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Summary
of Contents
STOCK UPDATE
Shree
Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs1,400
Current market price: Rs902
Better than expected performance
Result highlights
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Shree Cement's (Shree) Q1FY2007 net profit at
Rs90 crore is ahead of our expectations, primarily because of a
lower-than-expected increase in the costs.
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The revenue for the quarter grew by 117% to
Rs309.4 crore, driven by a 54% growth in cement volumes and a 41%
growth in cement realisations. The volumes went up substantially
as the company commenced production at its new plant in April
2006.
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The operating profit for the quarter grew by a
whopping 210.5% to Rs137.5 crore as the operating profit margins
(OPMs) improved by a huge 10.3% to 44.4%. These are by far the
highest OPMs reported by any cement manufacturer till date for
Q1FY2007.
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Against the growth of 41% in the realisation
per tonne, the total cost per tonne went up by 13.6% and hence the
earnings before interest, depreciation, tax and amortisation
(EBIDTA) per tonne for the quarter stood at Rs1,223, which is by
far the highest in the industry.
-
Interest and depreciation for the quarter went
up substantially as the company commissioned its new 1.2 million
tonne plant in April 2006.
-
The other income for the quarter grew almost
ten-fold as the company was sitting on substantial cash reserves
of Rs75 crore.
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The net profit for the quarter grew by a
staggering 247.6% to Rs90.4 crore.
Grasim
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs3,150
Current market price: Rs2,080
Concrete edifice
Result highlights
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Grasim's Q1FY2007 stand-alone net profit at
Rs311.9 crore is ahead of our expectations.
-
The revenues for the quarter grew by 20.8% to
Rs1,877 crore, driven by a 37% growth in the cement
revenues.
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The operating profit for the quarter grew by a
smart 37.1% to Rs513 crore, primarily driven by the stellar
performance of its cement division.
-
Amongst the divisional performances, the cement
division again stole the show as the division recorded a 37%
growth in the revenues and a 101% growth in its earnings before
interest, depreciation, tax and amortisation (EBIDTA). Also the
VSF division delivered an impressive performance as it recorded a
24.4% growth in its EBIDTA. This was despite a 45-day shutdown
during the quarter at the company's Nagda plant.
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However, the sponge iron and chemical divisions
delivered poor performances, as the divisions recorded a drop in
the revenues and EBIDTA.
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Overall, the performance at the operating level
was sweetened by an 86.4% increase in the other income and an
11.4% reduction in the interest cost. As a result the
pre-exceptional net profit for the quarter grew by 51.7 % to
Rs311.9 crore.
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The reported net profit, which included an
extraordinary other income during Q1FY2006, grew by 24.3%.
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The consolidated results were still better
because of the stupendous results of UltraTech Cement. The
consolidated revenues grew by 29.2% and the net profit grew by 89%
to Rs536 crore.
Sintex
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs192
Current
market price: Rs139
Firmly placed
Result highlights
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The revenue of Sintex Industries Ltd (SIL) grew
by a sharp 52.6% year on year (yoy) in Q1FY2007 to Rs223.8
crore—ahead of our estimate.
-
The plastic division's revenue grew by 59.2%
yoy to Rs160.0 crore. Its profit before interest and tax (PBIT)
rose by 67.1% yoy to Rs21.8 crore as the margins expanded by 60
basis points yoy to 13.6%.
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The textile division's revenue increased by
38.2% yoy to Rs65.3 crore. The growth was driven by an 11.3% jump
in the volumes and a 23.5% jump in the realisations yoy. Reeling
under severe margin pressure the PBIT grew by only 7.1% to Rs7.9
crore.
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The operating profit margin (OPM) of the
company grew by only ten basis points yoy to 17.3%—in line with
our estimate. The decrease in the material and employee costs as a
percentage of sales were offset by the increase in the other
expenses.
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The other income increased by 158.3% yoy to
Rs6.5 crore, but the growth was neutralised by a tax outgo of
Rs6.9 crore in the current quarter against a write back of Rs0.9
crore in Q1FY2006. Consequently the net profit grew at a slower
rate of 40.9% yoy to Rs20.4 crore—in line with our estimate.
