Summary
of Contents
STOCK
UPDATE
KEI
Industries Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs500 Current market price: Rs361
Power packed
performance
Result
highlight
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In Q2FY2007
KEI Industries (KEI) recorded a robust growth of 96% year on year
(yoy) in its net profit to Rs10.1 crore. The growth was in line
with our expectations.
-
KEI's net
sales for the quarter rose to Rs136.8 crore, up 108.6% yoy and by
37.7% quarter on quarter (qoq). The revenues from the cable
segment grew by 105.3% yoy and by 35.6% qoq on the back of
expanded capacities.
-
The operating
profit grew by 142.5% yoy and by 45.2% qoq as the operating profit
margin (OPM) expanded by 225 basis points yoy and by 83 basis
points qoq.
-
However, the
pressure on the raw material cost continued as the raw material
consumed (RMC)/sales ratio increased by 100 basis points to 70.1%
during the quarter.
-
The profit
before tax (PBT) increased by 137% yoy and by 39.5% qoq. However,
the net profit grew by a lower 95.8% yoy and by 33.2% qoq because
of a higher effective tax rate.
-
KEI is
planning a foreign currency convertible bond (FCCB) issue of $35
million (Rs150 crore) to fund its expansion at Uttaranchal. The
funds would be raised over the next three to four weeks. The
promoters are ready to dilute their stake up to 10% which means
the issue may be priced at Rs440-450 per share.
-
At the current
market price of Rs361, the stock quotes at 7.4x its FY2008E
earnings per share (EPS) and 4.5x its enterprise value
(EV)/earnings before interest, depreciation, tax and amortisation
(EBIDTA). We maintain our Buy recommendation on KEI with a price
target of Rs500.
Crompton
Greaves Cluster: Apple
Green Recommendation: Buy Price target: Under
review Current market price: Rs240
Margins under
pressure
Result
highlight
-
Crompton
Greaves' revenues grew by 48.6% year on year (yoy) in Q2FY2007 to
Rs824.0 crore, beating our expectations. Although all its three
divisions reported a strong performance, the power system division
led the pack with a revenue growth of 68.7% yoy to Rs449.7 crore.
The revenue of the consumer product division grew by 33.3% yoy to
Rs225.3 crore and that of the industrial system division grew by
36.8% yoy to Rs226.1 crore.
-
The raw
material cost/sales ratio spiked to 75.6% in Q2FY2007 from 69.5%
in Q2FY2006 largely due to an increase in the prices of the base
metals like copper and steel, and the inability of the company to
pass on the same to its customers. However, lower employee and
other expenses muted the impact of the same. Consequently, the
operating profit margin (OPM) reduced by 60 basis points yoy to
8.9% and the operating profit for the quarter grew by 39.1% to
Rs73.6 crore.
-
The profit
before interest and tax margin of the power system division
declined by 50 basis points to 8.0% during the period. The
high-margin businesses maintained their margins (the consumer
product division's margin was up 10 basis points to 9.7% and the
industrial system division's margin was up 20 basis points to
13.6%).
-
Crompton
Greaves moved out of the ambit of the minimum alternate tax (MAT)
in Q3FY2006 and hence paid tax at the full tax rate in Q2FY2007 as
against at the MAT rate in Q2FY2006. Also, it provided for
deferred tax to the tune of Rs7.5 crore. The increased tax
provisioning led to a slower growth of 25.0% yoy to Rs40.7 crore
in the profit after tax. But the growth was still in line with our
expectations.
-
The top line
and PBT of its Belgium subsidiary, Pauwels, stood at Rs595.38
crore and Rs21.3. crore respectively during the quarter.
-
The
stand-alone order book grew by 0.6% sequentially and by 20.0% yoy
to Rs1,800.0 crore in Q2FY2007. The consolidated order book stood
at Rs3,739.0 crore.
-
The board has
announced a bonus of two shares for every five shares held.
