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Summary
of Contents
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STOCK UPDATE
Thermax
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs340
Current
market price: Rs335
Mind-blowing results
Result
highlights
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The
consolidated revenues of Thermax grew by 23.0% year on year
(yoy) to Rs520.2 crore in Q2FY2007, in line with our
expectation. The energy segment grew by a robust 20.9% yoy
to Rs433.4 crore whereas the environment segment grew by
17.8% yoy to Rs118.7 crore.
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The
company's operating profit margin grew by 240 basis points
yoy and 350 basis points sequentially to 13.9% in the
quarter, way above our expectation. The margin growth was
attributed to the strong order booking, lower material cost
and a shift in the product mix towards the high-margin
energy segment. Consequently, the operating profit grew by
48.5% yoy to Rs72.1 crore, again ahead of our
expectation.
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The
energy segment continued its robust performance with a
revenue growth of 20.9% yoy to Rs433.4 crore and a
430-basis-point expansion in the profit before interest and
tax (PBIT) margin to 15.0%. The environment segment too
bounced back with a 17.8% year-on-year growth in the
revenues to Rs118.7 crore. The margins bounced back in this
quarter after remaining subdued in Q1FY2007. The PBIT margin
improved by 330 basis points sequentially.
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The net
profit grew by 76.4% yoy to Rs53.7 crore in Q2FY2007, ahead
of our expectation. The robust margin expansion, higher
other income and lower effective tax rate are attributable
to the jump in the net profit.
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The
order backlog maintained its growth momentum during the
quarter, recording a strong growth of 11.5% sequentially and
of 142% yoy to Rs2,973 crore. The order backlog is
equivalent to 1.8x FY2006 consolidated revenues, imparting a
very strong visibility to the revenues.
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Another
development during the quarter was that ME Engineering, UK,
its loss making wholly-owned subsidiary was referred to the
administrator in the UK as its performance was mediocre and
it continued to make losses. Due to this event Thermax has
provided for Rs23.1 crore as extraordinary expenses in the
stand-alone financials. However, the net impact of the above
provisions in the consolidated accounts was Rs2.0 crore
only. The positive of this event is that in H2FY2007 the
performance of ME Engineering won't be a drag on the
company's results.
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The
stock is trading at a price/earnings ratio of 17.5x FY2008E
consolidated earnings and enterprise value/earnings before
interest, depreciation, tax and amortisation of 10.1x
FY2008E. We continue to remain bullish on the company. In
light of the continued growth traction over the last few
quarters and the blow-out H1FY2007 performance, we are
looking to upgrade our estimates and price target for the
company after attending its conference call. Watch this
space.
ICICI
Bank
Cluster: Apple
Green
Recommendation: Buy
Price target: Under
Review
Current market price: Rs881
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Leading
private banks can breathe easy
The RBI has started
granting branch licenses to banks caught in the IPO scam.
ICICI Bank has received permission for 100 new branches and
500 ATMs to add to its current network of 625 odd branches and
2,325 ATMs across the country.
SECTOR UPDATE
Pharmaceuticals
US court
rules in Ranbaxy's favour
A US appeals court has upheld a district
court ruling that gave Israel's Teva Pharmaceutical Industries
and India's Ranbaxy Laboratories exclusive rights to sell
generic forms of Merck & Co. Inc.'s blockbuster
anti-cholesterol drug simvastatin (brand name:
Zocor).
Banking
Improved
performance across bank groups
Key
points
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The
impressive financial performance is likely to sustain as the
banking sector is all poised for improved financial
performance in FY2007 on the back of the robust credit
demand, improving asset quality and stable costs.
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There
has been a significant improvement in the asset quality
across all bank groups as the NPAs at the gross and net
levels showed a significant improvement due to lower
incremental NPAs and historical write offs and
provisioning.
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The
sensitive sectors are under the scanner and the RBI has been
repeatedly coming out with cautionary statements regarding
the banks' exposure to the sensitive sectors, especially
real estate. The PSBs have more than doubled their exposure
to real estate. However, the exposure still remains lower
than the other bank groups at 14.2%.
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The
credit growth for the last couple of years has been in
excess of 30%. The flow of credit to the different sectors
has remained unchanged except for the bank credit to the
industrial sector (small, medium and large), which decreased
by 200 basis points to 40% in March 2006 compared to 42% in
March 2005.
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The new
priority sector lending guidelines are negative for foreign
banks. The off-balance sheet exposure of the foreign banks
on an aggregate is significantly offline than the entire
banking sector data mainly due to their presence in the
derivatives market. The RBI wants to realign the operations
of foreign banks and make direct lending a larger part of
their total assets.
VIEWPOINT
United
Phosphorus
United
Phosphorus to buy Cerexagri
United Phosphorus Ltd
(UPL) is to buy Cerexagri, the France-based crop science
business unit with an annual revenue of 250 million euros.
Cerexagri specialises in plant protection products, mainly
fungicides. The deal size is estimated at around 111 million
euros (Rs640.47 crore). Cerexagri has a strong distribution
network in the USA and Europe, which accounts for 70% of the
company's revenues. This would be UPL's fifth acquisition in
the calendar year, making it the third largest generic
agrochemical company in the
world. |
