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Summary
of Contents
SHAREKHAN
SPECIAL
Monetary policy preview
We feel a
25-basis-point hike in the repo and reverse repo rates may be on the
cards. All the current indicators, which the Reserve Bank of India
(RBI) normally considers, are above their target zone or rate. This
increases the likelihood of another rate hike. In a recent poll
conducted by Reuters among the top Indian banks and investment
companies, almost all voted for a hike in both the repo and the
reverse repo rate in the forthcoming policy review meet on January
31, 2007. The market looks to be ready for a 25-basis-point hike in
the key rates. However any higher measure of hike could come as a
surprise and affect market sentiments.
STOCK UPDATE
Alphageo India
Cluster:
Emerging Star
Recommendation: Buy
Price target:
Rs270
Current market price: Rs203
Price target
revised to Rs270
Result
highlights
- After the lacklustre
performance in the first half of FY2007, Alphageo India (Alphageo)
has reported a robust growth of 718% in its revenues to Rs13.2
crore for Q3FY2007. The revenues were largely contributed by the
execution of the 3D survey order located in Rajasthan that the
company had received from Essar Oil.
- The operating profit margin
(OPM) stood at 50.9%, up from 33.8% reported in Q3FY2006. The
margin improvement was driven by the better revenue bookings on
the back of the large order located in Rajasthan as compared with
the concentration of work in the tough terrain of north-east area
in Q3FY2006.
- Consequently, the earnings
stood at Rs2.2 crore as compared with a marginal loss of Rs0.3
crore in Q3FY2006. The earnings grew in spite of the over
five-fold jump in the depreciation cost and the higher effective
tax rate.
- On a nine-month basis, the
revenues grew by 392% to Rs24.8 crore and the earnings stood at
Rs1.6 crore as against a loss of Rs0.1 crore in the same period of
the last fiscal.
- The performance is on track
in terms of achieving the full-year revenue and earnings
estimates. The earnings estimate for FY2007 remains unchanged. But
we are revising upward the earnings estimate for FY2008 by 9.4% to
factor in the healthy growth in the pending order book to Rs110
crore by the end of December 2006.
- At the current market price
the stock trades 15x FY2007 and 8.1x FY2008 estimated earnings. We
maintain our Buy call on the stock with a revised price target of
Rs270 (11x FY2008 estimated earnings).
Maruti
Udyog
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs1,050
Current market price: Rs944
Diesel Swift hits the road
Key points
-
Maruti Udyog Ltd (MUL) has made its first
serious attempt to capture share in the diesel segment with the
launch of the new diesel Swift. Powered with a superior
CRDi engine, we believe that the car would present itself as a
very strong option in the small car diesel segment.
-
The two variants?LDi and
Vdi?are priced at Rs4.68 lakh and Rs4.96 lakh
respectively, ex-showroom Delhi.
-
We expect MUL to gain market share in the
compact car segment despite some amount of cannibalisation after
the launch of the new Zen Estilo and now the diesel
version of Swift.
-
At the current market price of Rs944, the stock
discounts its FY2008E earnings by 14.3x and quotes at an
enterprise value/earnings before interest, depreciation, tax and
amortisation of 9.9x. We maintain our Buy recommendation on the
stock with a price target of Rs1,050.
KEI
Industries
Cluster: Ugly Ducking
Recommendation:
Buy
Price target: Rs140
Current market price: Rs118
Price target revised to Rs140
Result highlights
-
KEI Industries (KEI) has reported a growth of
107% in its net sales for Q3FY2007. The same is in line with our
expectations. The net profit growth of 46.9% is however slightly
below our expectations on account of a higher interest cost and a
lower other income during the quarter.
-
The power cable segment grew by 102% to Rs157
crore while the stainless steel wire segment showed a growth of
122% during the quarter.
