Summary
of Contents
STOCK UPDATE
JK Cement Cluster:
Cannonball Recommendation: Buy Price target:
Rs295 Current market price: Rs190
Whopper
results
Result
highlight
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JK Cement
reported a pre-exceptional net profit of Rs30 crore for Q2FY2007,
much higher than expected. The same was better than expected
because of higher-than-expected cement volume and realisation.
Also its white cement business delivered a good performance during
the quarter.
-
Impressed by
JK Cement's Q2FY2007 results we are upgrading our earnings
estimates for FY2007 and FY2008 by 59% and 49% respectively. Our
earnings per share (EPS) estimates now stand at Rs21.3 for FY2007
and Rs31 for FY2008.
-
The revenues
for Q2FY2007 grew by a healthy 30% year on year (yoy) to Rs268
crore driven by a growth of 36.6% in the cement realisation.
Overall cement volume declined by 4.6% because of excessive rains
and floods in Rajasthan and Gujarat.
-
The grey
cement volume declined by 6.4% whereas its realisation grew by a
massive 37%. On the other hand, the white cement volume and
realisation grew by 29.6% and 9% respectively yoy.
-
The company's
leverage to cement prices led to a massive 125% jump in its
operating profit to Rs63.5 crore whereas the operating profit
margin (OPM) expanded by 10% points to 23.7%. The earnings before
interest, tax, depreciation and amortisation (EBITDA)/tonne more
than doubled to Rs726 from Rs308 in the same quarter last
year.
-
The net
interest cost stood at Rs9.2 crore whereas the depreciation charge
stood at Rs8.1 crore, in line with our expectations.
-
The
pre-exceptional net profit for the quarter stood at Rs30 crore, up
a whopping 512% yoy. The quarter included a one-time extraordinary
other income of Rs4 crore in the form of a refund given by the
Rajasthan State Electricity Board (RSEB) towards a waiver on
electricity duty pertaining to an earlier period. We have treated
this as an extraordinary item and accounted for it below the line.
The reported net profit grew by 594%.
Sanghvi Movers Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs1,150 Current market price: Rs762
Strong
operational performance
Result
highlight
-
The Q2FY2007
net profit of Sanghvi Movers Ltd (SML) grew by 90.1% year on year
(yoy) to Rs13.1 crore, ahead of our expectations of Rs11.4
crore.
-
The net
revenues grew by 37.1% yoy to Rs47.3 crore driven by the addition
of cranes worth Rs80 crore during H1FY2007 and a utilisation rate
of 43%, which was higher than that of 40% achieved in
Q1FY2007.
-
The operating
profit grew by 52.3% yoy driven by an 820-basis-point expansion in
the operating profit margin (OPM). The OPM expanded by 170 basis
points sequentially.
-
Despite the
addition of the new cranes, the depreciation charge was down 9.7%
yoy to Rs8.5 crore, reflecting the effect of the change in the
company's accounting policy for depreciation of new assets (bought
after April 1, 2005), effected in Q3FY2006. The company has
shifted from the written-down value (WDV) method to the
straight-line method (SLM). Also it has changed the depreciation
method for all assets (bought between April 1, 2002 and March 31,
2005) in the current quarter.
-
Driven by the
strong operational performance and aided by the lower depreciation
the net profit grew by a robust 90.1% yoy to Rs13.1 crore.
-
We have
upgraded our estimates of earnings per share (EPS) for FY2007 and
FY2008 by 4.1% and 5.2% to Rs63.7 and Rs82.9 respectively to take
into account the better-than-expected OPM and the revenue growth
that is in line with our estimates.
-
At the current
market price of Rs762, the stock is trading at 9.2x its FY2008E
EPS, 6.2x FY2008E cash EPS (CEPS) and 5.0x FY2008E enterprise
value (EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA). We reiterate our Buy recommendation on the
stock with a price target of Rs1,150.
