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Summary
of Contents
STOCK UPDATE
Welspun
India
Cluster: Emerging
star
Recommendation: Buy
Price target: Rs99
Current
market price: Rs71
Price target lowered to Rs99
Result highlights
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Welspun India Ltd (WIL) reported a strong 45%
year-on-year (y-o-y) growth in its revenues to Rs199 crore during
Q1FY2007. The revenue growth was driven by the robust growth in
the volume in the terry towel segment and the incremental revenues
from the newly commissioned bed sheet manufacturing capacity. The
depreciation of the rupee against the dollar resulted in
additional revenues of Rs2.6 crore during the quarter.
-
WIL's operating profit grew by 104% yoy in
Q1FY2007 to Rs41.3 crore from Rs20.2 crore in Q1FY2006. The growth
in the operating profit was higher on account of a 600-basis-point
expansion in the operating profit margin (OPM) year on year (yoy)
led by savings in the raw material cost and other expenditure. The
OPM in Q1FY2007 stood at 20.8% as against 14.8% in Q1FY2006.
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The growth at the operating level was not
reflected in the bottom line as a result of a mark-to-market
(M-to-M) forex loss of Rs10 crore during the quarter. The higher
depreciation and interest cost also dragged down the earnings.
Consequently, the profit after tax (PAT) declined by 30% yoy to
Rs7.54 crore.
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The second phase of the expansion (capital
expenditure [capex] worth Rs650 crore) at Anjar is expected to go
on stream by Q4FY2007. It would lead to an increase in the
manufacturing capacity for terry towels to 31,000 tonne per annum
(TPA) and for bed sheets to 45 million metre per annum (MMPA). It
would also result in the introduction of a new product line of
decorative bed sheets with a capacity of 1.44 million pieces per
annum. In view of the company's capacity expansion plans,
improving product portfolio and ability to leverage on the
existing client relationships of the recently acquired Christy,
the management expects a surge in its export volumes which should
drive its growth in the future.
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We are revising our FY2007E estimates downwards
by 11% to factor in the forex loss in Q1FY2007. The OPM has been
maintained at 18.9% in spite of the better-than-expected
performance at the operating level in Q1. Moreover, given the
possibility of M-to-M forex losses in the coming quarter also (due
to the company's aggressive hedging policy), we are reducing the
price target to Rs99 in the line with the higher risk of further
downgrade of the earning estimates.
-
At the current price of Rs71, WIL is trading at
9.5x FY2007E (6x FY2008E) earnings and 9.3x FY2007 (6x FY2008E)
enterprise value (EV)/earnings before interest, depreciation, tax
and amortisation (EBIDTA). We maintain a Buy on WIL with a revised
price target of Rs99.
Tata
Tea
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,040
Current market price: Rs812
Brewing inorganically
Result highlights
-
The adjusted consolidated net profit of Tata
Tea Ltd (TTL) grew by 32% year on year (yoy) to Rs81.4 crore,
ahead of our expectations.
-
The net consolidated revenues for the quarter
grew by 11.5% yoy to Rs799 crore as the domestic operations grew
by 8% yoy and the international operations grew by 8-8.5% yoy.
-
The consolidated operating profit grew by 14.1%
yoy to Rs157.7 crore as the operating profit margin (OPM) expanded
by 40 basis points. Lower employee expenses helped the OPM
expansion, albeit the positive impact of the same was partly
negated by a higher raw material cost.
-
The strengthening of the British Pound
vis-à-vis the Indian Rupee seems to have partially aided the
company in offsetting the higher raw material cost.
-
The strong operating performance aided by a
higher other income helped TTL to report a 32% growth in the
adjusted net profit to Rs81.4 crore.
-
During the quarter TTL's subsidiary, Tata
Coffee Ltd (TCL), acquired Eight O'clock Coffee Company (EOC), a
US-based coffee company. We expect EOC to add Rs3 per share to
TTL's earnings per share (EPS) though we have not factored the
same in our estimates for FY2007 and FY2008.
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At the current market price of Rs812, the stock
is quoting at 12.2x its FY2008E EPS and 7.3x its FY2008E
enterprise value (EV)/earnings before interest, depreciation, tax
and amortisation (EBIDTA). TTL also has investments worth Rs124.5
per share on book. We maintain our Buy recommendation on the stock
with the price target of Rs1,040.
