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Summary
of Contents
PULSE TRACK
- May 2006
trade deficit springs positive surprise
STOCK UPDATE
Ashok
Leyland
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs53
Current market price: Rs35
Widening its product
portfolio
Ashok Leyland Ltd (ALL) has made a couple of
announcements in the recent times. For instance, it plans to
gain a foothold in the light commercial vehicle (LCV) segment
through a joint venture or a technical tie-up. The company
also has ambitious plans for its automotive component division
as it aims to tap newer export markets. To fund its capital
expenditure (capex) plans it has also passed a resolution to
raise funds up to $150 million.
We believe that
ALL's plans to increase its presence in the LCV segment and
scale up the operations of the ACG would strengthen its
product portfolio and further de-risk its business model. At
the current market price of Rs35, the stock quotes at 9.3x its
FY2008E earnings and 5.2x its FY2008E earnings before
interest, depreciation, tax and amortisation. We believe that
the valuations are very reasonable and maintain our Buy
recommendation on the stock with a price target of Rs53.
Welspun Gujarat
Stahl Rohren
Cluster: Emerging
Star
Recommendation: Buy
Price target:
Rs100
Current market price: Rs69
Gains in
'pipeline'
Result highlights
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Welspun Gujarat Stahl Rohren (WGSR) has
reported a 76% growth in its revenues to Rs1,829.8 crore in
FY2006. Its profit after tax (PAT) for the same period has
grown by 81.4% year on year (yoy) to Rs61.3 crore. The
operating profit margin (OPM) has improved by 240 basis
points from 6.6% in FY2005 to 9% in FY2006, thanks to a
350-basis-point improvement in the raw materials cost to
sales.
-
For the reported quarter, the net sales
grew by 86% to Rs644 crore from Rs346 crore in the
corresponding quarter last year. The operating profit for
the quarter surged to Rs55.2 crore from Rs0.3 crore in
Q4FY2005. The PAT stood at Rs19.4 crore in Q4FY2006.
-
WGSR's current order book stands
approximately at Rs1,800 crore and the same is executable
over three quarters. Some of the major orders include a
repeat order worth Rs212 crore to the region of Gulf of
Mexico, a PGN-Indonesia order worth Rs500 crore and a
Rs301-crore order from Algeria.
-
After completing its capacity expansion
at Anjar in FY2006, WGSR has currently undertaken a capital
expenditure (capex) programme worth Rs1,225 crore to set up
a plate and coil mill as backward integration exercise. The
backward integration is expected to improve its OPM
significantly from FY2008 and onwards.
-
At the current market price of Rs69, on a
fully diluted equity of Rs84.6 crore WGSR is trading at 6x
FY2008E earnings per share (EPS) of Rs11 and 4.3x 2008E
enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA). We feel the
valuations are quite attractive and we maintain a Buy on
WGSR with a revised price target of Rs100. Our price target
discounts WGSR's FY2008E EPS by 9x.
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