Summary
of Contents
STOCK
UPDATE
Gateway
Distriparks Cluster:
Cannonball Recommendation: Buy Price target: Rs250 Current
market price: Rs173
Results below expectations
Result highlights
- Gateway Distriparks Ltd (GDL) reported a net profit of Rs18.8
crore for Q3FY2007, which is below our expectations.
-
The revenues increased by 20% year on year
(yoy) to Rs41.7 crore led by a strong volume growth of 112%, 51.5%
and 392.9% at Garhi, Chennai and Vizag container freight stations
respectively and a realisation growth of 9% year on year.
-
The operating profit declined by 2.4% yoy to
Rs20.3 crore and the margins were under tremendous pressure on
account of the strong competition and lower realisations at
Chennai and Vizag. This consequently led to the margins declining
by 1,130 basis points quarter on quarter (qoq) to 48.7%.
-
The other income grew by 109% yoy to Rs5.4
crore due to the interest income on the higher surplus cash of
Rs200 crore during the quarter.
-
Depreciation grew by 36% yoy due to the
amortisation of Snowman's goodwill during the quarter.
-
The tax rate for the quarter was at 14.5% as
the company had 80IA benefits for its investments in inland
container depot (ICDs). As a result the pre-exceptional net profit
grew by 5.0% yoy to Rs18.8 crore in Q3FY2007.
-
During the quarter GDL acquired Snowman Frozen
Foods, a cold chain logistic services business, at a cost Rs48.1
crore. The company incurred an expenditure of Rs2.1 crore for the
acquisition, which has been treated as extraordinary expenditure.
Thus the post-exceptional profit stood at Rs16.7 crore.
-
Snowman moves close to 9,000 tonne of frozen
and chilled products across India and provides the entire spectrum
of supply chain solutions with HLL being one of its major clients.
We believe this acquisition will enable the company to cash in on
the growth in the nascent food retailing market in India.
-
The company has recently won the bid for a
15-year operations and management (O&M) contract of the Punjab
Conware container freight station (CFS) at the JNPT port. GDL will
be able to expand the volumes at the Punjab Conware CFS
considering the dominant position of the company at the port and
its expertise in operating CFS' and ICDs.
-
We maintain our positive outlook on the
company, as GDL will be one of the prime beneficiaries of the
growth in container traffic, which currently just accounts for 10%
of the total cargo. The company's strategy to become an integrated
player by entering into rail-based container movement will help
the company to offer better services to its clients. With the
large players like Reliance and the AV Birla group betting huge on
food retailing, the company's strategy to enter the cold chain
business comes at a right time and will add significant value to
the company's business going ahead. At the current market price of
Rs173, the stock discounts its FY2007 earnings per share (EPS) by
20x and FY2008 EPS by 14x. We believe that the valuations are
attractive and thus maintain our Buy recommendation on the stock
with a price target of Rs250.
Hindustan
Lever Cluster: Apple
Green Recommendation: Buy Price target: Rs280 Current
market price: Rs195
A little cold
Result highlights
-
The Q4CY2006 net profit of Hindustan Lever Ltd
(HLL) grew by 10.15% year on year (yoy) to Rs483.0 crore, which
was below our expectations.
-
The net revenues grew by 6% yoy on the back of
a 7% year-on-year (y-o-y) growth in the home and personal care
(HPC) segment, which comprises the soap and detergent, and
personal care businesses.
-
The profit before interest and tax (PBIT)
margin showed a contraction of 40 basis points to 18.1%.The
contraction in the PBIT margin was attributable to the lower
growth in the personal care segment as well as higher input cost.
-
The soap and detergent business has shown a
growth of 10% whereas the personal care product business has
reported a lower growth of 2.5%. The growth was lower in the
personal care product business mainly on account of a shorter
winter season in 2006 and the high base effect of Q4CY2005 (the
sales of personal care products were higher due to the relaunch of
Clinic shampoo in the quarter).
-
The beverage business has shown a growth of
8.6% yoy whereas the processed food business has grown by 18% yoy.
-
The operating profit margin (OPM) of HLL
contracted by 36 basis points to 15.84% on a y-o-y basis due to a
higher raw material cost. The selling and administrative expenses
as a percentage of sales were maintained at 9% compared with 11%
for M9CY2006, which helped it to prevent further erosion in the
margin.
-
The soap and detergent segment has been able to
maintain its earnings before interest and tax (EBIT) margin at
15.6% yoy whereas the EBIT margin in the personal care product
range has shown an improvement of 30 basis points to 31.9%.
-
At the current market price of Rs195, the stock
is quoting at 23x its CY2007E earnings per share (EPS) of Rs8.5.
We maintain our Buy recommendation on the stock with a price
target of Rs280.
SECTOR UPDATE
Automobile
Racing ahead despite hardening rates The
automobile industry has begun CY2007 on a positive note with a
strong volume growth of 14.8% for the first month of the year,
January. However, there are some concerns on the horizon. Will the
growth sustain on the high base of last year? How would the rising
interest rates affect the demand in future? In this report, we have
tried to assess the impact of the high base effect and rising
interest rates on the demand for
automobiles. |