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Summary
of Contents
STOCK UPDATE
Bharat Heavy
Electricals
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs2,650
Current market price: Rs1,968
Powering ahead
Result highlights
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At Rs236 crore, the Q1FY2007 net profit of
Bharat Heavy Electricals Limited (BHEL) is ahead of our
expectations, primarily because of a higher-than-expected
improvement in the operating profit margins (OPMs).
-
The revenues for the quarter grew by a smart
37% year on year (yoy) to Rs2,656.4 crore driven by the order
backlog of Rs39,300 crore.
-
The OPMs for the quarter grew by 310 basis
points to 12%, as all the cost heads as a percentage of sales
declined.
-
The smart revenue growth of 37% brought BHEL's
operating leverage into play and consequently resulted in an
operating profit growth of 85% for the quarter.
-
The other income increased by 29% to Rs120
crore mainly on account of the huge cash reserves of close to
Rs3,500 crore with the company. The interest earned went up from
Rs40 crore to Rs62 crore as the interest on short-term debt
instruments went up, because of the hardening interest rates.
Similarly the interest paid also went up by 7%.
-
The growth in the operating profit percolated
down to the net levels and the net profit also grew by 85% yoy to
Rs236.7 crore.
-
The order backlog during the quarter grew by a
very impressive 28% yoy to Rs39,300 crore, due to order inflows of
Rs4,687 crore.
Cadila
Healthcare
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs850
Current
market price: Rs570
Results sharply ahead of expectations
Result highlights
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The net sales of Cadila Healthcare increased by
19.5% year on year (yoy) to Rs445.8 crore in Q1FY2007, due to a
131% growth in the formulation exports and a 24% rise in the
exports of active pharmaceutical ingredients (APIs). The improved
performance of the French and US businesses also aided the robust
sales growth.
-
The operating profit margin (OPM) expanded by
220 basis points to 20.6% in the quarter. The margin improvement
was on account of an improved product mix (a higher share of
formulations and exports in the overall sales mix). Consequently,
the operating profit (OP) of the company rose by 33.2% to Rs89.8
crore in the quarter.
-
The reported profit after tax (PAT) of the
company grew by a whopping 70.8% to Rs58.4 crore in Q1FY2007.
However, this staggering growth was on account of a Rs4.9-crore
extraordinary expense reported by the company in Q1FY2006.
Adjusting for this exceptional item, the PAT grew by 56.7%
yoy.
-
Going forward, we expect a ramp-up in the sales
of generics in the US market and strong revenues from the contract
manufacturing business to drive Cadila's growth. At the current
market price of Rs570, the company is quoting at 12.2x its FY2008E
estimated earnings. We maintain our Buy recommendation on the
company, with a price target of Rs850.
Genus Overseas
Electronics
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs270
Current market price: Rs162
Profit meter rolls
Result highlights
-
At Rs3.7 crore the Q1FY2007 net profit of Genus
Overseas (Genus) is in line with our estimate.
-
As a result of the healthy revenue booking, the
company's net sales for the quarter grew by a smart 36% year on
year (yoy) to Rs56.2 crore and the net earnings grew by 75%.
-
The operating profit for the quarter grew by
105% to Rs7.9 crore, as the operating profit margin (OPM) for the
quarter improved by a huge 520 basis points to 15.5%.
-
The interest expenses for the quarter rose by
181% as the company had to avail of large working capital loans to
execute project orders. Consequently the net profit for the
quarter grew by 75% yoy to Rs3.7 crore.
-
The order book for the quarter jumped
significantly by 350% as the company now has started taking
metering orders on EPC basis as against pure metering basis.
Wockhardt
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs552
Current market price: Rs343
Disappointing performance
Result highlights
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Wockhardt's net sales increased by 9.4% to
Rs412.7 crore in Q2CY2006. The growth came on the back of an 11%
growth in the domestic business and an 8% growth in the
international business.
-
The sales in the European market grew by 16%,
whereas those in the US market declined by 6% year on year (yoy).
The European sales were buoyed by the strong performance of the UK
business. The US business underperformed on account of the
restructuring of the US set-up.
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The company's operating profit (OP) declined by
6.5% to Rs89.7 crore in the quarter, as its operating profit
margin (OPM) shrank by 370 basis points to 21.6%. The operating
performance was poor on account of a 77% rise in the company's
research and development (R%D) expenses and a 29% rise in its
other expenses.
-
The poor show on the operating front along with
a lower other income and a higher tax outgo caused Wockhardt's net
profit to decline by 18.2% to Rs63.4 crore in Q2CY2006.
