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Summary
of Contents
STOCK UPDATE
Marksans
Pharma
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs360
Current
market price: Rs108
Growth essential post-integration
Result highlights
-
The Q4FY2006 results of Marksans Pharma are
lower than expectations. For Q4FY2006, it clocked net sales of
Rs45 crore as compared to Rs41 crore in Q4FY2005. The fourth
quarter's performance was affected due to the company's
restructuring and consolidation with Tasc Pharma during the
period.
-
Consequently the operating profit for the
quarter stood at Rs3.1 crore. The profitability was also impaired
due to some one-time expenditures such as the expenses related to
the amalgamation and a foreign currency convertible bond (FCCB)
issue. The profit after tax (PAT) for the quarter stood at Rs15
lakh.
-
For FY2006, the company recorded sales of
Rs297.4 crore as compared with our estimate of Rs306.74 crore. The
operating profit for the year was Rs45.3 crore as compared with
our estimate of Rs54.65 crore. The PAT for the year was Rs23.21
crore as compared with our estimate of Rs30.78 crore.
-
There has been no change in Marksan's vision
and strategy. The company's aim at becoming a completely
integrated player. The same is evident from the company's
acquisition of Tasc Pharma, penetration of the overseas market
through the acquisition of Nova Pharmaceuticals, focus on research
and development (R&D), marketing tie-ups with international
companies, entry into high-growth lifestyle bulk drugs and plans
to carry out acquisitions in the developed markets. However the
efficacy with which the company is able to integrate and grow in
all these areas would determine its performance. We believe the
Q4FY2006 performance is a one-off case and the performance should
improve going forward. We maintain our estimates for FY2007 and
FY2008, and would like to review them after Q1FY2007. We maintain
our Buy recommendation on the stock with a price target of Rs360.
Alok
Industries
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs120
Current
market price: Rs57
Not a TUF issue
Key points
-
Alok Industries (Alok) has a capital
expenditure (capex) programme of Rs1,550 crore over FY2007-08. The
same would be part financed by loans of Rs900 crore taken under
the Technology Upgradation Fund (TUF) scheme. Alok has already
received sanctions for the requisite amount under the scheme. Its
capex plans are fully funded, taking care of its requirements for
FY2007 and FY2008.
-
The textile ministry had earlier issued a
directive to stop sanctioning fresh loans under the TUF scheme as
a result of the applications pending with the finance ministry.
However, since then the finance ministry has mobilised funds and
agreed to provide for the shortfall of Rs1,000 crore under the
scheme for the current year.
-
Alok's capacities in the apparel fabric segment
went on stream in February 2006. The benefit of the same would get
reflected in the Q1FY2007 performance. The revenues from the home
textile segment are also expected to see a decent growth owing to
the rise in exports of Indian home textile products to the USA. In
Q1FY2007, we expect Alok to report a 22% year-on-year (y-o-y)
growth in its top line to Rs366 crore and a 30.38% y-o-y growth in
its earnings to Rs26.7 crore.
-
There has been an impressive growth in the
exports of items like bed sheets, cotton sheets, pillowcases and
terry towels from India to the USA. Alok's present home textile
portfolio covers bed sheets and pillow cases which are sold in
"Bed in a Bag" fashion. We believe that Alok will be a key
beneficiary of the increased exports of home textile items from
India to the USA, as it is increasing its product offerings from
bed sheets to terry towels, covering the entire home textile
range.
-
Alok is also not averse to growing via the
inorganic route; however it has a selective strategy. It is going
to focus on apparel fabric as far as inorganic growth is
concerned. It would like to increase its presence in the US
apparel fabric market via the inorganic route.
-
At the current market price of Rs57, Alok is
trading at 6x FY2007E and 5x FY2008 earnings. With its capex plans
in place for backward integration as for moving up the value
chain, Alok is turning out to be a fully integrated textile house.
We maintain a Buy on Alok with the price target of Rs120.
VIEWPOINT
Hero Honda
Motors
Success of new products holds the
key
Result highlights
-
The net sales of Hero Honda Motors for Q1FY2007
rose by 19.6% year on year (yoy) to Rs2,364.3 crore. The growth
was driven mainly by a strong volume growth of 21.1%. The average
realisations fell by 1.3% to Rs28,394 crore due to the discounts
offered during the period.
-
The operating profit margin (OPM) declined by
130 basis points to 13.5% due to the discounts and a rise in the
input costs. Consequently, the operating profit rose by just 9%
yoy to Rs318.9 crore for Q1FY2007.
-
A higher other income and a lower tax rate
aided the company to post a 16.3% rise in the net profit, which
stood at Rs237.7 crore.
-
The company has announced that it will raise
the prices by July-end due to the rising raw material costs. It
also plans to introduce eight new products in the current year.
One has already been launched and the remaining seven are to be
launched from Q3FY2007 onwards. These product launches and
capacity expansion should help the company to grow at the industry
rate or a higher rate.
-
At the current market price of Rs710, the stock
discounts its FY2006 earnings by 14.6x and its FY2006 earnings
before interest, depreciation, tax and amortisation (EBIDTA) by
9.7x. |
