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Summary
of Contents
| STOCK UPDATE
Navneet
Publications (India)
Cluster: Emerging
Star
Recommendation: Buy
Price target:
405
Current market price: Rs305
Key trigger begins to
unfold
Key points
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It's June and that part of the year
when schools reopen. We checked out some of the local book
dealers and had a talk with those in Gujarat to understand
the impact of the change in syllabus in Maharashtra and
Gujarat on Navneet Publications' sales. The feedback we got
is quite encouraging.
-
The dealers have received good response
from the students for the new syllabus books. On an average,
for the subjects with the new syllabus, the demand has been
higher by three times compared to that in the last year.
-
For the current year, the prices are
higher by 15% for the publications with the new syllabus and
by 7-8% for the regular publications. With the price
increase, we feel that Navneet will be able to pass on the
rise in the raw material cost as well as the product
development costs for the new books to the customer.
-
The major part of the company's
publication titles for the standards with the changed
syllabus is available with the book dealers. But the
government was a bit late in releasing the textbooks which
has delayed the availability of the supplementary books.
Thus there would be a spill-over of these sales to July.
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Navneet has been a company with a decent
dividend pay-out over the years. In FY2006, the company paid
a dividend of Rs8.5 per share resulting in a 44% dividend
pay-out ratio. We expect a dividend of Rs10 per share in
FY2007 translating into a dividend yield of 3.3%.
-
At the current market price of Rs305, the
stock is trading at an attractive valuation of 12x FY2007E
earnings (10x FY2008E) and 7.2x FY2007E enterprise value
(EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA) (5.7x FY2008E). With the process of
change in syllabus on, we expect Navneet's earnings to grow
at a compounded annual growth rate (CAGR) of 26% over
FY2006-08. We maintain a Buy on Navneet with a price target
of Rs405.
Aban Loyd Chiles
Offshore
Cluster: Emerging
Star
Recommendation: Buy
Price target:
1,760
Current market price: Rs844
Acquisition spree
continues
Key points
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Aban Loyd Chiles Offshore (ALCO), through
its 100% subsidiary Aban Singapore Pte Ltd (ASPL) has taken
a 33.76% stake in a Norwegian oil drilling company Sinvest
ASA (Sinvest).
-
The transaction is based on an equity
value of about USD1,320 million and an enterprise value of
about USD2,250 million for Sinvest. For its 33.76% stake in
the company ALCO will have to shell out USD445 million or
approximately Rs2,000 crore.
-
Sinvest is a large jack-up drilling
company owning two newly-built premium jack-up drilling rigs
delivered in April and May 2006. In addition to these rigs,
Sinvest also has 6 premium jack-up drilling rigs at various
stages of construction, which are expected to be delivered
starting from Q4CY2006 to Q1CY2009.
-
The deal will bring a lot of operational
synergies, as with 8 new jack-up rigs of Sinvest, the
average age of ALCO's fleet will come down substantially
from 27 years currently to 15 years.
-
ALCO will also have access to the talent
pool of Premium Drilling, which coupled with ALCO's large
fleet of 20 offshore drilling assets can prove to be a big
competitive advantage for the combined entity.
-
The deal is value accretive for the
shareholders of ALCO as the deal has been struck at 4x
Sinvest's CY2009 earnings and ALCO itself is trading at 6x
its FY2009 earnings.
International
Combustion (India)
Cluster:
Cannonball
Recommendation: Buy
Price target:
519
Current market price: Rs297
The fire burns
relentlessly
We believe that the business
outlook shared by International Combustion (India) matches our
own outlook for its business and the same is factored in our
earnings estimates. Since there are no material changes in our
assumptions, we maintain our earnings estimates for FY2007 and
FY2008 at Rs39.9 per share and Rs47.2 per share respectively.
With a healthy business environment, a strong order book and
capacity expansion plans in place, we expect ICIL's earnings
to grow at a compounded annual growth rate of 47.0% over
FY2006-08E. ICIL is currently trading at a price/earnings
ratio (PER) of 7.3x its FY2007E earnings and 4.8x its FY2008E
enterprise value/earnings before interest, depreciation, tax
and amortisation. The valuations are very attractive. Even its
peer group companies trade at a higher valuation: TRF at a PER
of 11.0x FY2007, McNally at a PER of 13.4x FY2007E and TIL at
a PER of 11.2x FY2007E. This makes ICIL's valuation more
compelling. We maintain a Buy recommendation on the stock with
a price target of
Rs519. |
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