Summary
of Contents
STOCK UPDATE
Infosys
Technologies Cluster:
Evergreen Recommendation: Buy Price target:
Rs2,430 Current market price: Rs2,126
Infosys plans
third ADS issue Infosys Technologies' third sponsored American depository
share (ADS) issue of up to three crore equity shares would open on
November 9 and close on November 17, 2006. As part of the offering,
the ADSs would be placed with Japanese investors through a public
offer without listing. At the prevailing price in the overseas
markets, the total size of the issue works out to $1.55
billion.
TVS Motor Company
Cluster: Emerging
Star Recommendation: Buy Price target: Rs135 Current
market price: Rs102
Expansion
benefits yet to accrue
Result
highlight
-
TVS Motors'
Q2FY2007 results are below our expectations mainly due to lower
other income, higher interest costs and lower profit
margins.
-
The company
has recorded a 36.6% growth in its net sales for the quarter,
which stood at Rs1,077.9 crore mainly led by a volume growth of
28.8%. The realisation per vehicle grew by 6.1% year on year (yoy)
due to higher contribution of high-end vehicles and a price hike
affected in mid-September.
-
The operating
profits grew by 21.9% to Rs56 crore as the operating margins
declined by 60 basis points to 5.2% but improved by 70 basis
points on a sequential basis. The increased cost of raw materials
like steel, aluminium, rubber etc continued to impact the margins
of the company as the raw materials cost as a percentage of sales
rose to 74.1% as compared to 71.9% in the corresponding period
last year.
-
The profit
before tax (PBT) during the quarter was at Rs36.25 crore compared
to Rs46.3 crore last year. However, the last year's PBT included a
one-off Duty Export Promotion Benefit (DEPB) target plus an
incentive of Rs9.7 crore. Adjusting for the same, the PBT has
remained almost flat on a year-on-year (y-o-y) comparison while
the profit after tax (PAT) has grown by 11.6% to Rs24.8 crore. The
PAT after the one-off items declined by 22.3% to Rs24.8 crore for
the quarter.
-
The company's
foray into the three-wheeler segment, the Himachal Pradesh plant
and the Indonesian venture have been delayed and are expected to
commence operations by Q1FY2008.
-
We are
positive on the volume growth sustaining and we expect the
operating profit margin (OPM) to improve on a quarter-on-quarter
(q-o-q) basis with higher volumes. However, considering the lower
margins in H1FY2007, lower other income and higher interest cost
we are downgrading our earnings for FY2007 by 40% to Rs4.8 and for
FY2008 by 40% to Rs8.2.
-
The company
has strong brands across segments, is improving its product mix
towards high-end bikes, is foraying into the three-wheeler space
and setting up a plant in Himachal Pradesh where it will get
excise and tax benefits. As a result we maintain our positive
outlook for the stock. At the current market price of Rs100, the
stock discounts its FY2008E earnings by 12.1x and FY2008E earnings
before interest, depreciation, tax and amortisation (EBIDTA) by
6.7x. We maintain a BUY recommendation on the stock with a revised
price target of Rs135.
New Delhi
Television Cluster: Emerging
Star Recommendation: Buy Price target: Rs260 Current
market price: Rs233
Price target
lowered to Rs260
Result
highlight
-
New Delhi
Television (NDTV) reported an operating loss of Rs3.7 crore and a
loss of Rs7.8 crore before interest and tax for the second quarter
of FY2007. The results were below expectations.
-
Driven by a
slow revenue growth of 28.4% year on year (yoy) to Rs54.2 crore,
and a 106% year-on-year (y-o-y) and 3.5% quarter-on-quarter
(q-o-q) increase in the expenditure, NDTV reported an operating
loss of Rs3.7 crore for Q2FY2007 compared with an operating profit
of Rs3.0 crore in Q2FY2006.
-
Adjusted for
the one-time expenses of an employee stock option plan, the
company reported a profit of Rs3.6 crore, but only with the help
of a write-back of the deferred tax credit.
-
NDTV has
formed a new 100% subsidiary, NDTV Ventures, for its entry into
the entertainment and lifestyle television segment. NDTV's general
entertainment channel (GEC) will be launched under this
company.
-
We had
mentioned earlier that the increased competition in the news
channel sector has been inflating NDTV's marketing and
distribution (M&D) cost. However, despite the increasing
M&D cost the company has not been able to ramp up its ad
revenue growth.