-
Wockhardt recently acquired Dumex India and two
of its products, Protinex and Farex, from Royal Numico NV of The
Netherlands. It has also received the approval to market
ceftriaxone injections and Clarithromycin in the US market.
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At the current price of Rs343, Wockhardt is
quoting at 12.4x its CY2007E estimated earnings, on a fully
diluted basis. We reiterate our Buy recommendation on Wockhardt,
with a price target of Rs552.
Hindustan
Lever
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs300
Current
market price: Rs232
HPC segment drives growth
Result highlights
-
Hindustan Lever Ltd's (HLL) Q2CY2006 net profit
grew by 26.3% year on year (yoy) to Rs379.4 crore, ahead of our
expectations.
-
The net revenues grew by 8.7% yoy on the back
of a 13.2% year-on-year (y-o-y) growth in the home and personal
care (HPC) segment, which comprises of the soaps and detergent and
the personal care businesses. Adjusted for Nihar (a brand sold by
HLL to Marico Industries) the growth in the revenues stood at
9.6%.
-
The profit before interest and tax (PBIT) grew
by 19.1% yoy as the PBIT margins expanded by 139 basis points yoy
to 16.1%. The PBIT margins in the soaps and detergent and the
personal care businesses expanded by nearly 100 basis points
each.
-
The processed food business reported a profit
at the PBIT level for the second consecutive quarter with a PBIT
of Rs4.2 crore and the PBIT margins of 4.3%.
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A lower effective tax rate led to a 26.3% y-o-y
growth in the net profit at Rs379.4 crore.
-
As we had anticipated, the volume growth in the
fast moving consumer goods (FMCG) sector in the rural areas has
been picking up and it has far outpaced the growth in the urban
areas over the last three quarters.
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We believe that HLL would be the key
beneficiary of this growth in the FMCG sector. At the current
market price of Rs232, the stock is quoting at 25.4x its CY2007E
earnings per share (EPS) and 23.0x CY2007E enterprise value
(EV)/earnings before interest, depreciation, tax and amortisation
(EBIDTA). We reiterate our Buy recommendation on the stock with a
price target of Rs300.
Television Eighteen
India
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs704
Current
market price: Rs617
Strong set of numbers
Result highlights
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Television Eighteen India Ltd's (TV18) Q1FY2007
net profit at Rs13.8 crore was marginally above our expectations.
-
TV18 has reported a strong 56.4% year-on-year
(y-o-y) growth in its consolidated revenues for Q1FY2007 to Rs41.6
crore backed by the strong performance of the news, Internet and
content operations.
-
The operating profit grew by 60.8% year on year
(yoy) to Rs20.1 crore as the operating profit margins (OPM)
expanded by 184 basis points. The expansion in the OPM was
slightly below our expectations; however, the higher revenues more
than compensated for the same.
-
Stable depreciation and taxes led to a 72.8%
y-o-y growth in the net profit to Rs13.8 crore.
-
We believe that TV18's business model has
become more robust with the inclusion of the channels
Awaaz, Channel 7 and CNN-IBN in the bouquet.
Looking at the robust business model, the stock is attractively
quoting at 16.4x its FY2008E earnings per share (EPS) and 9.3x its
FY2008E enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA). We reiterate our Buy
recommendation on the stock with a price target of Rs704.
Sanghvi
Movers
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs1,150
Current market price: Rs647
Performance meets expectations
Result highlights
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The revenues of Sanghvi Movers Ltd (SML) grew
by 45.1% year on year (yoy) to Rs40.2 crore in Q1FY2007. The
growth was driven by the utilisation of the assets added during
FY2006 and Q1FY2007 and was in line with our estimate.
-
Driven by the utilisation of the cranes
acquired during FY2006 and Q1FY2007, and the continued operational
leverage enjoyed by SML, the operating profit grew by 65.0% yoy to
Rs28.5 crore. The operating profit margin (OPM) improved by a
robust 860 basis points yoy and by 220 basis points sequentially
to 70.8% during the same period. The margin expansion too was
ahead of our estimate.
-
SML completed a capital expenditure (capex)
exercise of Rs64 crore during the quarter and has a capex plan of
Rs150 crore for the full year. The asset addition during the
quarter was also in line with our estimate.
-
Despite the addition of new cranes,
depreciation was down 6.8% yoy to Rs7.6 crore, reflecting the
effect of the change in the company's accounting policy for
depreciation of new assets (bought after April 1, 2005), effected
in Q3FY2006 ie shift from written down value (WDV) method to
straight-line method (SLM). Also the company has changed the
depreciation method for all assets (bought between April 1, 2002
and March 31, 2005) in the current quarter.
-
SML has also written back the excess
depreciation of Rs17.1 crore on account of the change in its
depreciation policy and the same has been shown as an
extraordinary income.
