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Summary
of Contents
STOCK UPDATE
Nelco
Cluster: Vulture's
Pick
Recommendation: Hold
Price target: Rs216
Current
market price: Rs81
Deteriorating outlook
Nelco's performance
is likely to be lacklustre due to the delay in securing fresh orders
from the defence sector. Moreover, the company's inability to get
the required statutory approvals to develop an additional structure
at its existing property is another concerning factor that is likely
to affect its performance in the current fiscal. Over the long term
as well, the re-rating triggers are also likely to get delayed.
Consequently, we are downgrading the stock to
Hold.
Deepak Fertilisers
& Petrochemicals Corporation
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs126
Current market price: Rs74
A turn-around in performance
Result highlights
-
Deepak Fertilisers and Petrochemicals Ltd
(DFPCL) saw a turn-around in Q1FY2007 after a dull performance in
the previous three quarters.
-
The revenues for the quarter stood at Rs168.2
crore, up 20.6% year on year (yoy). The revenue growth was driven
by the increase in the sale of the traded products.
-
The operating profit margin (OPM) for the
quarter under review was at 23%. Although it is lower than the
Q1FY2006 OPM of 27.6%, the same is a major improvement over the
margins in the previous three quarters. The operating profit
declined by 1.9% yoy to Rs38.6 crore during the quarter.
-
The lower tax outgo helped the company to
report a growth of 9.6% yoy in the net profit to Rs24.8 crore.
-
We have lowered our earnings per share (EPS)
estimates for the company for FY2007 and FY2008 from Rs17 and Rs19
to Rs12.5 and Rs16 respectively to take into account the delayed
start of the isopropyl alcohol (IPA) project and the Ishanya Mall
as well as the lower margins in the bought ammonia-based
production.
-
We believe that DFPCL is entering into a new
growth phase with its various investment plans which are likely to
take place over next two to three years like
-
With no disruption in the gas supply the
contribution from the existing business to earnings is likely to
remain healthy.
-
The IPA plant as well as the Ishanya mall
will be fully operational throughout FY2008.
-
The commencement of the Dahej-Uran-Pune
pipeline in H1CY2007 will bring in liquefied natural gas (LNG)
for six to nine months of FY2008.
The ammonium
nitrate plant is likely to be fully operational through FY2009
and can contribute another Rs200 crore to the revenues in that
year.
-
At the current market price of Rs74, the stock
is quoting at 4.8x its FY2008E EPS. We maintain a Buy
recommendation on the stock with the price target of Rs126.
Crompton
Greaves
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,144
Current market price: Rs910
Q1FY2007 results first cut analysis
Result highlights
-
Crompton Greaves' revenues grew by 42.5% year
on year (yoy) in Q1FY2007 to Rs740.6 crore, way ahead of our
expectations. Although all its three divisions reported strong
performance, the power systems division was the pick of
performance with a growth of 66.4% yoy to Rs346.9 crore. Consumer
products division grew by 27.8% yoy to Rs265.8 crore and the
industrial systems division grew by 26.8% yoy to Rs189.5
crore.
-
The raw material cost to sales spiked to 73.3%
in Q1FY2007 against 69.9% in Q1FY2006 largely due to changing
revenue mix towards low margin power systems business. However,
stable employee and other expenses negated the impact of the same.
Consequently, the operating profit margin (OPM) improved by 100
basis points yoy to 9.7% and the operating profit for the quarter
grew by 58.7% to Rs72.2 crore, which was ahead of our
expectations.
-
The growth in the net profit during the quarter
was slower at 14.6% yoy (in comparison with the revenue and
operating profit growth), but still was in line with our
expectations. Slower growth was attributable to higher tax rate of
41% (including deferred tax) in the quarter as the company no
longer falls under the minimum alternative tax regime as was the
case last year.
-
At the current market price of Rs910, Crompton
Greaves is trading at 21.5x its FY2008E stand-alone earnings per
share. We maintain a Buy on the stock with a price target of
Rs1,144.
SECTOR
UPDATE
Banking
Change in investment
portfolio guidelines
The Reserve Bank of India through its
circular dated July 14, 2006 has issued draft guidelines on
classification and valuation of investments by the Indian banks.
Under the new guidelines the banks will not have to provide
mark-to-market (MTM) losses on their investments in the "available
for sale" (AFS) category in the Profit and Loss (P&L) account.
The banks will have to provide for MTM losses only on the bonds in
the "held for trading" portfolio in the P&L account. For the
bonds in the AFS category, the MTM losses or gains can be debited or
credited against an account called "Unrealised gain/loss on AFS
portfolio (UGA)" account in the balance
sheet. |
