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STOCK
UPDATE
Wockhardt
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs552
Current market price: Rs406
Annual
report review
Wockhardt has set a target of achieving sales of $1
billion by 2009. The company believes that it would benefit
from the market potential of India's population of over one
billion, the projected boom in health insurance (an area in
which the country is currently woefully underdeveloped) and
new government initiatives to enable the majority of the
population to access the life saving drugs. On the other hand,
the company's outlook for regulated markets like the EU and
USA is robust. Both the organic and inorganic initiatives
would drive the growth of the company in the regulated
markets.
However, the
company has already given a revenue guidance of $1 billion for
2009; out of this $700 million will come through organic
growth while $300 million will come as contribution from the
inorganic initiatives. For CY2007, the company is targeting to
cross sales of $500 million and maintain the net margin in the
range of 16-18%.
Universal Cables
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs179
Current market price: Rs95
Q4 results
beat expectations
Result
highlights
-
Universal Cables Ltd's (UCL) Q4FY2007 results are
ahead of our expectations.
-
UCL's
net sales grew by 51% to Rs129 crore; and the net profit
grew by 77% to Rs6.2 crore as against our expectation of Rs5
crore.
-
The
operating profit margin (OPM) for the quarter improved by
137 basis points to 10.84% on account of operational
efficiencies as the other expenses to sales ratio declined
to 10.78% from 14.43% last year. The operating profit for
the quarter grew by just 74% to Rs12.2 crore.
-
We had
mentioned in our previous update that we expect the OPM to
improve, as the company focuses on the high-end products
that have better margins and as its 100% subsidiary Optic
Fibre Goa Ltd (OFGL) turns profitable. On a full year basis
this optic fibre business recorded a turnover of Rs15 crore,
growing by 100% over the last year. Its PBIT stood at Rs1.4
crore as against the loss of Rs1.6 crore in the previous
year.
-
The
interest expense for the quarter increased by 50% to Rs1.79
crore and the depreciation cost for the quarter increased by
94% to Rs2.25 crore. The interest and depreciation charges
increased because the first phase of the technological
upgradation-cum-expansion project was commissioned and
commenced commercial production during the quarter ended
March 31, 2007. The project uses Vertical Continuous
Vulcanization (VCV) process for manufacture of XLPE Power
Cables.
-
For the
full year ended March 31, 2007, the net sales grew by 27% to
Rs377 crore and the net profit grew by 33% to Rs22
crore.
-
The
company has recommended a payment of dividend for the year @
Rs2.40 per share (ie 24%), thus the stock also offers good
dividend yield.
-
At the
current market price of Rs95, the stock is quoting at 7.2x
its FY2008E earnings per share (EPS) and 5x its FY2008E
enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA). We maintain our
Buy recommendation on the stock with price target of
Rs179.
Punjab National Bank
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs578
Current market price: Rs535
Higher
one-time provisions affect numbers
Result
highlights
-
The
Q4FY2007 results of Punjab National Bank (PNB) are much
below our expectations with the profit after tax (PAT)
reporting a decline of 17.7% year on year (yoy) to Rs237
crore compared with our estimate of Rs460 crore. The PAT
declined mainly due to higher than expected staff expenses
(Rs300 crore of one-time AS-15 related prudential
provisions) and higher marked-to-market (MTM) investment
depreciation.
-
The
reported net interest income (NII) was up 20.6% yoy but down
by 1.6% quarter on quarter (qoq) to Rs1,423 crore. However,
adjusted for a one-time cash reserve ratio (CRR) interest
income of around Rs56 crore the NII was up 15.8% yoy and
down 5.5% qoq. Our calculations suggest that the net
interest margin (NIM) of the bank has declined on a
sequential basis by 36 basis points due to a decline in the
asset yields (as interest on investments declined) combined
with an increase in the cost of funds.
-
The
non-interest income was up 23% yoy. The 29.5% yoy growth in
the core fee income was one of the highlights of the current
quarterly results.
-
Provisions for the quarter were high at Rs613 crore,
of which Rs330 crore was on account of the MTM losses on the
bond portfolio.
-
The
asset quality of the bank has shown some deterioration with
the net non-performing asset (NPA) in percentage terms at
0.76% in March 2007 compared with 0.42% in December 2006 and
0.29% in March 2006. However, the gross NPA stood at 3.45%
compared with 3.65% in December 2006. This was largely due
to a higher advance base because in absolute terms the gross
NPA increased to Rs3,391 crore from Rs3,268 crore in
December 2006.
-
We have
reduced our earnings estimate for FY2008 by 6% to Rs1,971
crore mainly due to higher NPA related provisions. Despite
the decline in the NIM on a sequential basis the bank's NIM
still continues to be among the highest in the industry. We
expect the NIM to stabilise going forward and improve the
profitability of the bank. At the current market price of
Rs535, the stock is quoting at 8.6x its FY2008E earnings and
1.4x FY2008E book value. We maintain our Buy call on the
stock with a price target of Rs578.
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