|
Summary
of Contents
|
PULSE TRACK
Monsoon
back to work
- The monsoon is back to
work after taking a long break of twelve days.
- The monsoon will reach
eastern Madhya Pradesh, Chattisgarh, Bihar and eastern Uttar
Pradesh, and intensify over the regions already covered over
the next five days.
- Further, an expected
formation of a "low" over the Bay of Bengal will intensify
the monsoon activity over the mainland.
- The sowing of the
kharif crops is not yet affected (barring cases like
oil seeds and cereals), thanks to higher water reservoir
levels and an early visit by the monsoon to some
places.
- The actual rainfall
from June 1 to June 21, 2006 stands at 71.9mm, 24% below the
normal rainfall. However, it is still early days and a
revival of the monsoon (which is on the cards) could change
the picture.
STOCK UPDATE
Tata
Tea
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,040
Current market price: Rs755
Focusing on core
business
Tata Tea
(TTL) is reportedly in talks with the potential buyers for the
sale of its North India Plantation Operation (NIPO). NIPO has
24 tea estates of which four are located in northern West
Bengal and 20 are located in Assam.
We believe that
this move is in line with Tata Tea's overall strategy to focus
on packaged and specialty tea and is likely to result in
substantial cost savings for the company.
VIEWPOINT
Ador
Welding
Welding
gains
We attended the annual general meeting of
Ador Welding Ltd (Ador) and here are the key takeaways from
the meeting.
-
Helped by the pick-up in the country's
infrastructure spending and industrial growth, Ador's net
revenues grew by a healthy 22.2% to Rs266 crore in FY2006.
The revenue growth came on the back of an 18% growth in the
welding electrode business and a 45% growth in the welding
equipment business.
-
With a 440-basis-point improvement in the
operating profit margin (OPM), the performance at the
operating level was even better: the operating profit grew
by an impressive 67.3% to Rs43 crore.
-
The pre-exceptional net earnings grew by
51.5% to Rs35 crore as Ador maintained its debt-free status
for the fourth consecutive year. At Rs40 crore the reported
net profit grew by 45.4%.
-
Encouraged by the continuing growth
momentum in India's infrastructure spend and the growth in
the industrial sector, Ador has lined up a capex programme
of Rs20 crore to increase the manufacturing capacity of its
Silvassa plant (which is located in a tax-free zone) and
re-engineer the processes to improve efficiency.
-
The company's balance sheet is in an
excellent shape, with cash and cash equivalents of almost
Rs38 crore on the books. Its return ratios have also
improved substantially with the return on capital employed
(RoCE) at 52.5% and return on equity (RoE) at 34.2%. Further
the company has declared a dividend of 150% (Rs15 per
share). Consequently, the stock's dividend yield works out
to 4.1%.
-
The management, which has experience of
more than five decades in the welding industry, is confident
that business conditions are improving and has a positive
outlook on the welding business. It expects the company's
top line to grow by 30% during FY2007.
-
Our back-of-the-envelope calculations
(using the guidance given by the management) show that the
company would report earnings of Rs35 per share in FY2007.
At the current market price of Rs364, the stock is trading
at 10.1x its FY2007 earnings, which is slightly lower than
that of its peer ESAB India, which is trading at 12x its
CY2006 earnings. However ESAB India has an edge over Ador,
as it is the market leader with better pricing power and
access to the technologies of its parent, ESAB
Worldwide. | |
