowdown in steel production in China; 2) Slower than expected ramp-up in iron ore volumes; 3) Regulatory measures; and 4) Announcement of non-remunerative deployment of surplus cash pile.
SUZLON ENERGY
RESEARCH: UBS INVESTMENT
RATING: NEUTRAL
CMP: RS 201
UBS Investment has lowered its FY09 EPS estimate for Suzlon Energy by 20.5% to Rs 8.6, and FY10 estimate by 23.4% to Rs 12.2. It has also lowered the target price from Rs 305 to Rs 225, but has retained 'neutral' rating on the stock. The lower earnings estimates reflect lower sales volumes and lower EBITDA margins due to higher provisioning costs and raw material prices.
The revised estimates are 24-30 % lower than FY09 consensus estimates. UBS remains bullish on the long-term prospects of the wind energy sector, especially in China and the West. It estimates wind energy to be cheaper than coal and CCGT, including carbon costs. There have also been successful fundraisings by renewable utilities in Europe.
The acquisition of Honiton Energy in China by Suzlon's main shareholder can potentially lead to orders in China , which is a hugely competitive market.
Hansen and REpower account for 40% of Suzlon's m-cap . Hence, 60% of the valuation is accounted for by Suzlon's remaining business, which contributes 90% to its consolidated earnings , indicating a better valuation for the acquired subsidiaries than for Suzlon . This valuation gap for Suzlon is likely to persist, given the execution slippages . Suzlon trades at a P/E of 22.5x for FY09, and 16x for FY10, compared to 30-32 x and 23x, respectively, for its peers.
HINDUSTAN ZINC
RESEARCH: CREDIT SUISSE
RATING: OUTPERFORM
CMP: RS 539
Credit Suisse has reduced the target price of Hindustan Zinc (HZL) from Rs 765 to Rs 705 and upgraded its rating from 'neutral' to 'outperform' . It expects HZL to post EPS of Rs 22 on revenues of Rs 1,820 crore, and has reduced its zinc price forecast for FY09, in line with the sharp correction in LME zinc prices recently. This has largely been driven by zinc surplus of 78 kt in January-April '08.
However, even at the reduced prices, HZL is likely to post strong EBITDA margins of 61% in FY09 and 60% in FY10. The stock is valued at 5x rolling one-year forward EV/EBITDA. Given the pure-play nature of HZL's business, zinc price has been embedded in the market value of the stock: at 5x EV/EBITDA, the market seems to be factoring in a sub-$ 1,500 zinc price on the LME. Even if zinc price remains stagnant at $1,800, HZL's fair value should be Rs 656 per share (34% upside).
SIMPLEX INFRASTRUCTURE
RESEARCH: EDELWEISS SECURITIES
RATING: BUY
CMP: RS 434
Edelweiss Securities maintains 'buy' recommendation on Simplex. The company's revenue growth of 65% in FY08, against revenue CAGR of 33% over FY03-07 , means the efforts put in by the company to boost its manpower strength, asset base, systems & processes, and funding capabilities are bearing fruit.
Simplex is on a high-growth path and investments made during the past few years will benefit the company in future. Having one of the most diversified order books in the construction sector (in terms of segmental and geographical mix), Simplex is hedged against any slowdown in order awards due to impending elections in India. It expects margins to improve, driven by a shift in its order book towards higher margin segments and more profitable overseas operations.
At CMP, for revised fully diluted EPS estimate of Rs 27.9 and 37.4, Simplex trades at a P/E of 16.3x and 12.2x for FY09E and FY10E, respectively. Though the outlook for the construction sector is challenging in the short term, Edelweiss believes Simplex is better placed with limited funding concerns — it has a well-diversified business model, strong growth prospects, and limited real estate & asset ownership exposure.
