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Summary of Contents
PULSE TRACK
-
Year starts with a bang—April 2006 IIP grows at
9.5%
STOCK UPDATE
Indian Hotel
Company
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,474
Current market price: Rs965
Positive outlook on business
continues
Result highlights
-
The revenues of Indian Hotel Company (IHCL) saw
an increase of 33.6% year on year (yoy) to Rs355.9 crore in
Q4FY2006, mainly powered by an increase in the average room rates
(ARRs). The revenue growth was in line with expectations.
-
The occupancy rates (ORs) in Q4FY2006 remained
flat yoy at 79%, whereas the ARRs grew by a whopping 39.3% to
Rs8,891. The flat OR was mainly on account of the market
realignment towards a +30% rise in the room rates in prime
properties.
-
On the back of a strong revenue growth of 33.6%
in the quarter, coupled with the benefits of operating leverage
(typical to the hotel industry), the operating profit margins
(OPM) saw an expansion of 900 basis points yoy to 35.5% in the
quarter.
-
IHCL's profit after tax (PAT) saw an increase
of 120.0% yoy to Rs78.7 crore in Q4FY2006, which was marginally
above expectations. The earnings for the quarter stood at Rs13.5
per share.
-
The consolidated numbers for FY2006 generated a
positive surprise. Against an estimated PAT of Rs190.8 crore, IHCL
reported a PAT of Rs248.7 crore, surpassing our consolidated PAT
estimates by 30.3%. A large part of the surprise has come from the
turnaround in the operations of the loss making subsidiary, St
James Court Hotels.
-
IHCL maintains a positive view on the hotel
industry, driven by (1) a strong demand and (2) little room
inventory addition. Accordingly, the company expects a healthy
jump in its ARR in FY2007E, which shall drive the margins and
earnings of the company.
-
Considering the bright business prospects for
the company and the fact that the IHCL stock trades at a discount
of 45% to its replacement cost of Rs1,400.0 per share, we maintain
a BUY on the stock with a price target of Rs1,474.0 (target
multiple at 27x—the stock typically trades at 25-27x its one-year
forward earnings), an upside of 52.7%.
MRO-TEK
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs113
Current
market price: Rs56
The right
connection
After the recent correction, the stock is
trading at extremely attractive valuations of 5.3x FY2007E and 4.2x
FY2008E estimated earnings. The valuations are all the more
attractive considering the estimated cash of Rs16.8 per share in
FY2007 and Rs23.5 in FY2008. Moreover, given the expectations of a
continued liberal dividend policy, the dividend yield could work out
to anywhere between 4% and 5%. We maintain our Buy call on the stock
with a price target of Rs113.
SECTOR UPDATE
Automobile
Strong growth continues in May
The automobile sector performed extremely well in
May 2006 with majority of the segments posting a double-digit sales
growth. The overall automobile sales volumes rose by 22.2% with the
domestic and export sales rising by 21.5% and 31.1%
respectively.
-
Passenger vehicles: The car category has
reported a strong growth of 29.6% in May 2006 in the domestic
sales, whereas the utility vehicle (UV) category reported a modest
growth of 6.8% in the domestic market.
-
Commercial vehicles: The commercial
vehicle (CV) segment reported a stellar performance, growing by
40% in May with both the medium and heavy commercial vehicle
(M&HCV) and the light commercial vehicle (LCV) categories
reporting healthy growth rates. The M&HCV category has grown
by 38.9% whereas the LCV category has grown by 41.4% in the
domestic market.
-
Three-wheelers: The three-wheeler
segment continued its strong march, reporting a growth of 29.5% in
the domestic market. The domestic passenger category grew by 34.3%
whereas the goods category grew by 22.8%.
-
Two-wheelers: The growth in the
two-wheeler segment continues to be led by the motorcycle
category, which registered an overall growth of 26% in May 2006.
The scooter category registered a decline of 4.9% for May 2006
whereas the moped volumes declined marginally by 1.2% for the
month.
The gainers were Tata Motors, Hero Honda, Bajaj
Auto, Maruti Udyog and Ashok Leyland.
INDUSTRY
UPDATE
Mutual funds turn
aggressive buyers
Despite the recent fall in the
equity markets, the industry's assets under management (AUM)
increased by 7.1% to Rs276,342 crore in May 2006. This was led by
the strong inflows into liquid funds; the AUM for equity funds
decreased by 4.3% to Rs112,427 crore.
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