Summary
of Contents
MARKET OUTLOOK
Markets dance to local
tunes
-
Uncertainty
and risk in the market have sharply risen in the recent past. In
addition to the global uncertainties the market now has to grapple
with domestic interest rate related risks as well.
-
There are
widespread concerns that the tightening of money supply has been
excessive and could lead to a significant slowdown in the economy,
especially in the interest rate sensitive sectors such as
automobiles and housing.
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We are still
maintaining our views that (1) inflation will moderate going
forward and (2) the US economy will slow down but not go in
recession. As these events unfold, concerns should ease and the
environment for equities should improve. However, the risks around
our base case have certainly risen.
-
Volatility is
likely to peak in the next four weeks. We expect inflation to ease
by the end of this month. End April shall also bring the initial
monsoon forecast as well as the credit policy of the Reserve Bank
of India (RBI). While the fourth quarter results of Indian
companies may not be a trigger, the market will keenly await the
guidance on the FY2008 prospects of the corporate sector,
especially that of automobiles, banks and the other interest rate
sensitive sectors.
STOCK UPDATE
Ashok Leyland
Cluster: Ugly
Duckling Recommendation: Buy Price target: Rs44 Current
market price: Rs36
Price target
revised to Rs44
Key points
-
Ashok
Leyland's total vehicle sales during March dropped by 1.55% to
8,444 units as against 8,577 units in the same month a year ago.
The bus sales rose by 5% to 1,671 vehicles while the truck sales
marked a decline of 2% of 6,773 vehicles. The domestic sales
declined slightly by 1.9% year on year (yoy) to 7,936 vehicles
while the exports saw an improvement of 3.7% with sales of 508
vehicles.
-
The decline
can be attributed to the non-availability of finance in the month
and a bandh being declared in Tamil Nadu on the last
working day of the year. The sales in Tamil Nadu comprise of
approximately 15%-18% of the overall sales volume.
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For the full
year FY2007, the company has marked a sales growth of 34.8% yoy to
83,101 vehicles. The company has comfortably surpassed its sales
target of 80,000 vehicles for the year.
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Going forward,
the company expects the growth in the commercial vehicle industry
to continue at 10-15%. However, with the rising interest rates,
tightening liquidity and huge capital expenditure planned for the
next 3-4 years, we would take a cautious outlook at the industry
and the company.
-
The company
had a dream run in FY2007 as its volumes marked a brilliant growth
of 35%. The growth rates are expected to moderate henceforth.
Consequently we are reducing our volume growth estimates for the
company from 15% to 11.9% for FY2008. The doubling of the capital
expenditure for FY2008 to Rs1,000 crore is expected to restrict
the profit after tax (PAT) growth. Consequently, we are
downgrading our earnings per share (EPS) estimate for FY2008 by
10% from Rs4 to Rs3.6.
-
At the current
market price of Rs36, the stock discounts its revised FY2008E
earnings by 10x and quotes at an enterprise value/earnings before
interest, depreciation, tax and amortisation of 6.3x. We maintain
our Buy recommendation on the stock with a revised price target of
Rs44.
VIEWPOINT
Phoenix Mills
Flying
high Phoenix Mills Ltd (PML), promoted by the Atul Ruia
group, has pioneered the concept of developing mill land (of defunct
mills) into shopping-cum-entertainment-cum-commercial hubs. This is
being done through the phased development of 21 acre of land parcel
located in the heart of the Mumbai city (Lower
Parel). |