-
The stock is
currently hovering around our price target of Rs239. Although the
top line performance of Crompton Greaves in H12007 has beaten our
estimates, yet there is a severe threat to the OPM going forward
and the same poses a risk to our call. We are in the process of
revising our estimates and may revise our price target as well.
-
At the current
market price of Rs240, Crompton Greaves is trading at 28.4x its
FY2008E stand-alone earnings and 19.1x it's FY2008E consolidated
earnings.
UltraTech Cement
Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs1,000 Current market price: Rs886
Results below
expectations
Result
highlight
-
UltraTech
Cement Ltd (UCL) has announced a net profit of Rs127.4 crore for
Q2FY2007 and the same is below our expectations, primarily because
of higher-than-expected power & fuel cost and other
expenditure.
-
The company's
revenue for the quarter grew by a healthy 58.3% to Rs1,004 crore
driven by a 17% rise in its cement volume and a 35.2% increase in
its cement realisation.
-
The operating
profit for the quarter grew by 291.8% to Rs254.5 crore as the
operating profit margin (OPM) expanded by 15.1 percentage points
to 25.3%. The same was however below our expectations primarily
because of higher-than-expected power & fuel cost and other
expenditure.
-
During the
quarter UCL�s jetty situated at its Gujarat plant was
non-operational for about 15 days. Hence the company not only lost
some export volumes but also had to incur an additional expense of
Rs15-20 crore on its repairs. Also the packing cost has gone up by
Rs10 crore. This in turn increased the other expenditure per tonne
by 30% yoy. Had these costs not been there, the company would have
easily met our estimates.
-
During the
quarter UCL's cost per tonne of cement increased by 12.5% against
a 35% rise in realisation per tonne. Hence its earnings before
interest, tax, depreciation and amortisation (EBITDA) per tonne in
the quarter stood at Rs691 against Rs206 per tonne in
Q2FY2006.
-
On the back of
flat interest cost and depreciation charge, the net profit for the
quarter registered a quantum jump to Rs127.4 crore during the
quarter.
Tata Consultancy Services Cluster:
Evergreen Recommendation: Buy Price target:
Rs1,325 Current market price: Rs1,130
Margins firm
up
Result
highlight
-
For Q2FY2007
Tata Consultancy Services (TCS) has reported a growth of 8.2%
quarter on quarter (qoq) and of 42% year on year (yoy) in its
consolidated revenues to Rs4,482.2 crore. The sequential revenue
growth was largely driven by a 10.8% quarter-on-quarter (q-o-q)
growth in the international business with the domestic revenues
declining by 14.3% on a sequential basis. The international
business witnessed a strong volume growth of 11.33%
sequentially.
-
The earnings
before interest and tax (EBIT) margins improved sharply by 294
basis points to 25.3% on a sequential basis. Apart from the impact
of lower visa cost, the margins were boosted by an offshore shift
(67 basis points), gains from foreign exchange (forex) movement
(50 basis points) and an overall improvement in the employee
productivity (driven by better realisations and operational
efficiencies). The EBIT margins were also positively impacted by
the write back of Rs46.8 crore worth of provisions (made for the
provident fund earlier) and lower provisioning for bad debts
during the last quarter. The operating profit grew by 21.4% qoq to
Rs1,229.4 crore.
-
Consequently,
despite the sharp decline in the other income to Rs7.7 crore (down
from Rs66.8 crore reported in Q1), the consolidated earnings grew
by 15% qoq and by 43.7% yoy to Rs991.5 crore (higher than the
consensus estimate of around Rs835 crore). w In terms of
outlook, the company does not provide any specific growth
guidance. However, the management reiterated that the demand
environment is quite favourable. It is also confident of
maintaining the EBIT margins at around the 25.8% level (on the
full year basis) in line with FY2006. This implies a significant
improvement in the EBIT margins in the second half as the margins
stood at 23.9% during the first half ended September
2006.
-
The company
has announced an interim dividend of Rs3 per share.
-
At the current
market price the stock trades at 27.8x FY2007 and 22.1x FY2008
revised earning estimates. We maintain our Buy call on the stock
with a price target of
Rs1,325. |