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STOCK UPDATE
Tata
Tea
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,040
Current market price: Rs753
Brewing the branded play
further
Tata Coffee
Ltd (TCL), a 50.67% subsidiary of Tata Tea Ltd (TTL), has
signed a definitive agreement to acquire Eight 0'Clock Coffee
Company (EOC), a coffee company based in the USA, for a total
of $220 million.
EOC is the third largest coffee
company in the USA with a 67% penetration in the retail
outlets in that country. EOC has presence in both the plain
and the flavoured coffee segment with its recently launched
flavours like Hazelnut and Vanilla.
Aditya Birla
Nuvo
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,031
Current market price: Rs703
BPO adds 8.4x revenues at one
stroke
With the
current acquisition, the diversified giant Aditya Birla Nuvo
(ABN) will finally justify its Nuvo tag. Just days after
signing a cheque for Rs4,406 crore to acquire the Tata group's
stake in Idea Cellular, TransWorks, the wholly-owned
subsidiary of ABN, is acquiring Canadian business process
outsourcing (BPO) company Minacs Worldwide (Minacs) for about
Rs575 crore (C$138.9 million). The Aditya Birla group is also
roping in ReichmannHauer Capital Partners to co-invest with
TransWorks, partnering for a 10% stake. We give thumbs up to
the acquisition, as it suffices all the parameters—strategic
in nature, adding new dimensions and attractive valuations.
Further, the acquisition is in conjunction with our argument
of investing in high growth businesses like IT and ITES to
generate better return on the capital employed.
TVS Motor
Company
Cluster: Emerging
Star
Recommendation: Buy
Price target:
Rs210
Current market price: Rs98
Good volume
growth
Result highlights
-
TVS Motors' Q4FY2006 results were in line
with our expectations. The net sales for the quarter stood
at Rs839 crore (up by 16.8%), driven by a strong volume
growth of 18.2%.
-
The operating profits for the quarter
stood at Rs48.2 crore, marking a growth of 37.8% year on
year (yoy). The operating profit margins (OPM) at 5.7%
increased by 80 basis points yoy, but declined by 130 basis
points on a sequential basis due to lower realisations and
the rise in the raw material costs.
-
The profit after tax (PAT) for 4QFY2006
at Rs29.1 crore is up by 164.5% on a like-to-like
basis.
-
For FY2006 the net sales grew by 12.5% to
Rs3,235 crore while its PAT grew by 16.3% to Rs117 crore,
which is in line with our expectations.
-
At the current market price of Rs98, the
stock quotes at 7.1x its FY2008 earnings per share (EPS) and
discounts its FY2008 earnings before interest, depreciation,
tax and amortisation (EBIDTA) by 3.7x. We maintain our Buy
recommendation on the stock with a price target of Rs210.
SECTOR
UPDATE
Banking
Change in CRR
norms
The Reserve Bank of India (RBI) has enacted
two provisions regarding the cash/reserve ratio (CRR) via the
RBI (Amendment) Bill, 2006. The same are as follows.
-
The RBI can now prescribe the CRR for the
scheduled commercial banks (SCBs) without any floor rate or
ceiling rate that are currently 3% and 20% respectively.
Currently the SCBs have to maintain 5% of their total demand
and time liabilities (NDTL) as the CRR.
-
The RBI was paying a 3.5% interest to the
banks on the CRR balance kept with it and that was in excess
of 3% of their NDTL. With the removal of the floor, the RBI
will no longer pay any interest on any portion of the
CRR. |