Madras
Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs3,250
Current market price: Rs2,640
Sharply ahead of expectations
Result highlights
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At Rs78.85 crore the Q1FY2007 net profit of
Madras Cement Ltd (MCL) is sharply higher than our expectations,
primarily because of higher-than-expected cement
realisation.
-
The revenues for the quarter grew by 55% to
Rs341 crore and the net earnings for the quarter grew by 336.6% to
Rs78.85 crore. The growth in the net revenues was driven by a 24%
growth in the cement volumes and a 25% growth in the cement
realisation.
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As the cement realisation improved sharply,
MCL's operating leverage came into play and consequently the
operating profit for the quarter grew by a whopping 170.3% to
Rs136.37 crore. The operating profit margin (OPM) for the quarter
improved by a huge 17.1% to 40%.
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On the cost front, MCL implemented strict
cost-control measures as the total cost declined by 2.5%. Hence
the entire Rs600-per-tonne increase in the realisation per tonne
flowed into the earnings before interest, depreciation, tax and
amortisation (EBIDTA) per tonne which stood at Rs1,155, one of the
highest in the entire industry.
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With a 205% growth in the other income and a
40% decline in the interest cost along with almost stable
depreciation, the net profit for the quarter grew by a staggering
336% to Rs78.85 crore.
Unichem
Laboratories
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs360
Current
market price: Rs237
On an expansion mode
Result highlights
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Unichem Laboratories recorded net sales of
Rs136.9 crore in Q1FY2007 as against Rs115.67 crore in the same
quarter last year achieving a growth of 18%. The growth was
achieved on the back of a whopping 76% growth year on year (yoy)
in exports to Rs30.32 crore from Rs17.26 crore.
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The operating profit increased by 15.14% yoy
from Rs25.7 crore in Q1FY2006 to Rs29.6 crore in the quarter under
review whereas the operating profit margins (OPMs) declined by a
marginal 61 basis points from 22.21% to 21.60% on account of an
increase in the costs of the purchase of finished goods.
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The profit after tax (PAT) increased by a
massive 26% to Rs23.98 crore from Rs18.92 crore in Q1FY2006. This
was due to the other income component of Rs2.3 crore as well as a
lower interest outgo.
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The company is making efforts to increase its
exports of active pharmaceutical ingredients (APIs) and
formulations to the regulated markets, especially to the USA by
setting up two more plants at Baddi, Himachal Pradesh as well as
by upgrading its API facilities at Pithampur. These initiatives
hold a positive future for the company.
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At the current market price of Rs237, the stock
discounts its FY2007E earnings per share (EPS) of Rs24.9 by 9.51x
and FY2008E EPS of Rs28.4 by 8.31x. Looking at the positive
outlook for the company, we maintain our Buy recommendation on the
stock with a target price of Rs360.
Marico
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs634
Current
market price: Rs488
Momentum continues
Result highlights
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Marico's Q1FY2007 net revenues grew by 37.7%
year on year (yoy) to Rs372.8 crore, ahead of our estimates. The
strong top line growth was driven by a 23% growth in Marico's
focused brands portfolio and aided by the contribution of brands
Nihar, Manjal, Camelia & Aromatic acquired last year.
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The operating profit margin (OPM) expanded by
420 basis points to 15.1% on account of the material costs and
employee expenses as a percentage of sales being lower.
Consequently the operating profit grew by 90.1% yoy to Rs56.3
crore, ahead of our estimates.
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The interest cost for Q1FY2007 grew by a
whopping 472.6% yoy to Rs4.8 crore, on account of the debt taken
to acquire Nihar. Even the depreciation cost jumped by 174.2% yoy
to Rs11.2 crore on account of the write-off of the intangible
assets. This coupled with a higher tax outgo slowed down the net
profit growth, which grew at 39.4% yoy to Rs30.3 crore, but still
ahead of our expectation.
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Copra is a key raw material for Marico and any
fundamental change in this commodity's market will result in a
huge swing in earnings. The cumulative rainfall from June 1 to
July 19 was 14% below normal. If this trend continues it might
impact the output of copra, and in turn translate into higher raw
material prices for Marico and thereby impact the margins.
