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Summary
of Contents
STOCK IDEA
Ahmednagar
Forgings
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs380
Current market price: Rs250
Forging
ahead
Key
points
-
The business
of Ahmednagar Forgings Ltd (AFL) is growing at a spectacular pace
on the back of a buoyant domestic climate and bulging export
orders. At present, the company has an order book of Rs850 crore,
executable over the next twelve months. Of these, orders worth
Rs650 crore are from the domestic market and the balance are
export orders.
-
To cater to
this demand, AFL is more than trebling its forging capacity from
46,000 tonne per annum (tpa) in FY2006 to 165,000tpa by FY2008.
The machining capacity is also being expanded from 10,000tpa to
25,000tpa.
-
After the
acquisition of Amforge's Chakan unit by Mahindra Automotive
Steels, some of its original equipment manufacturer (OEM)
customers have shifted to AFL. This is expected to generate
additional revenues of Rs100 crore.
-
AFL's export
revenues should get a boost with the acquisition of the two
forging lines from Anvil International. At peak levels these lines
should generate revenues of Rs300 crore. AFL would also be meeting
the outsourcing needs of GWK, UK, the Amtek group's global
business.
-
With increased
contribution of the machined products and higher revenues from the
non-automotive segment, we expect the margins to expand by 120
basis points over the next two years.
-
At the current
market price of Rs250, the stock discounts its FY2008E earnings by
6.5x. Considering the company's future growth potential and the
stupendous increase in its size, we believe that such a discount
to its peers is unjustified and recommend a Buy on the stock with
a price target of Rs380.
STOCK UPDATE
Shree Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs1,400
Current market price: Rs1,100
Superlative
performance at operating level
Result
highlights
-
On the
operating front Shree Cement has reported a superlative
performance. The operating profit jumped 173% to Rs142.66 crore as
the operating profit margins (OPMs) expanded by 11.1% to
45.2%.
-
Shree Cement's
Q2FY2007 net profit increased by 108% at Rs78 crore, marginally
below our expectation of Rs83 crore.
-
The revenues
for the quarter jumped by a whopping 103% to Rs315.95 crore. This
was on the back of a 45.5% growth in the cement volumes and a
39.7% growth in the cement realisations. The volumes jumped as the
company commissioned its new 1.5 million tonne plant during March
2006.
-
Shree Cement
has reported a very handsome Rs1,276 of earnings before interest,
depreciation, tax and amortisation (EBIDTA) per tonne ie a growth
of 88% year on year (yoy).
-
On the cost
front, the total cost increased by 15.4% largely because of a
20.7% increase in the power and fuel cost and a 22% increase in
the raw material cost. Surprisingly the company's freight cost
stayed absolutely flat as the company moved a higher proportion of
its dispatches through the cost efficient railway
transport.
-
The
depreciation charge increased by 176% to Rs33.8 crore on account
of the new plant and the tax outgo for the quarter was Rs32.6 as
against no tax in Q2FY2006 (last year the company had changed its
depreciation policy on account of which it had some deferred tax
benefits).
SECTOR
UPDATE
Telecom
India records
the highest addition ever
On the back of falling tariff rates and lucrative offers, the
Indian telecom service providers continue to shine. The industry
added 6.1 million subscribers in September, taking the total
subscriber base to 126.7 million. Both the GSM and CDMA industries
witnessed a robust growth in subscriber add-ins during the
month.
MUTUAL GAINS
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