Summary
of Contents
STOCK UPDATE
Orchid Chemicals & Pharmaceuticals
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs390
Current market
price: Rs259
Results in line
with expectations
Result
highlights
-
Orchid
Chemicals (Orchid) reported a year-on-year (y-o-y) increase of
3.4% in its net sales to Rs248.0 crore in Q4FY2007. The sales
growth was above our expectations. The sales growth was marginal
due to the absence of any significant new launches in the US
market during the quarter.
-
The company
maintained its performance in its major market, the USA. Its key
products—Ceftriaoxne and Cefproxil—continued to enjoy a healthy
market share in excess of 20-25%. Further, being the sole generic
supplier of Cefoxitin and Cefazolin in the USA, Orchid maintains
its high market share for these products.
-
Orchid's
operating profit margin (OPM) improved by 190 basis points to
30.7% in the quarter. The improvement in the margin was driven by
a 14.5% decline in the company's material cost on account of an
improved product and geographical mix. The resultant improvement
in the margin has caused the company's operating profit to grow by
10.2% to Rs76.1 crore in Q3FY2007.
-
For FY2007,
Orchid's stand-alone revenues grew by 5.1% to Rs934.2 crore. The
revenue growth was below our estimates. Despite higher interest
cost and tax outgo, the net profits grew by an appreciable 16.6%
to Rs96.6 crore. The net profit reported by the company was higher
than our estimate of Rs92.3 crore. On a consolidated basis,
Orchid's revenues rose by 3.5% to Rs985.1 crore in FY2007. The
company's consolidated profits grew by an impressive 37.2% to
Rs78.6 crore. The consolidated profits were higher than our
estimate of Rs75.3 crore.
-
Orchid has
already repaid $138 million of its total $290-million debt. Our
back-of-the-envelope calculations indicate the repayment of debt
will result in savings of approximately Rs56 crore in FY2008 for
Orchid. The resultant cleaning up of the balance sheet will also
help to improve the sentiment towards the stock.
-
Based on the
FY2007 performance of the company and the outlook provided by the
management during the recently held earnings call, we are
reviewing our estimates for Orchid and will come out with an
update shortly. At the current market price of Rs259, Orchid is
quoting at 10.1x its estimated FY2008 earnings. The valuation is
very attractive given the strong growth potential for FY2008 and
FY2009 in view of some forthcoming big launches in the USA and an
entry into Canada and Europe. Hence, we maintain our Buy call on
the company with a price target of Rs390.
Navneet Publications (India)
Cluster: Emerging Star
Recommendation:
Buy
Price target: Rs67
Current market price: Rs55
Results in line
with expectation
Result
highlights
-
Navneet
Publications reported a growth of 5% in its revenues to Rs46.8
crore during the fourth quarter. The fourth quarter, which is
usually a lull period for the publication business, showed a
growth of 3% to Rs16.9 crore. However, the stationary business
continues to grow at 7% (Rs28.3 crore in the fourth quarter). This
growth was mainly due to the higher domestic sales.
-
The operating
profit margin (OPM) of 10% is 200 basis points higher than the 8%
OPM reported in Q4FY2006. Consequently, the operating profit grew
by just 27% to Rs4.71 crore.
-
The profit
after tax (PAT) was lower by 13% to Rs1.33 crore primarily due to
a lower other income and higher taxes. In FY2006, the company had
a tax shield due to its merger with Navneet Edutainment.
-
On a full-year
basis, the revenues and earnings have grown by 11% to Rs326.7
crore and by 23% to Rs43.5 crore respectively. The OPM has
improved by 200 basis points to 22%, largely due to the better
profitability in the publication business. The company has
declared a dividend of Rs2 for FY2007 which as resulted in a
dividend yield of 3.6%.
-
The company
had announced that it would invest Rs25 crore to set up a
windmill-based power generation plant in Gujarat. This power
project is expected to get functional by the end of July 2007.
This will help the company to save income taxes as well as
generate additional source of revenue.
-
At the current
market price the stock trades at 12x FY2007 and 10x FY2008
estimated earnings. We maintain our Buy recommendation on the
stock with a one-year price target of Rs67 (12x FY2008E
earnings).
UltraTech Cement
Cluster: Ugly Duckling
Recommendation:
Buy
Price target: Rs935
Current market price: Rs816
Price target
revised to Rs935
Result
highlights
-
A strong
realisation growth of 28% year on year (yoy) and a volume growht
of 12% yoy helped the top line of UltraTech Cement to grow by 43%
yoy to Rs1,465 crore. The domestic volume grew at a slower rate of
6% to 4.18 million metric tonne (MMT) whereas exports witnessed a
28% growth yoy to 0.86MMT.
-
The
expenditure grew by 27% yoy to Rs1,057 crore whereas the
expenditure per tonne increased by 13.6% yoy and 7% sequentially
to Rs2,097.
-
The company's
high leverage to cement prices led the operating profit to zoom by
113% yoy to Rs409 crore whereas the earnings before interest, tax,
depreciation and amortisation (EBITDA) per tonne almost doubled to
Rs811.
-
Helped by a
flat interest cost, depreciation provision and a stable tax rate,
the net profit increased by 184% yoy to Rs231 crore.
-
The 4MMT
project is on schedule and the facility is expected to come up by
the end of FY2008. It would scale up the capacity of the company
to 21.5MMT.
-
The company is
also putting up a 92-megawatt (MW) lignite-based captive power
plant (CPP) at Gujarat and a 46MW coal-based CPP at Hirmi,
Chattisgarh. On account of these CPP projects the company's per
unit cost of power will come down to Rs2 in FY2009 from Rs5.28
now, resulting in a saving of Rs120-130 crore.
-
We expect the
company's earnings to grow at a compounded annual growth rate
(CAGR) of 11% over FY2007-09 to Rs77.2 per share. At the current
market price of Rs816 the stock is trading at 11.3x its FY2008 and
10.6x its FY2009 estimated earnings. The enterprise value (EV) per
tonne stands at USD 112. Looking at the positive triggers for the
stock, we maintain our Buy recommendation on it with a reduced
price target of Rs935.
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