Wednesday, July 16, 2008 0
Hawkins Cookers is a low-profile company with market leadership in the pressure cooker and allied kitchenware product segments. Its brand is a household name and the company is one of the two national players in its segment. Branded kitchenware is now in the limelight, thanks to the defensive nature of the industry and rising disposable incomes of the urban middle class in India. BUSINESS: Hawkins, which recorded a turnover of over Rs 200 crore in FY08, has been growing strongly over the past couple of years on the back of its market leadership and rising product prices, especially metal. The company has also been launching new products in the cookware segment . Unlike its peer, TTK Prestige, which has diversified into the real estate sector, Hawkins continues to focus on its core strength. This strategy has helped it to post 15-20 % annual growth in revenues , and an even higher profitability rate over the past three years. The management believes in healthy sharing of profits with its shareholders. Hence, in FY08, the company announced 100% dividend, amounting to Rs 10 per share, its highest ever. This translates into an attractive dividend yield of 5.7%. The company derives over 75% of its revenue from pressure cookers, with the balance contributed by other kitchen utensils. It also derives close to 5% of its turnover from exports. Hawkins' marketing network is spread across the country. The kitchenware industry is characterised by a large number of organised sector manufacturers and numerous brands. However, increasing urbanisation, rising disposable incomes and expansion in organised retail are positive factors for branded national players like Hawkins. To tap the high-end market, the company diversified into non-stick cookware with a launch of a slew of products under the 'Futura' brand. Hawkins' manufacturing operations are located in Jaunpur, UP and Hoshiarpur, Punjab. FINANCIALS: Hawkins posted robust growth in FY08, compared to FY07. But the March '08 quarter was not that impressive as its net sales grew just 2.7% to Rs 60.3 crore, compared to Q4 FY07. A check on operating costs led to a 15.2% growth in PBIDT to Rs 6.3 crore, vs Rs 5.5 crore in the yearago period. Thanks to higher growth in sales in earlier quarters and increased operating margins, PBIDT for FY08 shot up by 39.4% over FY07. It hardly has any long-term debts and its interest cost fell by 16.6% in FY08, over FY07. Its FY08 net profit of Rs 11.3 crore translated into EPS of Rs 21.3. VALUATIONS: At Rs 175, the company's stock is valued at just under nine times its FY08 EPS. But Hawkins has not been too aggressive in expanding its activities. To sustain healthy growth in turnover, it has to expand, even if needs to borrow funds. In a bear market, the stock is a good defensive bet for investors with a horizon of six months to one year. |
Thursday, July 10, 2008
Investment Rationale
➢➢MIL, 51% subsidiary of Merck KGaA – Germany, operates in
Pharmaceutical and Chemical segments.
➢➢Giving more thrust to top-line growth to achieve significant
scale thru deeper penetration with increased field force, selective
new launches from the parent and some line extensions in
pharmaceutical segment.
➢➢Focus on fast growing therapeutic segments such as
cardiologicals and hematinics should enhance their contribution
to 10-12% of sales (~ 8% in CY 2007) going forward. These
segments enjoy good margin as well.
➢➢MIL is setting up bulk chemical (Oxynex) plant at Goa @ capex
Rs. 27-30 crore in CY 2008, which will enhance Oxynex ST
capacity to 150 TPA (22 TPA). This 100% EOU expected to
commence production in Sep–Oct 2008, would generate
revenues of ~ Rs 22-25 crore at full capacity by CY 2009 with
gross margin of 20%.
➢➢It is debt free company with surplus cash of ~ Rs 350 crore (i.e.
Rs 206/- per share) as on Dec. 31, 2007, offering greater
opportunities to acquire good businesses / brands.
➢➢Thus, MIL is expected to grow topline @ 15% (+). Once, topline
will grow, profitability is also expected to improve going ahead.
Investment Concerns
➢➢58 % of turnover (i.e. vitamins) is under DPCO.
➢➢Existence of parent's 100% subsidiary, Merck Specialities in
India, could to some extent, pare interest of the listed entity.
Recommendation
➢➢Investor friendly company with track record of high dividend
payout. At CMP, dividend yield works out to be ~ 5.7%.
➢➢At CMP, the share (Rs. 10/- paid up) is trading at 8.6 times CY
2007 actual EPS of Rs. 40.8 and 8 times CY 2008 expected EPS
of Rs. 44.09. Considering aggressive growth plans, we
recommend to "BUY" the share at CMP.
Thursday, July 10, 2008 0
Tuesday, July 8, 2008
Left sources say that the Left has taken a decision to withdraw its support to the UPA. It will issue a formal statement on withdrawal of support shortly. The Left will approach the President tomorrow. If the nuclear deal goes ahead, companies like L&T, BHEL, NTPC, Areva T&D, Alstom Projects, Rolta, HCC, ABB, Crompton Greaves, Siemens stand to gain.
L&T
L&T has done engineering, procurement and construction projects for nuke power plants. It is currently working on the 2,000 MW Kudankulam nuclear project. The company will get into mainstream nuclear projects if the deal goes through. L&T's talks with Toshibha failed. It entered into a recent tie-up with Mitsubishi for super critical boilers. The Mitsubishi technology would be used for Nuclear Power Corp. L&T may leverage its relationship with Mitsubishi for its other nuclear business.
BHEL
BHEL supplies up to 500 MW of equipment to Nuclear Power Corp. It is looking for a tie up manufacturing equipment of up to 700 MW & 1500 MW. The company has been in talks with Alstom, GE Energy, Russia's LMZ and Siemens. It has an existing tie-up with Siemens for nuclear technology.
NTPC
The company is in talks with Nuclear Power Corporation of India. It is looking at setting up 2000 MW nuclear plant. He is In talks with GE Energy for technology and fuel. NTPC is looking at the project to be operational by 2012-2013.
Areva T&D
Areva T&D is looking at a plant for uranium mining and recycling. The plant would be set up after nod from Nuclear Power Corp.