Hindustan Lever Cluster: Apple
Green Recommendation: Buy Price target: Rs280 Current
market price: Rs234
Price target
revised to Rs280
Result
highlight
-
The Q3CY2006
net profit of Hindustan Lever Ltd (HLL) grew by 17.5% year on year
(yoy) to Rs383.0 crore, in line with our expectations.
-
The net
revenues grew by 12.2% yoy on the back of a 14% year-on-year
(y-o-y) growth in the home and personal care (HPC) segment, which
comprises the soap and detergent, and personal care businesses.
Adjusted for Nihar (a brand sold by HLL to Marico Industries) the
growth in the revenues stood at 12.8%.
-
The profit
before interest and tax (PBIT) grew by 15.3% yoy as the PBIT
margin expanded by 44 basis points yoy to 16.2%.
-
The expansion
in the PBIT margin was partly a result of an improvement in the
margins of the ice cream business and exports. Another reason was
the turnaround in the process foods business, which had made
losses in Q3CY2005.
-
The PBIT
margin in the soap and detergent, and personal product businesses
contracted by 76 basis points and 136 basis points respectively
despite price increases, as the sales and promotion expenses of
these businesses went up substantially.
-
We have
lowered our earnings per share (EPS) estimates for CY2006 and
CY2007 by 5% and 6.6% to Rs7.1 and Rs8.5 respectively to take into
account the slower-than-expected expansion in the margin of the
HPC segment.
-
At the current
market price of Rs234, the stock is quoting at 26.8x its CY2007E
EPS and 24.6x CY2007E enterprise value (EV)/earnings before
interest, depreciation, tax and amortisation (EBIDTA). We
reiterate our Buy recommendation on the stock with a revised price
target of Rs280.
Subros
Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs370 Current market price: Rs250
Cool
gains
Result
highlight
-
Subros'
Q2FY2007 net profit at Rs7.8 crore is sharply ahead of our
expectation, primarily because of a higher-than-expected revenue
growth and a better operating profit margin (OPM).
-
We are
upgrading our earnings estimates for Subros by 17% for FY2007 and
13% for FY2008. Our earnings per share (EPS) estimates now stand
at Rs28.1 for FY2007 and Rs40.5 for FY2008.
-
The revenues
for the quarter at Rs166 crore grew by 27% year on year (yoy),
driven by an impressive growth in the volumes of its key clients,
Maruti Udyog Ltd (MUL) and Tata Motors (TAMO), which are currently
reaping the benefits of an 8% reduction in the excise duty on
small cars. The total automotive air-conditioning system (AAS)
volumes grew by a handsome 41% to 125,756 units and, as expected,
the realisation came down by 10%.
-
The volume
growth (41%) reported by Subros is higher than that reported by
its key clients MUL (13%) and TAMO (21%). This means it has been
able to increase its combined supply share for these two auto
majors from 47% a year ago to 58% in Q2FY2007.
-
Driven by a
slight improvement in the raw material cost and a strict control
on the other operating costs, the OPM for the quarter improved by
240 basis points yoy to 11.1%. Hence the operating profit for the
quarter grew by 61.5% yoy to Rs18.3 crore.
-
With the
commissioning of some of the capacities set up as part of the
first phase of the capacity expansion programme, depreciation for
the quarter inched up by 10.3% and the interest charge doubled to
Rs1.71 crore.
-
The net profit
for the quarter grew by a handsome 93% to Rs7.8 crore.
Ashok Leyland
Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs53 Current market price: Rs44
Higher truck
sales impact margins
Result
highlight
-
Ashok
Leyland's (ALL) Q2FY2007 results are in line with our
expectations, though the margins have been slightly lower than our
expectations.
-
The net sales
for the quarter grew by 34% to Rs1,675.7 crore led by a volume
growth of 33%.
-
The operating
margins have declined by 80 basis points to 8.2% as a result of
higher raw material costs, particularly rubber and non-ferrous
metals. Consequently, the operating profits (after adjusting for
the foreign exchange [forex] gain/loss) for the quarter rose by
22% to Rs138 crore.
-
With a price
hike of 2.5% with effect from November and a higher contribution
from the defence and bus segments in the second half, the margins
should improve.
