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STOCK UPDATE
NIIT
Technologies
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs296
Current market price: Rs170
Revenues flow in
steadily
Result highlights
-
NIIT Technologies Ltd (NTL) reported a
5.6% quarter-on-quarter (q-o-q) and a 21.2% year-on-year
(y-o-y) growth in its consolidated net revenues to Rs166.2
crore during the fourth quarter ended March 2006.
-
The operating profit margin (OPM)
improved by 60 basis points sequentially and by 200 basis
points year on year (yoy) to 20% in Q4. The improvement in
the OPM was largely driven by the break-even achieved in the
business process management (BPM) business during Q4.
-
The consolidated earnings grew 6.5%
quarter on quarter (qoq) and by 13.6% yoy to Rs19.2 crore.
The earnings were below our estimates of Rs20.3 crore due to
higher than expected depreciation charges and a jump in the
tax rate.
-
On the full year basis, the consolidated
revenue and earnings grew by 11.8% to Rs607.5 crore and by
13.2% to Rs66.3 crore respectively. The OPM has improved by
118 basis points to 19% in FY2006. Going forward, the
company's growth is likely to accelerate on the back of the
incremental revenues from the recently acquired majority
stake in Room Solutions ($25 million revenues) and the
benefits of the client rationalisation exercise done over
the past couple of years.
-
The company has announced a dividend of
60% (or Rs6 per share), which amounts to a healthy dividend
yield of 3.6%.
-
At the current market price the stock
trades at 7.8x FY2007 and 6.2x FY2008 estimated earnings. We
maintain our Buy call with a price target of Rs296.
Orient Paper and
Industries
Cluster: Vulture's
Pick
Recommendation: Buy
Price target:
Rs675
Current market price: Rs350
Growth to come from
cement
In a nutshell, the key drivers of Orient
Paper and Industries' growth are intact and hence the outlook
for the company's future remains positive. All the three
businesses are peaking simultaneously with the cement business
driving the growth. We expect OPIL's earnings growth to gain
momentum with the earnings growing at a compounded annual
growth rate (CAGR) of almost 60% over FY2006-08E on the back
of its proactive capacity expansion plans and timely cost
control initiatives. At the current market price of Rs350, the
stock is discounting the FY2007E earnings by 7x and the
FY2008E earnings by 5x. Such a discount, we believe, is
unwarranted considering that the various earnings growth
triggers are on the verge of unfolding. Also, thanks to the
cash and cash equivalents of Rs100 per share on its books
(28.5% of the current market price), the stock offers a decent
margin for safety. We thus expect OPIL's valuation to improve
and maintain our Buy recommendation on the stock with the
price target of Rs675.
Reliance
Industries
Cluster:
Evergreen
Recommendation: Buy
Price target: Under
review
Current market price: Rs982
Moving to higher growth
path
We believe that Reliance Industries is
stepping into another growth phase from hereon. The first
growth phase that spanned FY2002-06 saw RIL's revenues grow at
a compounded annual growth rate (CAGR) of 18.4% and its
profitability grow at a CAGR of 32.4%. With major capex plans
lined up in the most lucrative sectors of the recent times,
viz organised retail, E&P, refining and petrochemicals, we
believe that RIL is all set to enter the second phase of
robust growth.
At the current market price of Rs982,
the stock is trading at 14.1x its FY2008E earnings per share.
The valuation is attractive looking at the strong growth
prospects of the company. We are in the process of revising
our numbers and price target for the company and maintain our
Buy recommendation on the
stock. | 