Alstom Projects
The company already makes nuclear reactors and rotors. Its parent company is a world leader in conventional nuclear projects. It makes turbines for nuclear power stations. It supplies steam turbines to over 30% of nuke power stations globally.
Rolta
The Rolta-Stone and Webster joint venture competent provides reactor-building technology. It will leverage on its partner's core competency. Stone & Webster's parent has 20% in Westinghouse Electric, a nuclear reactor maker.
Gammon has undertaken turnkey construction for nuclear projects.
HCC
HCC has constructed four of seven nuclear power projects in India. It is an EPC contractor for nuclear projects.
ABB
ABB makes components for power projects. Its parent company's exposure includes new
nuclear power plants, systems and components. The parent company's exposure includes fuel services, waste management and decommissioning.
Crompton Greaves
Crompton Greaves works with Nuclear Power Corporation of India. It has completed a switchyard for nuclear project.
Walchandnagar Industries makes critical equipment for India's nuclear power facilities.
Siemens has a marginal exposure through its parent company.
Reliance Energy plans to invest additional Rs 12,000 crore in nuclear power capacity. It plans to install 2000 MW of nuclear power capacity.
Tata Power has tied up with some major nuclear equipment suppliers like Areva. It already has a relationship with Toshiba; it will leverage on it.
Tuesday, July 8, 2008 0
Monday, July 7, 2008
Beta: 0.2
Institutional Holding: 6.2%
Dividend Yield: 0.6% P/E: 9
M-Cap: Rs 1,309 cr
CMP: Rs 384.3
EVEN WHILE the Sensex has been falling, there are promising stocks which offer both growth and value to investors and provide a hedge against the current downtrend. Plethico Pharmaceuticals is one such defensive stock. The scrip has risen 24% since last year, but has fallen by 13.5% since the beginning of the year till date. The company operates in the herbals and nutraceuticals segments, which are among the fastest-growing niche categories. It has products across 45 therapeutic areas and follows a non-infringing business model.
BUSINESS:
Incorporated in 1991, Plethico hit the capital market in April ’06. The company was originally engaged in manufacture of Drug Price Control Order (DPCO)- controlled prescription drugs in the anti-TB and anti-malarial segments. Later, it sold its products to Shreya Life Sciences. Since then, it has been operating in the herbal and nutraceutical segments, which comprise dietary supplements, functional foods, vitamins, haematinics (iron) and mineral supplements. Nearly 50% of the company’s turnover is contributed by nutraceuticals, 19% by allopathic formulations, 25% by contract or toll manufacturing, and the remaining by its consumer products. Around 68% of its revenues accrue from export markets like Commonwealth of Independent States (CIS), Africa, Latin America, Gulf Co-operation Council (GCC) and South-East Asia. The company forayed into the US — the world’s largest nutraceuticals market — by acquiring a $100-million company, Natrol, in January ’08. Just like Plethico, Natrol also operates in the herbal and nutraceuticals segments, predominantly in the US and in a small way in the UK, through its subsidiary. Established in 1980, Natrol has a strong portfolio of brands in the healthcare and wellness space. It now contributes 45% to Plethico’s total revenue.
GROWTH STRATEGY:The company’s strategy of shifting focus from prescription drugs to OTC nutraceutical drugs has proved to be successful. Plethico’s growth prominently comes from its export business. It plans to ramp up production of Natrol’s products, which are well-established in the US, and distribute them widely in other key markets. The company focuses on building a strong distribution network to sell its imported products. Its subsidiaries in CIS and the US have given it a good distribution footprint in key markets. Plethico is scouting for more acquisitions to expand its network further.
FINANCIALS:
Over the past five fiscal years, the company has posted 40% CAGR in standalone revenue, which stood at Rs 552.8 crore for the 15 months ended December ’07. Its earnings during the same period witnessed a CAGR of 71.5% to Rs 142.2 crore. Its profit margins took a beating during the March ’08 quarter due to consolidation of Natrol’s business, which has a low profit margin of 10-12%. But Plethico expects the margins for its total business to improve, once it garners more sales from Natrol’s products.
The company is in a fast-paced growth phase, with its profits rising faster than sales. Plethico has been paying dividends every year since the past decade, with an average payout ratio of 25%. This is likely to be the minimum payout ratio in future as well, according to the company.
VALUATIONS:
Plethico currently trades at standalone EPS of Rs 42.5. Other companies like Elder Pharma, Unichem Labs and Novartis India of similar sizes, but different nature of businesses, trade at similar valuations. Plethico has a conservative revenue and profit target of Rs 1,000 crore and Rs 200 crore, respectively, for the financial year ending December ’09. Considering the company’s estimated consolidated earnings for CY09, Plethico is currently trading at a forward P/E of 6.5. This makes it an attractive pick for investors looking for a mid-cap growth stock in a bearish market.
Monday, July 7, 2008 0