-
Higher other
income, lower interest costs and stable depreciation aided the
company in posting a 27.1% growth in the reported net profits to
Rs95.4 crore.
-
At the current
market price (CMP) of Rs44, the stock quotes at 11.6x its FY2008E
earnings. We maintain our Buy recommendation on the stock with a
price target of Rs53.
Punjab National Bank Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs600 Current market price: Rs520
Core operating
numbers look promising
Result
highlight
-
Punjab
National Bank's results are slightly below our expectations with
the profit after tax (PAT) reporting a growth of 19.7% to Rs505
crore compared to our estimates of a PAT of Rs532 crore.
-
The net
interest income (NII) was up by 14.4% compared to our estimates of
20.5%. The reported net interest margins (NIMs) for H1FY2007 at
4.16% have improved by 16 basis points year on year (yoy). The
bank's CASA ratio at 49% is among the best in the
industry.
-
The other
income decreased by 9.1% to Rs284 crore mainly due to the lower
trading income as the fee income growth remained robust at
17.6%.
-
The core
operating profit was up 33.5% while the operating profit was up
30% with the provisions up from Rs9.4 crore to Rs101 crore mainly
due to the higher non-performing assets (NPAs) and standard assets
provisioning. We expect that the bank must have utilised the
write-back in the excess depreciation due to a fall in the bond
yields, booked during Q1FY2007 to make higher NPA related
provisions during Q2FY2007.
-
The advances
growth has been at 28.9% yoy as on September 2006 compared to
37.4% yoy as on June 2006. The moderation in the advances growth
is welcome with the high yielding advances like retail growing by
47.7% yoy as on September 2006.
-
We have
revised our earnings per share (EPS) estimates for FY2007 and
FY2008 from Rs51.8 and Rs 65.2 to Rs56.1 and Rs 70.7 respectively
mainly on account of the improving core banking performance on the
back of improving margins and selective credit growth along with a
high 49% CASA which protects the cost of deposits during a rising
interest scenario. However, the scrip remains exposed to some
amount of interest rate risk if the bond yields move up
significantly beyond 8% from the current levels.
-
At the current
market price of Rs520, the stock is quoting at 7.4x its FY2008E
EPS, 4.2x pre-provision profits (PPP) and 1.3x book value. The
bank is available at attractive valuations given its improving
operating performance and asset quality that is one of the best in
the industry. We maintain our Buy call on the stock with a price
target of Rs600.
Tata Motors
Cluster:
Apple Green Recommendation: Buy Price target:
Rs1,004 Current market price: Rs828
Margins dip,
just a blip
Result
highlight
-
Tata Motors�
Q2 results are below our expectations due to a marginal drop in
the operating margins and higher interest and product development
costs.
-
The net sales
for the quarter are in line with our expectations, marking a
growth of 37.4% to Rs6,571.8 crore.
-
The operating
margins (excluding forex gain/loss and some non-incurring employee
expenses) for the quarter have declined by 60 basis points to
11.8%. The margins have been affected due to the higher
consumption of steel and rubber in commerical vehicles.
Consequently, the operating profits for the quarter have grown by
30.8% to Rs777.9 crore.
-
Higher
interest and product development costs led to a net profit growth
of 30.4% to Rs441.9 crore.
-
The company is
in talks with Fiat to expand the terms of its joint venture
agreement across product categories and markets.
-
In view of the
favourable domestic market, increasing international dimension
(soaring exports, acquisitions & tie-ups) and an aggressive
growth strategy, we believe Tata Motors is set to assert itself as
a globally competitive auto major.
-
Considering
the decline in the operating profit margins we are marginally
downgrading our estimates by 7% from Rs58.0 to Rs53.9 for FY2007
and by 5% for FY2008 from Rs70.6 to Rs67.4. At the current market
price of Rs828, the stock quotes at 12.4x its consolidated FY2008E
earnings and 7.9x its FY2008E earnings before interest,
depreciation, tax and amortisation. We maintain our Buy
recommendation on the stock with a price target of
Rs1,004.
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