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STOCK UPDATE
Mahindra &
Mahindra
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs700
Current market price: Rs592
Strong consolidated
numbers
Result highlights
-
The stand-alone net sales of Mahindra and
Mahindra (M&M) grew by 20% year on year (yoy) to Rs2,289
crore in Q4FY2006. The operating profit margin (OPM)
improved by 86 basis points yoy to 11.9% in the quarter but
declined by 100 basis points on a sequential basis due to a
rise in the raw material costs. A lower other income of
Rs13.8 crore due to a low dividend from Tech Mahindra and a
higher tax outgo of Rs85.9 crore kept the pre-exceptional
profit after tax (PAT) flat at Rs155 crore, below our
estimate. There was an extraordinary income of Rs166 crore
relating to profits from the sale of the shares of MMFSL.
This resulted in a 110% growth in the reported PAT at Rs321
crore as compared with Rs152.6 crore in the corresponding
quarter in the previous year.
-
The stand-alone FY2006 net sales grew by
23% to Rs8,222.7 crore. The operating profit was up 26% to
Rs967.2 crore. In the automotive business, the domestic
sales were almost flat while the exports surged by 82%. The
tractor segment however recorded a strong growth of 30%.
-
Looking at the consolidated numbers, the
full year's net sales grew by 31.3% to Rs12,335.4 crore. The
OPM surged to 14.01% from 12.59% last year. Consequently,
the operating profit for the full year grew by 46% to
Rs1,728.7 crore. The pre-exceptional PAT for the year stood
at Rs1,136.2 crore, marking a growth of 68% yoy.
-
The company has planned to double its
capital expenditure (capex) for the year to Rs650 crore. The
funds will be utilised to develop new products, expand the
existing business and carry out research and development
(R&D) activities.
-
The contribution of the non-automotive
business has increased significantly in the recent years.
For FY2006, the non-automotive business contributed 33% to
the top line and 48% to the bottom line. The company expects
the ratio to reach 50:50 in the next two to three
years.
-
The stock is currently trading on a
consolidated basis at 11x on FY2007E and 9.5x on FY2008E. We
maintain our Buy recommendation on M&M with the price
target of Rs700.
ITC
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs220
Current market price: Rs177
Growth in all
businesses
Result highlights
-
ITC's net revenues grew by a robust 27.9%
year on year (yoy) and by 8.9% quarter on quarter (qoq) in
Q4FY2006 to Rs2,784.5 crore, powered by a strong growth in
all the business segments.
-
All the businesses reported a high
double-digit growth for Q4FY2006 with the main business of
cigarettes growing at a healthy rate of 15%.
-
The operating profit grew at a slower
pace of 21% yoy to Rs802.4 crore for Q4FY2006 as the
operating profit margin (OPM) fell by 165 basis points yoy
to 28.8%. The margin dropped primarily due to a higher
contribution of the revenues from the low-margin agri
business and a marginal slip in the margins of the cigarette
business.
-
ITC's profit after tax (PAT) increased by
35.9% to Rs567.5 crore due to higher other income.
-
At the current market price of Rs177, the
stock is attractively quoting at 20.1x its FY2008E earnings.
We maintain our Buy recommendation on ITC with a price
target of
Rs220. |
