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Summary
of Contents
STOCK UPDATE
Marico Industries
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs634
Current
market price: Rs522
Marico begins African
Safari
Yesterday Marico Ltd announced its entry into
the Rs170 crore (USD38 million) hair-care market in Egypt through
the acquisition of the brand Fiancée, hitherto owned by the
Egypt-based Ready group. The deal size is for an undisclosed amount
and involves the acquisition of the brand by
Marico.
The Fiancée range includes
value-for-money hair creams and hair gels. Fiancée is a
market leader and commands a share of about 20% of the Rs170 crore
hair-care market in Egypt. Apart from Egypt, Fiancée also has
a small presence in Syria, Yemen and Dubai. It had a turnover of
approximately Rs45.0 crore in the previous year and enjoys margins
of over 20%.
Orient Paper and
Industries
Cluster: Vulture's
Pick
Recommendation: Buy
Price target: Rs800
Current
market price: Rs613
Price target revised to Rs800
Key points
-
With earnings before interest, depreciation,
tax and amortisation (EBIDTA) of Rs923 per tonne of cement in
Q1FY2007, Orient Paper & Industries Ltd (OPIL) has jumped to
the league of the most profitable cement manufactures in the
country.
-
OPIL is all set to record a steep growth in its
earnings on the back of (1) firm cement prices in its region (up
40% year on year [yoy]); (2) a 25% increase in its cement capacity
(to 3 million tonne); (3) a new 30-megawatt (MW) captive power
plant (CPP; which shall result in annual savings of Rs30 crore);
and (4) the capacity expansion of its high-margin tissue paper
business (tissue paper capacity being trebled to 30,000 tonne per
annum). OPIL has earmarked about Rs205 crore for the capital
expenditure (capex).
-
Considering all this we are upgrading our
earnings estimates for OPIL by 38% and 40% for FY2007 and FY2008
respectively.
-
The strong cash flow generated by its cement
business would help OPIL bring down its debt/equity ratio from the
current 6.6x to 1.5x in FY2008 and improve its return on capital
employed (RoCE) from 18% in FY2006 to 37% in FY2008.
-
Although the stock has been on a rampage for
the past few days (it has given 62% return in the last four
weeks), yet we believe it has a lot of steam left. Our optimism
stems from the fact that even at these levels, the stock is
trading at 8.8x its FY2007E earnings and 6.4x its FY2008E
earnings. On an enterprise value (EV) per tonne basis, the stock
is trading at USD69 per tonne of cement which is at a huge
discount to that of some of its peers who are trading at well over
USD100 per
tonne. |