-
SML's net profit (before extraordinary income)
grew by a robust 148.4% yoy to Rs10.6 crore during the quarter.
The net profit growth was achieved on the back of a strong revenue
growth, margin expansion and fall in depreciation. The net profit
is higher than our estimate because of a Rs3.0 crore decline in
depreciation adjusting for which the results would be in line with
our estimates.
-
SML's net profit is expected to zoom from
Rs32.2 crore in FY2006 to Rs62.2 crore in FY2008, at a compounded
annual growth rate (CAGR) of 39%. The stock trades at a cash
price/earnings ratio (CPER) of 5.3x FY2007E and 4.1x FY2008E cash
earnings. We maintain our Buy call on SML with a price target of
Rs1,150.
Sintex
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs192
Current
market price: Rs138
Q1FY2007—first cut results analysis
Result highlights
-
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 estimates.
-
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%.
-
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 9.2% jump in the realisations. Reeling under
severe margin pressure the PBIT grew by only 7.1% to Rs7.9 crore.
-
The operating profit margin (OPM) of the
company grew by only 10 basis points yoy to 17.3%—in line with our
estimates. The decrease in the material and employee costs as a
percentage of sales were compensated for by the increase in the
other expenses.
-
The profit before tax (PBT) grew by 100.0% on
account of the growth in the top line and a higher other income
(up 158.3%).
-
In Q1FY2006 SIL had a negative tax (on account
of deferred revenue tax) as against a tax provisioning of 25.1% in
the current quarter. This led to a lower profit after tax (PAT)
growth at 40.9%, in line with our estimates.
-
The stock is trading at attractive valuations
of a price/earnings ratio of 11.1x FY2008E and enterprise
value/earnings before interest, depreciation, tax and amortisation
of 6.8x FY2008E. These valuations should be seen in conjunction
with the fact that the company's earnings are expected to grow at
a healthy compounded annual growth rate of 26% over FY2006-08 and
that the inorganic growth trigger is long overdue. We maintain a
Buy on Sintex with a price target of Rs192, at which the stock
would discount its FY2008E earnings by 15.5x.
Aditya Birla
Nuvo
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,031
Current market price: Rs725
Q1FY2007—first cut results analysis
Result highlights
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The consolidated revenues of Aditya Birla Nuvo
(ABN) in Q1FY2007 grew by 88.6% to Rs1,459.1 crore, in line with
our estimates. The growth was driven by (1) a strong double-digit
growth in its value business; (2) addition of the fertiliser and
finance businesses due to the merger of Indo Gulf and Birla
Global, which was absent last year; (3) higher share in the
telecom business at 16.4% during the quarter and a partial effect
of the 15% share acquired from the Tatas; and (4) the continued
momentum in its growth businesses.
-
The share of the high growth businesses
(garments, life insurance, business process outsourcing [BPO],
software and telecom) improved to 55.2% of the consolidated
revenues in Q1FY2007 as compared to 50.8% in the same period last
year.
-
A sharp margin expansion was witnessed in all
the businesses except insurance, BPO and telecom. The margin
expansion year on year (yoy) was 360 basis points in the garments
business, 850 basis points in the software business, 300 basis
points in the carbon black business, 190 basis points in the the
insulators business and 130 basis points in the textiles.
-
Insurance was an ailing business in FY2006, but
has rebounded during the quarter. The new business premium was up
91% yoy to Rs149.8 crore. The revenues grew sharply by 98.7% yoy
to Rs358.5 crore. The number of policies sold increased by 66% yoy
to 38,000. The loss at the profit before interest and tax (PBIT)
levels grew to Rs18.1 crore against a loss of Rs3.8 crore in
Q1FY2006.
-
Though the revenues of the telecom business
grew by 582.3% due to an increase of stake in IDEA, the margins
shrank by 130 basis points to 17.9%, below our estimates. We
believe that the margins will bounce back in the subsequent
quarters.
-
Driven by the good performance in the key
business segments and addition of new businesses, the operating
profit margin (OPM) saw an expansion of 240 basis points yoy to
13.7%. Consequently the operating profit grew by a robust 128.7%
yoy to Rs199.8 crore, in line with our estimates. Even, the net
profit grew by a strong at 99.1% yoy to Rs67.1 crore, in line with
our estimates.
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Given the diverse businesses of ABN, the
company is best valued using the sum-of-parts method. Based on the
sum-of-parts valuation of the merged entity, we estimate the fair
value of ABN to be Rs1,031 per share. The stock is available at a
30% discount to its fair value and we maintain a Buy
recommendation on ABN with a 12-month price target of
Rs1,031.
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