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STOCK UPDATE
Tata
Motors
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,004
Current market price: Rs786
Driving on strong volume
growth
Result highlights
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Tata Motors reported better-than-expected
sales for Q4FY2006 at Rs6,882.75 crore (up by 28.9%), driven
by a strong volume growth of 23%.
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With the various cost-cutting initiatives
the company managed to improve its operating margins by 100
basis points to 13% and the operating profits increased by
39.4%.
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However, the higher interest and product
development charges led to a lower than estimated increase
in the profit after tax (PAT) excluding exceptional items at
Rs458 crore, up by 12.7%.
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Driven by the strong performance of the
light commercial vehicle (LCV) segment, the company's full
year's volumes rose by 14%. The net sales for 2005-06
increased by 18.3% to Rs20,602 crore.
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The operating margins for FY2006 were at
similar levels as those of FY2005-12.5%.
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The PAT for the year reported a growth of
25.3% to Rs1,522.8 crore giving an earnings per share (EPS)
of Rs40.5.
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Owing to a higher growth in the LCV
segment and the cost containment measures, we are revising
our stand-alone EPS estimates for FY2007 to Rs46.6 from
Rs43.3 and FY2008 EPS estimate to Rs54.5 from Rs51.2. At the
current market price of Rs786, the stock quotes its FY2008
stand-alone EPS by 13.1x and its consolidated earnings by
11.7x. Doing a sum-of-parts valuation, we maintain a BUY on
the stock with a price target of Rs1,004.
Madras
Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs3,250
Current market price: Rs2,512
Bang on target
Result highlights
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Madras Cements Ltd (MCL) has reported a
net profit at Rs32.7 crore for Q4FY2006, in keeping with our
expectation of Rs33 crore. The net sales for the quarter
grew by 44% year on year (yoy) to Rs299.8 crore. The growth
in the sales was driven by a strong 39.7% growth in the
cement volumes and a stable 3% growth in the cement
realisation per tonne.
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The operating profit grew by 64% to
Rs66.5 crore mainly on the back of an improved operating
profit margin (OPM). The OPM for the quarter improved by 270
basis points to 22.2% primarily due to a 17.6% saving in
power cost as a result of the commissioning of the new
captive power plant at its Alathiyur plant.
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The improvement in the OPM would have
been much higher but for the 36% increase in the freight
cost on account of the recent ban on the overloading of
trucks by the Supreme Court.
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With a 15.7% reduction in the interest
cost on account of the repayment of debt, the profit before
tax (PBT) for the quarter jumped by a whopping 184% to
Rs44.3 crore. However with a higher tax charge (Q4FY2005 had
a deferred tax write-back of Rs7 crore), the net profit for
the quarter grew at a comparatively slower pace of 42.6% to
Rs32.7 crore.
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The company has announced a big-bang
capital expenditure (capex) plan of Rs1,052 crore to expand
its cement capacity by 4 million tonne to 10 million tonne.
The entire capex shall be funded through a mix of debt and
internal accruals, and will be completed by Q4FY2008.
Alok
Industries
Cluster: Emerging
Star
Recommendation: Buy
Price target:
Rs120
Current market price: Rs77
Moving in the right
direction
Result highlights
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Alok Industries (Alok) has reported a
profit after tax of Rs34.69 crore for Q4FY2006 and that of
Rs110.19 crore for FY2006. Its net sales grew by 7.8% from
Rs378.22 crore in Q4FY2005 to Rs407.74 crore in Q4FY2006,
led by a 26.22% growth in exports backed mainly by higher
home textile sales.
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In Q4FY2006 its exports stood at Rs117.41
crore, a growth of 26.22% year on year (yoy). The export
sales from the home textile segment stood at Rs86.52 crore
as against Rs67.02 crore in Q4FY2005, a growth of 29.09%
yoy.
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The operating profit for Q4FY2006 grew by
15.84% from Rs75.61 crore in Q4FY2005 to Rs87.59 crore in
Q4FY2006 on the back of a 148-basis-point improvement in the
operating profit margin (OPM). The OPM increased from 20% in
Q4FY2005 to 21.48% in Q4FY2006.
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The profit before tax (PBT) for Q4FY2006
stood at Rs50.26 crore, a growth of 12.89% from Rs44.52
crore in Q4FY2005. The profit after tax (PAT) grew by 11.8%
from Rs31.03 crore in Q4FY2005 to Rs34.69 crore in Q4FY2006.
Alok has reported a PAT of Rs110.19 crore for FY2006 which
in line with our estimated PAT of Rs109.5 crore.
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Alok is set to become a fully integrated
textile house by expanding its product portfolio to increase
its presence across the entire textile value chain.
Moreover, Alok will also benefit from the extension of the
deadline for the TUF (Technology Upgradation fund) loans as
it has lined up a strong Rs1,500-crore capital expenditure
(capex) for FY2007-08.
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We are hereby introducing our FY2008
earnings estimate for Alok. We expect the company to report
net sales of Rs2,476.5 crore and a PAT of Rs238.3 crore in
FY2008. That should translate into earnings per share (EPS)
of Rs12 for FY2008. At the same time we are revising our
FY2007 earnings estimate downwards by 8% to Rs9.5 per share
after factoring in some project delays.
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We maintain a Buy on Alok with a price
target of Rs120. At the current price of Rs77, Alok is
trading at 8.1x FY2007E and 6.5x FY2008E earnings. Our price
target discounts the FY2008 EPS estimate by 10x.
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