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Summary
of Contents
STOCK
UPDATE
Crompton
Greaves
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs230
Current
market price: Rs209
Price target revised to Rs230
Result highlights
-
Crompton
Greaves' revenues grew by 25.5% year on year (yoy) in Q3FY2007 to
Rs813.0 crore, slightly below our expectations. The top line of
the power system division grew by 27.9% to Rs426.2 crore and of
the consumer product division rose by 21.0% to Rs226.3 crore. The
industrial system division saw a growth of 32.9% in its top line
to Rs231.1 crore.
-
The operating
profit margin (OPM) reduced by only by 90 basis points yoy to
11.9%. Sequentially though the material pricing eased and this
resulted in an expansion of 120 basis points in the margin.
-
Crompton
Greaves provided for full tax rate in Q3FY2007 as against the MAT
rate in Q3FY2006. The increased tax provisioning led to a negative
growth of 17.0% yoy in the PAT to Rs45.4 crore in spite of an
18.3% rise in the PBT. However the PAT after extraordinary items
grew by 5.1%.
-
Pauwels' top
line grew by 86.4% yoy to Rs520.0 crore in Q3FY2007, way ahead of
our estimates; its PBT stood at Rs21.3 crore.
-
The
stand-alone order book grew at 41% yoy and 17.5% sequentially to
Rs2,115 crore. Pauwels' order book grew by an impressive 50.3% yoy
and 12.5% sequentially to Rs1,939 crore.
-
The Ganz
acquisition, which has been concluded, will further accelerate the
growth of the consolidated numbers. Though currently loss-making
it is expected to contribute 70 million euros in FY2008 and turn
profitable by then.
-
We are
revising our FY2007 and FY2008 estimates. The FY2007 earnings per
share (EPS) estimate adjusted for bonus has been downgraded by
7.6% to Rs6. However considering the stabilisation of the margins
in FY2008, the robust top line growth, the strong performance of
Pauwels and the contribution from Ganz, we are revising upwards
our FY2008 earnings estimate by 9.9% to Rs10.7.
-
At the current
market price of Rs209, Crompton Greaves is trading at 19.6x its
FY2008E consolidated earnings and 11.8x its FY2008 EV/EBIDTA. We
believe that these valuations are fair, given the robust operating
performance of the stand-alone company; the higher geographical
width and product depth of the subsidiaries; and the management's
expertise in turning around operations. We are revising our price
target to Rs230.
Orient Paper and
Industries
Cluster:
Vulture's Pick
Recommendation: Buy
Price target:
Rs800
Current market price: Rs573
A quarter of robust performance
Result highlights
-
Orient Paper
and Industries' net revenues grew by a robust 31.9% year on year
(yoy) to Rs274 crore in Q3FY2007. This was driven by the cement
division, whose revenues grew by 46.8% to Rs142 crore on the back
of a 47.3% year-on-year (y-o-y) jump in the realisations to
Rs2,591 per tonne.
-
The fan
business continued to grow at a healthy rate of 30% yoy and
recorded a top line of Rs54.1 crore. After the previous quarter's
lacklustre performance the paper business recovered with an 8.3%
y-o-y growth in the top line to Rs73 crore.
-
The earnings
before interest and tax (EBIT) of the cement division grew by a
whopping 343.9% yoy to Rs51.5 crore on account of the higher
realisations and the company's strong leverage to cement prices.
The other two divisions too contributed positively to the EBIT,
thereby boosting the overall EBIT by 190.1% to Rs62.1 crore
yoy.
-
The interest
cost continued to decline in the quarter. On a sequential basis
the interest cost reduced by Rs3 crore to Rs5.67 crore. On the
other hand, with the company not adding any assets in the quarter,
the depreciation provision stood flat at Rs7 crore.
-
These two
factors coupled with the stellar performance at the operating
level led to a 543% y-o-y growth in the net profit to Rs36.55
crore, which was higher than expectations.
-
The company
will be adding close to one million tonne of capacity in FY2009
through de-bottlenecking. Of this 0.27 million tonne of capacity
will be set up by March 2007. To meet its power requirements, the
company is also putting up a captive power plant of 30 megawatt
(MW).
-
To finance the
capital expenditure (capex) as well as to reduce its long-term
debt, the company has decided to raise Rs175 crore through a
rights issue. We have factored the same in our estimates, assuming
a price of Rs400 per share.
-
Considering
the better than expected performance for M9FY2007, we are
upgrading our FY2007 profit after tax (PAT) estimate by 18.7% to
Rs122.7 crore. We are also upgrading our FY2008 PAT estimate by
29% to Rs182.4 crore, taking cognisance of the higher than
expected rise in cement prices in Andhra Pradesh and Maharashtra.
