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Summary
of Contents
STOCK UPDATE
ORG Informatics
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs190
Current
market price: Rs89
Price target revised to Rs190
The
key takeaways from the latest annual report of ORG Informatics are
given below.
-
Significant scale-up in operations: ORG
Informatics' consolidated revenues have grown at a compounded
annual growth rate (CAGR) of 75.7% over the past three years. The
management expects the mega orders bagged in the last fiscal and a
healthy order pipeline to further boost its growth momentum in the
current fiscal.
-
Improving profitability: The robust
growth in revenue has been accompanied by consistent improvement
in the operating profit margin (OPM) due to the reoriented
business strategy to focus on the high-value solution and service
business.
-
Better operational metrics: It generated
free cash flow of Rs12.2 crore in FY2006. The return ratios have
also improved dramatically with the return on average capital
employed (RoACE) and return on average net worth (RoANW) at 37.5%
and 43.2% respectively. The debt/equity ratio stood at comfortable
level of 0.46 times.
-
Reduction in promoter holding is a
concern: On the flip side, the promoter holding has declined
by 10 lakh shares to 74.6 lakh equity shares (63.8% stake
holding).
-
Re-iterate Buy recommendation: At the
current market price the stock trades at 7.6x FY2007 and 5.6x
FY2008 estimated earnings. We maintain our Buy recommendation on
the stock with a revised price target of Rs190 (12x FY2008E
earnings per share, including the convertible warrants in the
equity base).
Tata
Tea
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs970
Current
market price: Rs764
Price target lowered to Rs970
Key points
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Tata Tea Ltd (TTL) would be raising Rs420-460
crore through the preferential allotment of shares and warrants to
its promoter, Tata Sons. We expect the allotment to result in
equity dilution of 10-11% for TTL. However, it is not clear as to
how much funds will be raised through direct equity and how much
through warrants.
-
TTL requires Rs1,100 crore for various
acquisitions that it has done over the past few months. We expect
the company to raise the balance amount required by selling its
investments in group companies as well as its North India
Plantation Operations.
-
We expect TTL to raise short-term debt of
Rs320-550 crore depending upon the amount of the warrants and
their conversion period.
-
We have lowered our earnings per share (EPS)
estimates for the stock to take into account the short-term debt
along with the equity dilution. Accordingly we have revised our
EPS estimates from Rs57 to Rs49.5 for FY2007 and from Rs64.5 to
Rs59.5 for FY2008, ie a dilution of 13.4% and 7.7% respectively.
We have not taken the numbers of Energy Brands Inc into account.
-
We expect the lack of clarity with regard to
the stock's earnings to continue till the management of the
company clears the cloud over the funding structure for its
inorganic expansion.
-
Taking both the above factors into account, we
are lowering our price target on the stock to Rs970 per share.
-
Over the long term, we expect TTL to be a good
candidate for re-rating as:
— it becomes a pure play on the
branded fast moving consumer goods (FMCG) business, and
—
it reduces its exposure to low-yielding investments in the group
companies and invests in high-growth companies like Energy Brands
Inc.
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