-
That coupled
with the expenditure to be incurred on the new entertainment and
other channels is likely to bleed the consolidated financials of
the company for at least the next 12-18 months.
-
We have
lowered our earnings estimates for the stock for FY2007 and FY2008
by 19% and 27% respectively on account of the above-mentioned
reasons.
-
At the current
market price of Rs233, the stock is quoting at 29.2x its FY2008E
earnings per share (EPS) and 17.8x FY2008E enterprise value
(EV)/earnings before interest, depreciation, tax and amortisation
(EBIDTA). We reiterate our Buy recommendation on the stock with a
lower price target of Rs260, based on sum-of-parts
valuations.
Bajaj Auto
Cluster:
Apple Green Recommendation: Buy rice target:
Rs3,300 Current market price: Rs2,631
Price hike to
ease margin pressure
Result
highlight
-
Bajaj Auto has
hiked the prices of all its three-wheeler models and two of its
two-wheeler models (ie Pulsar twins and
Platina). With the high input prices, the price hikes
affected should help to ease the pressure on its margins.
-
The price of
the upgraded Pulsar twins has been raised by
Rs2,000-2,200 per vehicle, while the price of Platina has
been raised by Rs500 per vehicle. The three-wheeler prices have
been raised by Rs1,000 per unit.
-
Bajaj Auto is
looking to exit the 100cc segment in the next two-three years with
the introduction of two new platforms next year, which are
expected to be around the same price points. Further, the company
also plans to revitalise its Pulsar brand through the
recent launch of the upgraded versions and would follow it up with
the launch of the higher displacement Pulsars (220cc) in
Q4FY2007.
-
The company
has reported strong sales numbers during this year recording a
year-till-date growth of 34%. Going forward, due to a high base
effect, we expect the company to record a growth of 19.8% for
H2FY2007.
-
At the current
market price of Rs2,631, the stock discounts its FY2008E earnings
by 17.4x and quotes at an enterprise value/earnings before
interest, depreciation, tax and amortisation of 14.3x. We maintain
our Buy recommendation on the stock with a price target of
Rs3,300.
Indian Hotels Company
Cluster: Apple
Green Recommendation: Buy Price target: Rs170 Current
market price: Rs150
Room for more
upside
Result
highlight
-
The revenues
of Indian Hotels Company Ltd (IHCL) increased by 27.8% year on
year (yoy) to Rs266.7 crore in Q2FY2007 on the back of a 37.5%
rise in room revenues, in line with our estimates. The food and
beverages income (F&B) rose by 13.6% yoy, the other operating
income increased by 31.0% yoy and the management fee saw a rise of
46.5% yoy.
-
The occupancy
rates (ORs) in Q2FY2007 increased by 200 basis points yoy at 66%,
whereas the average room rate (ARR) grew by a robust 34 5% to
Rs7,583, in line with our estimates.
-
The operating
profit margins (OPMs) expanded by 300 basis points to 21.8% on
account of the healthy revenue growth and a continuous operating
leverage that the company enjoys. Consequently the operating
profits grew by a robust 48.2% yoy to Rs58.1 crore, marginally
ahead of our estimates.
-
The expansion
in the OPMs, higher other income (up 52.0% yoy) and a reduction in
the net interest costs (down 30.8% yoy) saw the net profit grow by
a whopping 77.6% yoy to Rs46.5 crore, marginally ahead of our
estimates.
-
IHCL has
executed a letter of intent with the owners of the Ritz Carlton
Hotel, Boston for the outright purchase of the hotel for US$170
million. The sale and purchase agreement is scheduled to be
executed in early November 2006 with the transaction closure
targeted for early January 2007.
-
The tight
demand-supply scenario in the hotels industry lends a positive
bias to the ARR in the short term and we expect IHCL, the largest
hotel chain in India with its pedigree of hotels to be the key
beneficiary of this uptrend. The ARR and ORs may come under
pressure post H1FY2008, but till that time we believe that the
investors should remain checked in. We like the performance of
H1FY2007 and we are revising our consolidated earnings estimates
for FY2007 and FY2008 by 1.4% and 16.3% respectively.
-
We are valuing
IHCL at 25x its FY2008 earnings and the revised price target now
stands at Rs170. IHCL�s value of non-hotel investments on its
books is around Rs20 per share and the same provides a margin of
safety to our price target of Rs170. At the current market price
(CMP) of Rs149.6 the stock provides an upside of 10.3%.
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