After factoring in the equity dilution on account of the rights
issue at a price of Rs400 per share, the diluted earnings per
share (EPS) estimates stand at Rs63.9 and Rs94.9 for FY2007 and
FY2008 respectively.
-
At the current
market price of Rs580 the stock is trading at 9.1x its FY2007E EPS
and 6.1x FY2008E EPS. On an enterprise value (EV)/tonne basis, the
stock is trading at $62 per tonne of cement (without considering
the value of the investments in Century Textiles and Hyderabad
Industries), which is less than the replacement cost of $80 per
tonne. With cash and cash equivalent of Rs160 per share on its
books, Orient Paper and Industries offers adequate margin for
safety. We maintain our positive view on the stock with a price
target of Rs800.
Ratnamani Metals and
Tubes
Cluster: Ugly Duckling
Recommendation:
Buy
Price target: Rs700
Current market price: Rs595
Price target revised to Rs700
Result highlights
-
The Q3FY2007
results of Ratnamani Metals & Tubes Ltd (RMTL) are above our
expectations.
-
The company
reported strong quarterly results; its revenues for the quarter
grew by 63% to Rs193.6 crore and net profit grew by 119% to Rs21.7
crore.
-
The operating
profit for the quarter grew by 111% to Rs42.3 crore, as the
operating profit margin (OPM) improved by 450 basis points to
22.5% from 18% in Q3FY2006. The improvement in the OPM was on
account of controlled other expenses and lower power cost due to
windmill operations. The other expenses as a percentage of sales
declined by 915 basis points. However, the gains were partially
offset by the pressure on the raw material cost, which increased
by 418 basis points as a percentage of sales.
-
The interest
expense for the quarter increased by 29% to Rs3.5 crore, while the
depreciation cost for the quarter increased by 38.9% to Rs3.3
crore.
-
The order book
at the end of the quarter stood at Rs451 crore, registering a
strong growth of 125% on a year-on-year (y-o-y) basis.
-
The strong
order book and increasing demand for its products from its key
user industries, which are in a capital expansion phase, impart
strong visibility to the future earnings of RMTL. We maintain our
Buy recommendation on the stock with a revised price target of
Rs700.
Sanghvi
Movers
Cluster: Ugly Duckling
Recommendation:
Buy
Price target: Rs1,050
Current market price: Rs781
Price target revised to Rs1,050
Result highlights
-
The Q3FY2007
results of Sanghvi Movers Ltd (SML) are slightly below our
expectations, the company's revenues declined by 12.7% year on
year (yoy) to Rs38.9 crore.
-
In addition to
the regular orders from Reliance Industries Ltd (RIL), SML had
secured an additional order worth Rs20 crore from the company in
Q3FY2006 due to a shutdown in the RIL refinery during that
quarter. Adjusting for this one-time order, we believe the company
has done easonably well.
-
Also the
business flow from windmill customers remains low during the third
quarter as most of these customers install windmills by September
to avail of tax benefits. SML had got a Rs9-crore order from
Suzlon alone in Q2FY2007 but in the third quarter it received
orders of only Rs1 crore from the same company.
-
The operating
profit for the quarter declined by 5.6% to Rs28.3 crore due to
lower top line growth. However the operating profit margin (OPM)
improved by 520 basis points to 72.2% from 67% in Q3FY2006.
-
The interest
expense for the quarter increased by 74% to Rs6.7 crore whereas
the depreciation cost for the quarter increased by 13.7% to Rs8.8
crore.
-
Consequently
the net profit for the quarter declined by 30.7% to Rs11.7
crore.
SECTOR UPDATE
Automobiles
Four-wheelers outpace two-wheelers
-
Bajaj Auto: Bajaj's January sales are
lower than expectations.
-
Hero Honda: Hero Honda sales bounced
back posting a 19.3% sales growth in January, with better sales of
its new models like Glamour and CBZ X-treme
increased.
TVS Motors: TVS Motors' motorcycle sales
were disappointing in January, remaining almost flat at 69634
units.
-
Maruti Udyog: Maruti rendered a stellar
sales performance in January, with a strong growth across all the
segments.
-
Tata Motors: Tata Motors' January sales
were quite good with an overall growth of 19% with sales of 55440
units.
-
Mahindra and Mahindra: M&M rendered
a good performance for the month of January registering a 25.6%
growth in the automotive segment and a 13.2% growth in the
tractors
segment . |
