Summary
of Contents
STOCK UPDATE
Sintex
Industries Cluster: Apple
Green Recommendation: Buy Price target: Rs192 Current
market price: Rs151
Back in the
reckoning The outlook for Sintex Industries'
business, as shared by it in its annual report, is in consonance
with our expectations. Since there has been no material change in
our assumptions after the review of the annual report, we maintain
our earnings estimates for FY2007 and FY2008 at Rs9.3 per share and
Rs12.5 per share respectively. In our Stock Update report on the
company dated May 03, 2006, we had recommended a Hold on the stock
(after it had achieved our price target of Rs192.5) because we
believed it was reasonably valued then. But thereafter, the stock
has corrected by 30% to its current level of Rs151.0 and is now
trading at attractive valuations of price/earnings ratio of 12.3x
FY2008E and enterprise value/earnings before interest, depreciation,
tax and amortisation of 7.5x FY2008E. These valuations should be
seen in conjunction with the facts that the company's earnings are
expected to grow at a healthy CAGR of 23% in future and that the
inorganic growth trigger is long overdue. We maintain a Buy on
Sintex with our old price target of Rs192, at which the stock would
discount its FY2008E earnings by 15.5x.
Nicholas Piramal
India Cluster: Apple
Green Recommendation: Buy Price target: Rs380 Current
market price: Rs175
On a growth
trajectory The current market price of Rs175
discounts Nicholas Piramal India's FY2008E earnings by 11.1x. Taking
into consideration the strong revenue flows that will accrue on the
back of this acquisition, the valuation looks attractive. We
maintain our Buy recommendation on the stock with the price target
of Rs380.
Solectron Centum
Electronics Cluster: Emerging
Star Recommendation: Hold Price target: Rs215 Current
market price: Rs158
Hold on to it
Result highlights
-
Solectron Centum Electronics reported a robust
jump in its revenues to Rs33.7 crore during the fourth quarter,
amounting to a growth of 63.3% quarter on quarter (qoq) and that
of 171.8% year on year (yoy). The revenue growth was driven
largely by the spectacular performance of its electronic
manufacturing service (EMS) business; the performance of its
component business continues to remain muted.
-
The operating profit margin (OPM) plummeted to
12.5% as compared to 27.4% in Q4FY2005 and 16.5% in Q3FY2006. The
key reasons for the steep decline in the margins are the rising
contribution of the low-margin EMS business to the total turnover
and the competition-led pricing pressure in the component
business. But despite the margin pressure, the company was able to
report a healthy growth of 42.7% yoy in its operating profit
during the fourth quarter.
-
However, its earnings declined by 37.2% yoy to
Rs2.3 crore on the back of higher depreciation charges and an
increase in the tax rate (as there are no benefits of accumulated
losses and depreciation available now).
-
For the full year, the revenues grew
exponentially by 97.5% to Rs83.3 crore. The operating profits grew
at a relatively lower (but healthy) rate of 45.2% due to a
640-basis-point decline in its margins. However, the earnings
declined by 22.8% on the back of higher depreciation charges, the
increase in the tax rate and a decline in the other income.
-
Going forward, the company is estimated to show
a robust growth of 64% in its revenues and of 33% in its earnings
during the current fiscal. The EMS business is expected to
maintain its growth momentum while the revival of the component
business would be driven by the execution of a pending government
order worth Rs35 crore.
-
At the current price the stock trades at 17.7x
FY2007 and 15.6x FY2008 estimated earnings. We recommend a Hold on
the stock with a price target of
Rs215.
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