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Summary of Contents
STOCK UPDATE
Wockhardt
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs552
Current
market price: Rs370
Beating expectations
Result highlights
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Wockhardt's Q4CY2006 net sales grew by 43.7% to
Rs526.4 crore, led by a 22.1% growth in its domestic business and
a 56.6% rise in its international business. The sales growth was
above our expectations. The massive increase in the international
business was largely due to the Pinewood acquisition.
-
Despite sharp escalations in the material cost
and the staff cost, the company's operating mazgins remained flat
at 23.2%. This was due to the lower research and development
(R&D) expenses, which were capitalised instead of being
expensed. On excluding the R&D costs, the company's margins
actually declined by 190 basis points year on year (yoy). The
decline in the margins was on account of the low-margin Pinewood
& Dumex acquisitions. Back-of-the-envelope calculations
indicate that the Pinewood acquisition alone has impacted the
margins by approximately 150 basis points. Wockhardt reported an
operating profit (OP) of Rs122.1 crore, a growth of 43.6% yoy.
-
The net profit grew by 19.5% to Rs87.1 crore in
Q4CY2006. The net profit was impacted by substantially higher
interest and depreciation costs, but was nevertheless much higher
than our estimate of Rs77.1 crore.
-
For CY2006, Wockhardt's net sales grew by 22.4%
to Rs1,729.1 crore, as against our expectation of a 17.0% growth.
The Dumex and Pinewood acquisitions contributed significantly to
the growth. Excluding the acquisitions, the like-to-like growth
stood at 14%. The reported net profit grew by 17.3% to Rs301.7
crore. However, the company had incurred extraordinary expenses to
the tune of Rs60 crore in the beginning of the year, due to which
the adjusted net profit declined by 6.1% to Rs241.3 crore.
-
Wockhardt plans to achieve sales of $1 billion
by 2009. Of this $1 billion, $700 million will come through
organic growth while $300 million will come as contribution from
inorganic initiatives. For CY2007, the company is targeting to
cross sales of $500 million and maintain the net margins in the
range of 16-18%.
-
Based on the management's vision and strategy
presented at the recently held analyst meet, we are introducing
our CY2008 estimates for Wockhardt. We believe that Wockhardt's
top-line will grow at a compounded annual growth rate (CAGR) of
21.3% over CY2006-08E, with revenues touching Rs2,544.3 crore in
CY2008E. Over the same period, the net profit is estimated to grow
at a CAGR of 31.3%, with the profits reaching Rs415.8 crore in
CY2008E, translating into earnings of Rs34.8 per share.
-
At the current market price of Rs370, the stock
is available at 12.2x its estimated CY2007E earnings and at 10.6x
its estimated CY2008E earnings, on a fully diluted basis. The
valuations seem very attractive at these levels and should be
viewed as a strong buying opportunity. We maintain our Buy
recommendation on the stock with a price target of Rs552.
Ashok
Leyland
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs56
Current
market price: Rs39
Good growth at attractive valuations
Key points
-
Ashok Leyland Ltd (ALL) has reported good
vehicle sales numbers for the month of February 2007 with an
overall growth of 33%. The truck segment recorded a 33% growth and
the bus segment grew by 27% during the month.
-
The company is all set to surpass its sales
target of 80,000 vehicles for the current fiscal. We maintain our
positive outlook on the growth prospects of Ashok Leyland on the
back of the continuing buoyancy in the commercial vehicle segment.
-
The company is expected to spend about Rs4,000
crore in the next three-four years, including about Rs1,200 crore
for setting up a plant in Uttaranchal.
-
ALL is also a front runner for the acquisition
of a stake in Punjab Tractors Ltd (PTL). The acquisition, in case
it goes through, would give ALL an entry into the fast growing
tractor market in India, and the acquirer would also be able to
take advantage of the strong brand equity of PTL and its strong
distribution network. However, the acquisition would come at a
high price, and the acquirer would have to shell out anything
between Rs1,200 crore and Rs1,500 crore, which would necessitate
further raising of funds by the company.
-
A sharp correction on the bourses following a
global meltdown has seen the stock price of Ashok Leyland take a
heavy beating. Considering its strong growth outlook, we believe
that this is a good buying opportunity, as the stock is available
at very attractive valuations, which are at a considerable
discount to its peers. At the current market price of Rs39, the
stock discounts its FY2008E earnings by 9.5x and quotes at an
enterprise value/earnings before interest, depreciation, tax and
amortisation of 5.3x. We maintain our Buy recommendation on the
stock with a price target of Rs56.
Aban
Offshore
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs2,430
Current
market price: Rs1,780
Price target revised to
Rs2,430
Aban Offshore Ltd (AOL) has announced the
signing of a contract with affiliates of Addax Petroleum and Sinopec
to deploy its deepwater drill ship, Aban Abraham, in the offshore
block located at the Gulf of Guinea. The contract to drill five firm
wells (with an option to drill another five wells) over a duration
of 300 days is worth $123 million (can be increased to $246
million). It works out to a charter rate of $410,000 per day (around
36.6% higher than the charter rate of $300,000 for its contract
starting from July 2007). The recently acquired contract is
effective from end of May 2008 and would positively affect the
earnings of FY2009.
SECTOR
UPDATE
Banking
RBI seeks to limit inter-bank
lendings
The Reserve Bank of India (RBI) has asked
banks to put in place a comprehensive framework for managing its
inter-bank liabilities (IBL). Currently there are no defined limits
on IBL for banks and with this measure the RBI wants banks to be
aware of the potential risks associated with such a liability and
contain the liquidity risk arising out of excessive dependence on
such
liabilities. |