-
The operating profit margin (OPM) for the
quarter improved by 140 basis points to 15.6%, led by the better
performance of the stainless steel wire segment. The earnings
before interest and tax (EBIT) margin of the stainless steel wire
segment increased to 8.6% from just 1% in Q3FY2006 while the EBIT
margin of the power cable segment declined by 110 basis points to
14.9% from 16% in Q3FY2006.
-
The operating profit for the quarter grew by
126% to Rs24.5 crore.
-
The interest expense for the quarter increased
by 238% to Rs7 crore as the company availed of higher working
capital loans. The working capital loans during this quarter were
to the tune of Rs100 crore as against Rs50 crore in the same
quarter last year. The depreciation cost for the quarter increased
by 148% to Rs1.6 crore.
-
Consequently the net profit for the quarter
grew by 46.9% to Rs11 crore.
-
The order book at the end of December 2006
stood at Rs200 crore (including the high-tension [HT] order book
of around Rs30 crore) as against Rs180 crore at the end of
September 2006.
Apollo
Tyres
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs425
Current market price: Rs356
Lower raw material costs aid margin
growth
Result highlights
-
Apollo Tyres' Q3FY2007 results are ahead of our
expectations, both on the top line as well as on the margins
fro t.
-
The net sales for the quarter grew by 26.3% to
Rs857.5 crore, ahead of our expectations. This was led by a 10%
rise in the volumes and a 17% growth in the realisations.
-
The operating margins improved by 280 basis
points in comparison to last year and by 300 basis points
sequentially at 10.8%. The margin improvement was mainly triggered
by lower raw material costs, particularly rubber, during the
quarter.
-
Consequently, the operating profit for the
quarter grew by 71.6% to Rs92.4 crore. Stable interest and
depreciation costs led to a profit after tax (PAT) growth of 113%,
which stood at Rs35.1 crore.
-
A further rise in the rubber prices would
necessitate another price hike. A decision regarding the same is
likely to be taken in the next one month.
-
At the current market price (CMP) of Rs356, the
stock quotes at FY2008E price/earnings ratio (PER) of 11.3x and
enterprise value (EV)/earnings before interest, depreciation, tax
and amortisation (EBIDTA) of 5.2x. We maintain our Buy
recommendation on the stock with a price target of Rs425.
Union Bank of
India
Cluster: Ugly Duckling
Recommendation:
Buy
Price target: Rs150
Current market price: Rs112
First-cut analysis of Q3 results
Result highlights
-
The Q3FY2007 results of Union Bank of India are
in line with expectations with the profit after tax reporting a
growth of 11.4% to Rs255.2 crore compared to our estimate of
Rs251.3 crore.
-
The net interest income was up 7.3% to Rs685.9
crore compared to our estimate of Rs695 crore and the other income
increased by 47.6% to Rs205.2 crore.
-
The net interest margin of the bank has
improved on a sequential basis by 23 basis points from 2.76% for
Q2FY2007 to 2.99% for Q3FY2007. The bank's CASA share has improved
to 34.90% from 33.49% sequentially and from 32.74% on a
year-on-year (y-o-y) basis.
-
The operating profit was up 17.8% and the
provisions showed an increase of 9.5%.
-
The capital adequacy ratio (CAR) of the bank
improved to 13.22% as on December 31, 2006 from 10.91% as on
December 31, 2005 and from 10.79% as on September 30, 2006. The
higher CAR is on account of an increase in the capital due to the
raising of funds by way of perpetual bonds of Rs300 crore for Tier
I and bonds worth Rs750 crore for upper Tier II.
-
The net non-performing assets of the bank
improved to 1.12% as on December 31, 2006 from 1.24% on a y-o-y
basis and from 1.15% on a sequential basis.
-
The gross advances on a y-o-y basis grew by
14.96% to Rs58,3 3 crore while the deposits increased by 9.68%
year on year to Rs77,292 crore.
-
At the current market price of Rs112, the stock
is quoting at 5x its FY2008E earnings and 0.9x expected FY2008E
book value. We maintain our Buy recommendation on the stock with a
price target of
Rs150. |
