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STOCK
IDEA
Ashok
Leyland
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs53
Current market price: Rs38
Riding high
Key points
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Ashok Leyland Ltd (ALL) is purely a play
on the boom in the country's commercial vehicle (CV)
industry. It has regained its market share in the last one
year after a brief stagnation faced due to labour unrest in
one of its facilities. With a good product mix and a strong
distribution network, ALL should be able to outperform the
CV industry and its volume should grow at a CAGR of 13.2%
over FY2006-08.
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Over the years, ALL has diversified its
revenue streams, thereby rendering stability to its business
and de-risking its business model. Further, the company
plans to significantly ramp up its non-cyclical businesses,
enter new export markets like the African and Gulf markets,
and strengthen its defence portfolio.
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In line with the demand, ALL is expanding
its existing production capacity from 77,000 units to
100,000 units. It also plans to set up a gearbox unit and a
new bus assembly unit in Dubai. It shall incur a total
capital expenditure (capex) of around Rs600 crore over the
next two years.
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ALL's focus on value engineering
initiatives and plans to reduce the raw material cost
through e-sourcing should result in significant savings and
better operational efficiency. Consequently, we expect its
operating profit margin (OPM) to improve by 70 basis points
over FY2006-08.
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The stake sale by IVECO to another global
CV major and ALL's plans to acquire a light commercial
vehicle (LCV) business could act as big triggers and may
lead to the re-rating of the stock. At the current market
price of Rs38, the stock quotes at 10x its FY2008E earnings
and 5.6x its FY2008 EV/EBIDTA. We believe the valuations are
very reasonable and hence recommend a Buy on the stock with
a price target of Rs53.
STOCK
UPDATE
Unichem
Laboratories
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs328
Current market price: Rs264
A solid
performance
Result highlights
-
The top line of Unichem Labs grew by 43%
year on year (yoy) to Rs105.8 crore in Q4FY2006. The growth
was led by an improvement in the domestic formulation
business.
-
The operating profit margin (OPM)
increased from 1.9% in Q4FY2005 to 18.1% in Q4FY2006 as the
operating profit increased by over 12 times from Rs1.38
crore in Q4FY2005 to Rs19.1 crore in Q4FY2006.
-
A lower other income pulled down the
profit after tax (PAT) to Rs14 crore in Q4FY2006 from Rs6.8
crore in Q4FY2005. On a year-on-year (y-o-y) basis the PAT
grew by 106.8%.
-
The company has signed a deal with Pliva
Inc to develop, manufacture and market in the USA five
products having a total market size of over US$3
billion.
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At the current market price of Rs264 the
stock is trading at 9.3x FY2008 earnings estimate. We
maintain our Buy recommendation on Unichem with the price
target of Rs328.
Sanghvi
Movers
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs1,150
Current market price: Rs700
Robust growth
continues
Result highlights
-
Sanghvi Movers Ltd (SML) reported a
robust growth in its top line and bottom line during
Q4FY2006. Its revenues grew by 58.7% year on year (yoy) to
Rs42.17 crore driven by capacity expansion. However,
sequentially the same declined by 5.5% as Q3FY2006 had seen
a large order from Reliance Industries for a planned
maintenance shutdown. The revenues increased by 97.8% to
Rs149.1 crore in FY2006. The revenue growth was driven by a
Rs170-crore capacity expansion carried out in FY2006.
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Driven by better utilisation of assets
and operating leverage, the operating profit grew by 93.7%
to Rs28.9 crore yoy. The operating profit margin (OPM)
improved by 1,240 basis points to 68.6%. The improvement in
the OPM was also led by the addition of larger cranes to its
fleet during the quarter. The operating profit increased by
116.5% to Rs98.7 crore yoy.
-
During FY2006 SML acquired cranes worth
Rs170 crore, thereby overshooting its budget of Rs161 crore
for expansion activities. It added Rs50 crore worth of
cranes to its fleet during Q4FY2006.
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In Q4FY2006 SML's net profit grew by
63.5% to Rs8.8 crore yoy. The company has reported revenues
and net profit of Rs149.1 crore and Rs31.2 crore
respectively for the fiscal. With the aggressive capacity
expansion undertaken by India Inc, we expect the demand for
cranes to remain robust for the next two years. We also
expect SML to earn revenues of Rs244.5 crore in FY2007 and
of Rs313.5 crore in FY2008. The revenue growth will be
driven by capacity addition worth Rs135 crore in FY2007 and
worth Rs150 crore in FY2008. We expect it to earn a net
profit of Rs48.1 crore in FY2007 and of Rs62.1 crore in
FY2008. The stock trades at 5.6x FY2007 and 4.3x FY2008 cash
earnings per share (CEPS). We maintain Buy on SML with the
price target of Rs1,150.
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