-
We are modifying our estimates for FY2007E and
FY2008E to factor in the continuance of debt on the balance sheet
for the medium term against our earlier assumed equity dilution.
However, the entire exercise will have negligible impact on the
net profit and will be revised upwards by 1% in FY2008E.
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The stock is trading at attractive valuations
of a price/earning ratio (PER) of 19.6x FY2008E and enterprise
value (EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA) of 11.8x FY2008E, which is attractive in the
wake of the growing risk appetite and the ongoing transformation
(reducing dependence on Parachute/Saffola) of the company. We
continue to remain bullish on Marico and reiterate a Buy on the
stock with a price target of Rs634.
Indian Hotels
Company
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,474
Current market price: Rs1,193
Stayed checked in
Result highlights
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The revenues of Indian Hotels Company Ltd
(IHCL) increased by 27.2% year on year (yoy) to Rs257.3 crore in
Q1FY2007 on the back of a 31.6% rise in room revenues, marginally
ahead of our estimates. The food and beverages income (F&B)
rose by 17.9% yoy, the other operating income increased by 24.3%
yoy and the management fee saw a rise of 34.0% yoy.
-
The occupancy rates (ORs) in Q1FY2007 increased
by 100 basis points yoy at 66%, whereas the average room rate
(ARR) grew by a robust 31.6% to Rs7,337, in line with our
estimates.
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The operating profit margins (OPMs) expanded by
530 basis points to 25.6% on account of the healthy revenue growth
and a continuous operating leverage that the company enjoys.
Consequently the operating profits grew by a robust 60.7% yoy to
Rs65.9 crore, marginally ahead of our estimates.
-
The expansion in the OPM, higher other income
(up 126.9% yoy) and a reduction in the net interest costs (down
30.8% yoy) saw the net profit grow by a whopping 127.7% yoy to
Rs38.5 crore, marginally ahead of our estimates.
-
The board of directors along with the Q1FY2007
results has announced a stock split of the shares. The directors
have recommended the sub-division of each share with a face value
of Rs10 into ten shares with a face value of Re1 each subject to
the required approvals.
-
Considering the attractive valuations with a
price/earnings ratio (PER) of 19.5x its FY2008E consolidated
earnings, the bright business prospects for the company and the
stock trading at a discount of 15% to its replacement cost of
Rs1,400.0 per share, we maintain a BUY on the stock with a price
target of Rs1,474.0 (target multiple at 25x—the stock typically
trades at 25-27x its one-year forward earnings), an upside of
23.7%.
State Bank of
India
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,037
Current market price: Rs797
Price target lowered to Rs1,037
Result highlights
-
State Bank of India (SBI) reported unexciting
results with a net profit of Rs799.5 crore for Q1FY2007. The net
profit was below our expectations due to a higher provisioning on
the amortisation on investments and taxes.
-
The adjusted net interest income (NII) has
grown by 9.7% year on year (yoy) on the back of a 21% year-on-year
(y-o-y) growth in the advances and a 23-basis-point expansion in
the net interest margins (NIMs).
-
The fee income grew by just 3.4% due to a lower
income from the government business. However, the total other
income grew by 12% due to higher treasury gains.
-
The adjusted operating profit grew by 12.3% yoy
to Rs2,837.4 crore backed by a growth in the NII and treasury
gains.
-
The deposits (adjusted for India Millennium
Deposits) grew by just 7.8% yoy and declined by 0.6% sequentially
as the term deposits remained flat. However, the demand deposits
grew by 20% yoy and by 3.5% sequentially.
-
The adjusted net profit grew by 13.7% yoy..
During the same quarter last year, the company had provided for
one-time amortisation expenses. On a sequential basis, the net
profit declined by 6.3%.
-
We have reduced our earnings estimates for the
bank by around 17% and 14% for FY2007 and FY2008 respectively to
take into account the increased amortisation and mark-to-market
losses.
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At the current market price of Rs797, the stock
is trading at 6.9x its FY2008E earnings and 1.1x its FY2008E book
value. On a consolidated basis, the stock looks all the more
appealing, as it is trading at 0.9x FY2008E book value. We
maintain our Buy recommendation on the stock. We have revised our
price target downwards to Rs1,037 in line with the revision in the
estimates.
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