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Summary
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STOCK UPDATE
Welspun
India
Cluster: Emerging
Star
Recommendation: Buy
Price target:
Rs140
Current market price: Rs91
A strategic acquisition
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Welspun India (WIL) has bought an 85% stake in
CHT Holdings Ltd, the holding company of UK's leading towel brand,
"Christy" at an enterprise value (EV) of Rs132 crore. WIL at
present has paid Rs100 crore for the 85% stake. The same has been
financed by a debt of Rs60 crore and the balance through internal
accruals.
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Christy is best known as the sole supplier of
towels for the Wimbledon tournament. It has a presence spread
across 98 retail stores including 22 of its own branded stores.
For FY2006, Christy, a June ending company is expected to clock a
turnover of Rs300 crore with earnings before interest,
depreciation, tax and amortisation (EBIDTA) of 8.5-9%.
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We feel that the deal is quite significant for
WIL, as the same will increase its presence in the UK market as
well as in the retail segment. It will also give WIL an access to
superior product technology. The deal is also in line with WIL's
target to become one of the global leaders in the home textiles
segment by FY2008 and to generate 20% of its revenues from the
branded segment.
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Secondly, apart from its leadership position in
the terry towel segment, WIL is in the supply chain management for
key customers and its increasing presence in the retail segment
through "Spaces" will give it an edge over its competitors.
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We believe that with increased exports of home
textiles from India in the post-quota regime and with its capital
expansion programme in place, WIL's earnings will grow at a
compounded annual growth rate (CAGR) of 52% over FY2006-08. At the
current market price (CMP) of Rs91, WIL trades at 11x its FY2007E
(7x its FY2008) earnings and 10x its FY2007 (6.6x FY2008E)
EV/EBIDTA. We maintain a Buy on WIL with a price target of
Rs140.
Crompton
Greaves
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,144
Current market price: Rs862
An eventful FY2006
Crompton Greaves (CG)
had an eventful FY2006. The core businesses of power systems (PS),
consumer products (CP) and industrial systems (IS) reported strong
performances in terms of both the revenue growth and margin
improvement. CG in a bid to strengthen its PS business took a long
stride in the international arena and acquired Belgium-based Pauwels
Group in May 2005.
The outlook for the company's business, as
shared by the management in its annual report, is in consonance with
our expectations. There has been no material change in our
assumptions after the review of the annual report. We have
fine-tuned our consolidated earnings estimates for FY2007 and FY2008
at Rs50.9 per share and Rs63.0 per share respectively.
Pauwels has shown a remarkable turnaround in
performance reporting a PAT of Rs61.0 crore, way ahead of estimates.
We believe this is just a beginning and expect Pauwels to report a
smart improvement in margins and pep-up the consolidated performance
of CG.
The stock is currently trading at 13.7 X FY2008E
consolidated earnings. Historically, CG has traded at a discount to
industry peers due to its limited product range, especially high
voltage products. But, with Pauwels acquisition, CG has successfully
plugged the gaps in its product portfolio. Access to a wider product
range would differentiate CG in the domestic market and enable it to
compete effectively with other MNC such as ABB, Siemens, Areva etc.
We maintain a BUY with a price target of Rs1,144 discounting its
FY2008E consolidated earnings by 18x in line with the companies of
fairly large size and strong product portfolios.
SECTOR UPDATE
Automobile
Good all-round growth for Tata
Motors
Tata Motors delivered another impressive
performance in June as its total sales including exports reached
45,223 vehicles, marking a year-on-year (y-o-y) growth of
37%. |