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The stock is trading at attractive valuations
of a price/earnings ratio (PER) of 11.2x FY2008E and enterprise
value (EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA) of 6.8x FY2008E. These valuations should be
seen in conjunction with the facts that the company's earnings are
expected to grow at a healthy compounded annual growth rate (CAGR)
of 26% over FY2006-08 and that the inorganic growth trigger is
long overdue. We maintain a Buy on SIL with a price target of
Rs192, at which the stock would discount its FY2008E earnings by
15.5x.
Omax
Auto
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs178
Current
market price: Rs90
In line with expectations
Result highlights
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Omax Auto's Q1FY2007 results are in line with
our expectations as the net sales grew by 11.3% to Rs160.3
crore.
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The operating margins for the quarter declined
by 40 basis points to 9.8% owing to a rise in the raw material and
employee costs. The margins pressure continued as the raw material
costs rose from 65.7% to 75.2% as a percentage of sales.
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Both the Bangalore and Binola plants have
started contributing to the top line and have stabilised their
operations. Going forward, as the production of both the new
plants rises further, we expect the margins to improve.
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The net profit for the quarter marked a growth
of 4.3% to Rs5.6 crore.
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Going forward, the margins are expected to
improve as the company is reducing costs by using captive raw
material sources and consolidating its operations at a single
location.
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At the current market price of Rs90, the stock
trades at 4.3x its FY2008E earnings. We maintain our Buy on the
stock with a price target of Rs178.
Infosys
Technologies
Cluster:
Evergreen
Recommendation: Buy
Price target:
Rs1,870
Current market price: Rs1,659
It's different
We attended the investor meet organised by Infosys
Technologies recently. The key points that emerged from the
interaction with the management team are given below.
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The management sounded quite confident and
optimistic about the future growth prospects and outlined some of
the reasons for the same.
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It has created differentiation by realigning
the organisational structure with focus on industry domains
(termed as verticalisation) and enhancing the range of service
offerings over the past couple of years.
MRO-TEK
Cluster: Apple
Green
Recommendation: Hold
Price target:
Rs113
Current market price: Rs56
Weak performance as anticipated
Result highlights
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MRO TEK reported a 35.7% decline in its net
revenues to Rs22.7 crore during the first quarter, much below the
average quarterly run rate of Rs34.9 crore reported in the last
fiscal.
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Despite the 420-basis-point improvement in the
gross margin to 35.4% (up from 31.2% in Q1FY2006), the operating
profit margin (OPM) declined by 210 basis points to 12.5% on an
annual comparison basis.
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Consequently, the profit after tax declined by
40.3% to Rs2.1 crore. The management indicated that the
performance lacked lustre largely due to the postponement of
orders from some of the key clients.
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We had anticipated the weak performance of Q1
and the same was indicated in our Stock Update report dated July
29, 2006. Consequently, the recommendation on the stock was
downgraded to Hold.
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At the current market price, the stock trades
at 5.6x FY2007 and 4.7x FY2008 estimated earnings. We maintain the
Hold recommendation on the stock.
Ashok
Leyland
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs53
Current market price: Rs36
Good performance
Result highlights
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Ashok Leyland's (ALL) Q1FY2007 results are in
line with our expectations.
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The net sales for the quarter grew by 34% to
Rs1,423.9 crore led by a volume growth of 28% and a realisation
growth of 5%.
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The expenditure for the quarter includes a
forex loss of Rs2.6 crore. Adjusting for the same the operating
profits grew by 42% to Rs121.3 crore as the operating profit
margins improved from 8% to 8.5%.
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The other income was higher at Rs13.9 crore
while the tax rate was lower at 25%.
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Last year, there was an extraordinary gain
arising out of the sale of Ductron Castings unit to Ennore
Foundries. As a result the reported profit after tax (PAT) looks
flattish. However, adjusting for the extraordinary item, the
adjusted PAT has jumped by 128% to Rs75.6 crore.
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At the current market price of Rs36, the stock
quotes at 9.5x its FY2008E earnings and 5.3x its FY2008E earnings
before interest, depreciation, tax and amortisation. We maintain
our Buy recommendation on the stock with a price target of
Rs53.
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